We expect to see positive share price momentum in the near term driven by the uranium spot price recovery, as CGN Mining’s earnings are sensitive to the spot price. The spot price, which is currently trading at ~US$70/lb, remains at a ~13% discount to the contract price (US$80/lb) for which the market is a lot more sizeable. With easing concerns on the war of tariff, we see chances of an improving interest for procurement in the spot market. Meanwhile, recent news reports revealed that the Trump Administration is planning to boost nuclear power installed capacity. We believe this will potentially serve as a catalyst to drive both the uranium price and the share price of CGN Mining. Maintain BUY with unchanged NPV-based TP of HK$2.18.
Spot price on a recovery trend. The uranium spot price dropped from US$72/lb in early Jan to a trough of US$64/lb in mid-Mar to Apr. Given that the contract price has been resilient at US$80/lb YTD, the spot price discount was as high as 20% during the period. In mid-May, the price gradually rebounded to ~US$70/lb, with the discount narrowing to 13%. Based on our understanding, the spot market accounts for only ~30% of the total uranium trading volume, while contract price remains the major reference for utilities. We therefore believe the spot price will finally catch up with the contract price, which has happened several times in the past .
Unit cost hike likely to peak in 2025E. Kazakhstan’s mineral extraction tax (MET) rate will be increased to 9% in 2025 from 6% in 2024. This, together with the raw materials and labour cost inflation, will further push unit production cost higher in 2025E, in our view. That said, given that MET will be calculated based on output level in 2026E, and the Company’s mines (except Central Mynkuduk) are relatively small, we expect to see a reduction of MET rate starting from 2026E. This should help stabilize the unit cost.
Kazatomprom’s (KAP LI) sulphuric acid plant to commence operation in early 2027E. According to KAP, it has signed an agreement with Development Bank of Kazakhstan for credit facilities of KZT85bn (~US$188mn) to fund the construction of a sulphuric acid plant (annual capacity: 800kt) which is expected to commence operation in 1Q27E. We believe this offers visibility on the new supply of sulphuric acid which is in tight supply at the moment (sulphuric acid is a major cost item in uranium mining in Kazakhstan).