CGNM’s share price dropped by 27% in the past month, underperforming the general market and global uranium peers. A series of supply-side events has driven spot uranium price down by 22% from the peak in early Feb, including the alleviation of Niger situation which we deem as the primary reason behind CGNM’s softness. We remain positive on uranium’s long-term fundamentals as we see higher certainty in uranium demand than supply. Maintain BUY rating and HK$2.30 TP. The correction may have created a good entry point, in our view, and more cautious investors could wait for the results announcement due this Thursday.
　　Key Factors for Rating
　　CGNM falls along with spot uranium. CGNM’s steeper-than-peers decline has brought investor questions. But be reminded, CGNM also outperformed the uranium ETF by wide margins during the boom, mainly due to its higher exposure to low-cost productions and improved liquidity since its inclusion in Stock Connect scheme last September (southbound currently holds 5.05% of total shares outstanding). Its recent decline is also largely in-line with the drop in spot prices (27% vs. 22%), while speculative short (c.2.6% of total shares outstanding) and profit taking before annual results announcement could have played a role in its underperformance.
　　Supply side events: wait and see. The largest supply-side event recently was ECOWAS’s sanction lift for Niger on 24 Feb, which prompted hopes of the resumption of SOMAIR mine (c.2,500tU capacity) and construction of DASA mine (c.1,100tU). Elsewhere in the world, the soaring uranium price has led to several announcements of new exploration/construction efforts, which all helped to ease the tension of supply shortage.
　　That said, the demand side is moving quietly ahead as well. Two new GW-level nuclear reactors poured first cement over the past month, and Japan plans to restart more NPPs this year to secure domestic power supply. Overall, we see higher certainty in nuclear demand recovery compared to supply shore-up, which is subject to operational and geopolitical risks.
　　Key Risks for Rating
　　Slower-than-expected nuclear restarts/approvals.
　　Higher-than-expected production guidance from major miners.
　　Disruption in mining operations in Kazakhstan.
　　Valuation
　　We maintain BUY rating for CGN Mining with unchanged HK$2.30 TP. We are not adjusting our forecasts at this stage as our average spot uranium price assumptions for 2024/25 are US$100/lb and US$110/lb.