Uranium shares slide even as analysts see tighter supply

Uranium company stocks have been declining, despite record-long-term fuel prices in over 18 years. Investors are considering an anticipated reduction in supply, alongside rising costs and the challenges of getting new projects operational. The VettaFi Global Uranium Mining Index, which tracks uranium mining shares worldwide, fell by 16% in September, while the Nasdaq Sprott Junior Uranium Miners Index dropped 22% during the same period.

Meanwhile, spot uranium prices remained relatively stable. Analyst Paul Wong from Sprott suggests that market pressures may outweigh the improving fuel market outlook, as tighter liquidity could increase the cost of capital, lower valuation multiples, and delay the market's acknowledgment of future project value. Wong adds that these effects, although real, are cyclical and financial in nature.

The divergence of uranium price strength from production growth matters because higher fuel prices alone can't generate new production. Developers still need permits, financing, and years of construction to bring projects to life. Sprott manages the world's largest physical uranium fund, Sprott Physical Uranium Trust, which held $7.6 billion in net assets as of Thursday.

Analysts forecast spot uranium prices to average $95 per pound next year, up from the expected $88 this year, according to Fitch Solutions' BMI. Potential limitations on Kazakhstan's production and increased utility purchasing are backing this forecast. However, global mine output is expected to rise by 7.8% this year, resulting in a modest surplus when secondary supplies, demand from stockpiling, and financial buying are taken into account.

BMI anticipates the market to move into a deficit in the following year. The consultancy's forecast indicates that future scarcity expectations, rather than an immediate shortage, are driving higher long-term prices. Contracting strengthens TradeTech's long-term uranium price indicator, which increased from $97 per pound in June to September, a $13 rise from the previous year and its highest level in more than 18 years, according to a statement from the Colorado-based uranium pricing and nuclear fuel consultancy on October 2.

Utilities are seeking deliveries starting as early as 2027 and extending into the late 2030s, according to TradeTech president Treva Klingbiel. An increase in natural uranium purchases is likely in 2027-28 after utilities focus on securing enrichment and conversion services during the current contracting cycle, BMI said. Longer term, uranium requirements for reactors are forecast to grow by an average of 4.1% annually from 2026-35, outpacing mine production growth of 3.3%, BMI forecasts.

China's reactor construction is the primary demand driver. Some proposed Western projects may not proceed due to financing and regulatory hurdles, BMI cautions. Kazakhstan presents an imminent supply risk, as the commissioning of Kazatomprom's sulfuric acid plant has been delayed until between the third quarter of 2027 and the first quarter of 2028 due to the discovery of paleontological specimens at the construction site.

Although Kazatomprom believes the delay won't significantly impact mining operations, the consultancy forecasts lower Kazakh output next year, considering its assessment of acid availability and the producer's preference for value over volume. Trading pressures and operational challenges have also weighed on uranium stocks, according to Argonaut deputy research head Jon Scholtz in an October 12 update.

Contracting remains below replacement levels even as the long-term supply outlook tightens, he wrote. Company setbacks are evident in Cameco's (TSX: CCO; NYSE: CCJ) case. The company reported third-quarter adjusted earnings before interest, taxes, depreciation, and amortization of $267 million (C$191 million), 44% below BMO Capital Markets' forecast, as reported by mining analyst Alexander Pearce on Friday.

Lower uranium sales and higher unit costs contributed to the shortfall. Cameco's attributable production of 3.5 million pounds fell short of BMO's forecast by 19%, while sales of 5.6 million pounds were 18% below expectations. The realized uranium price of $65.80 per pound met expectations, according to Pearce. Cameco reduced its annual production forecast to 19.5 million-20.5 million pounds from 19.5 million-21.5 million and raised uranium cost-of-sales guidance to C$67-70 per pound, from C$63-67.50, in its results on Friday.

Key Lake maintenance shutdown has also extended into the fourth quarter, risking production if the restart is delayed. Increased engagement with customers reassessing fuel availability and supply security could support near-term contracting, according to Adams, who maintains his buy recommendation and C$190 target. Cameco's shares fell 0.5% to C$116.63 in Toronto on Thursday, valuing the company at approximately C$50.8 billion, as the stock traded between C$107.55 and C$182.72 over the past year.