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The world has begun to recognize the environmental friendliness of the atom. Now, uranium prices are at the level of $40-45, but soon they may reach $70-80.The energy of the atom has the lowest CO2 emissions in comparison with other types of generation. At the same time, the NPP does not depend on weather conditions and can serve as a stable source of energy around the clock, unlike wind and solar energy.
Comparison of CO2 emissions from the generation of 1 GWh of energy with different types of generation
Many countries have already begun to assign a large role to the atom in plans to reduce CO2 emissions:
- The EU is preparing to include nuclear energy in the green list (EU green taxonomy). This will help attract investment in the nuclear energy sector, as well as make the financing of NPP projects cheaper. The EU commissioner for the internal market, Thierry Breton, said the bloc will need to invest €500 billion ($586 billion) in new nuclear energy facilities by 2050.
- China has large-scale plans for the development of nuclear energy. The country is planning to increase nuclear capacity by 40% by 2025, this will require the construction of 20 new nuclear power plants, now there are about 50 operating in the country. And by 2030, China can become the world leader in nuclear capacity, the growth will amount to 160-200%.
- Japan assigns a decisive role to the atom in order to reduce carbon emissions. The country will restart 30 reactors shut down after the Fukushima accident. Currently, only 9 are operating in the country. Nuclear energy can have a share of 20-22% of total electricity generation by 2030 in Japan.
Nuclear generation is also safer than other energy sources. For every terawatt of nuclear power generated, there are only 0.07 premature deaths. For energy obtained from coal or oil, the indicator is on average 24.6 and 18.4, respectively.
Comparison of the death tolls per 1 TW of power at different types of generation
Institutional investors have entered the uranium market
Institutional investors Sprott Physical Uranium Trust (OTCPK:SRUUF) and Yellow Cake (OTCQX:YLLXF) have emerged on the uranium market, which have accumulated reserves equivalent to 40% of annual uranium production. Emergence of large investors in physical uranium makes the market narrower, due to which the price of energy is rising. The arrival of large investors in the spot market is provoking rising prices, as it was, for example, in gold.
The appearance of uranium ETFs can lead to a multiple increase in prices, as it was in gold Bloomberg
From the development of the nuclear energy sector will benefit the miners of uranium - fuel for nuclear power plants.
Kazatomprom is the largest producer with the lowest cost
The curve of uranium mining cost
The company spends $9-12 per pound on uranium mining, thanks to which it has remained profitable in the last few years at an energy price of $20-25 per pound.
In the first half of 2021, when the average spot price of uranium was at $30, 40% of producers worked at a loss. Kazatomprom had a stable income even when the entire sector was at a loss.
Uranium market share by company.
The company accounts for 22% of global production. Kazatomprom in the uranium market as OPEC in the oil market in terms of influence. The company's resources will last for another 35-40 years of stable production; Kazatomprom has 12% of all world uranium resources at its disposal. Now, the company is creating a physical uranium fund together with the National Bank of Kazakhstan with an initial amount of $ 550 million. At current prices, the reserves may amount to 11-12 million pounds or 6% of the uranium market. The fund will give the company even more influence on the uranium market.
Kazatomprom has an effective management structure
3 of the 7 members of the Board of Directors are independent directors representing the UK, USA and Australia.
Kazatomprom (KAP) Vs Cameco (NYSE:CCJ)
2022 | CCJ | KAP | |
EV/EBITDA | 32 | 7 | |
EV/Sales | x | 5 | 4 |
EV/Reserves | x | 20 | 17 |
EBITDA margin | % | 20% | 70% |
TCC (cash cost of mining) | $/lb | 13 | 9 |
Dividend yield | % | 0.4% | 4.7% |
Kazatomprom and its Canadian counterpart, Cameco, are two of the major public uranium miners. According to fundamental indicators, the company from Kazakhstan looks much better:
- Due to the low cost of uranium mining, Kazatomprom is 3.5 times more efficient in terms of EBITDA in 2022 than Cameco.
- In the summer, it will pay 4.7% in dividends in dollars by the end of 2021, against 0.4% for Cameco. And by the end of 2022, the dividend yield may amount to 8.5% at current uranium prices.
- 4.6 times cheaper in terms of EV/EBITDA.
- According to our valuation of Kazatomprom, which is based on the uranium price of $50 per lb, the stock's fundamental price is $62, upside equals 76%. In our upside scenario, the price of uranium can rise to $70 by 2025, then the target price for Kazatomprom's stocks is $96.5.
Conclusion
The uranium sector, which had long been in decline, began to revive. World leaders began to recognize the importance of nuclear power for the transition to zero-carbon emissions. In our view, Kazatomprom stock is the best way to invest in a growing sector.
