Transcription
The uranium market has a brewing problem. There is a lack of supply, and well, that problem appears to only be getting worse. Cameco, earlier this month, announced that they were cutting guidance as a result of production issues at their McArthur River mine. It seems that transitioning into new areas of the mine isn't really going to plan.
Against that backdrop and some larger supply crunches being experienced by Cameco, we thought it would be prudent to take a look at the sector and examine the ongoing performance of producers and the hopefuls that are itching to be the latest industry participants in the near term. Let's dive in.
But before we get into the sector as a whole, let's first take a look at how we got here, at least in recent weeks. While the guidance cuts at Cameco may have come as a shock to casual observers of the uranium sector, those with a keen eye for detail or just the patience to sift through earnings calls transcripts were thoroughly less than surprised. As Twitter user Paulo Macro highlighted in a thread in recent days, Cameco was basically broadcasting that problems were on the horizon within their second quarter conference call. The issues came to light after analyst Lawson Winder from Bank of America posed a question related to McArthur River's slow development in the first half of the year and how it relates to guidance. Cameco CEO Tim Gitzel responded to the question by starting his explanation with the words, "Mining is not an easy venture," and well, it gets worse from there.
"I will remind folks that we responded to a weak market condition, uh, that we saw in the past by by leaving inventory in the ground, by going into supply discipline. And I would also remind folks, we're, we're still in supply discipline in that we don't even have our tier one assets running at at at full production. And and the reason for that is really simple. It's that the demand on the uranium side hasn't showed up yet." We'll cut off the commentary there, but it doesn't get any better.
Gitzel then proceeded to throw a number of issues down that were being experienced on site, including the availability of labor, the loss of electricity on site that was later restored, the temporary loss of communications, and fires in the region that have resulted in employees going home. Gitzel then went circular and again mentioned the availability of skilled labor, which was then seasoned with commissioning of new equipment. The short of it is this: a guidance cut was clearly coming for those that read between the lines.
Not to mention the fact that the first half of 2025 saw uranium production of 5.1 million pounds of uranium at McArthur River, while annual guidance called for 2025 production of 12.6 million pounds from the site, meaning they were little more than 80% of the way to the halfway mark for their guidance. A month after that conference call occurred, production guidance for the mine was reduced from a midpoint of 12.6 million to a midpoint of 10.22 million for Cameco's share of production. On a 100% basis, a total of 3.5 million pounds of uranium won't be hitting the market this year that was previously expected, which will be offset by about 1 million pounds in additional production from Cigar Lake that wasn't previously planned.
But it gets worse. Going back to that Q2 conference call, CFO Heidi Shocki had some commentary that was also noteworthy, which came after analyst Brian Lee from Goldman Sachs asked about costing for uranium pounds in the second quarter, which came in lower than analysts expected.
"Um, in terms of the cost overall, I guess I would point a little bit to our um to our purchase pounds. So, in our outlook, we're guiding to about uh 11 or 12 million pounds to be purchased this year. And year to date, we've only purchased about two. So, um, a lot of purchasing yet to come."
Yes, folks, you heard that right. Cameco is expecting to purchase 9 to 10 million pounds of uranium in the second half of this year in a market that is already supply constrained and now will be made worse by an additional 2.5 million pounds no longer hitting the market due to their failure to properly develop McArthur River on schedule.
But don't worry, as per company President Grant Isaac, there's nothing to worry about. "You know, mining not an easy venture. We've said that a million times. And don't let uh anyone ever tell you that mining's easy because it's not. So, we're going into some new areas in McArthur. We've mentioned that in some in our MD&A and some of our other disclosure. Uh, whenever you go into a new area, there's potential new risks. And so, you know, our uh, you've seen uh and you know, our ground freezing method, we have to have make sure it's frozen tight before we get in there to start mining. So, we're working on that."
Demand hasn't shown up yet, which is why they've committed to deliver 31 to 34 million pounds of U308 this year, while production is only estimated at roughly 20 million pounds post-guidance cut, which seems reasonable in a bloated supply market. But that's no longer the situation that the uranium market finds itself in.
Anyways, with this backdrop in mind, let's take a bit of a look at the cost of production and the margins current producers are exhibiting. For reference, as per Cameco, the average spot market price of U308 as of the end of the second quarter was $78.50 a pound, which was up 22% from $64.23 at the end of Q1. Although that quarter was a bit of an anomaly versus recent pricing. Average long-term pricing, meanwhile, sits at $80 a pound, which is flat versus Q1. It's not really material here, but the difference between the two is spot pricing expects deliveries within one year or so, while long-term refers to deliveries that begin more than two years after the contract is finalized. U308 is typically contracted through long-term agreements. However, the first half saw contracts of 27 million, down from 32 million in the first half of 2024. 26 million pounds of U308 meanwhile was contracted through the spot markets in the first half of 2025 versus 23 million pounds in the year-ago period. A 3 million pound increase. Volatile pricing basically has resulted in utilities waiting to contract out pounds in hopes of better pricing in recent months, leading to the rise in spot market activity, but it hasn't overly gone in their favor.
Anyways, in terms of margin on a per pound basis, on the whole, Cameco is doing all right, at least so far in 2025. In Canadian dollar terms, they recorded an average unit cost of sales of $57.78 in the first half of 2025, while average realized prices came in at $84.62, which translates to margins of 31.7% on a per pound basis, which is based on sales volumes of 15.6 million pounds.
But then there's a bit of an issue here. First, production volume was only 10.6 million pounds, meaning some of those pounds came from inventory, and some came from purchases. Production costs were great. They averaged $34.95 a pound for margins of 58.7%. But Cameco isn't just selling produced pounds. They're also selling pounds they buy on the market, which is another story. Purchased pounds in 2025 so far have totaled 1.9 million pounds at an average price of $102.74 a pound Canadian, which they are then turning around and selling for an average price of $84.62 a pound, giving negative margins of 21.4% on each pound purchased, meaning they are literally paying for the sales contract.
Now consider the fact that year to date they've delivered 15.66 million versus 2025 guidance of 31 to 34 million pounds delivered. But they've only produced 10.6 million pounds and just cut production guidance. Roughly a third of total delivery guidance needs to be acquired yet by Cameco. And as it stands, each pound purchased represents a loss, which isn't a great spot to be in.
But it's not only Cameco that seems to be in a bit of a pickle here. If we're being fairer to the sector, there might only be a handful of producers out there in terms of North American listed names, and even fewer are posting positive returns. Energy Fuels, for instance, in the 6 months ended June 30th, 2025, recognized total uranium revenue of $5.3 million against costs of $2.7 million for the segment, although that revenue figure includes alternate feed materials and processing. On a per pound basis, costing averaged $53 a pound, while sales occurred at $77 a pound, resulting in per pound margins of 30.9%. But that is strictly on a per pound sold basis. Production over the course of the first half totaled 330,000 lb of U308 at the mill, while the company mined ore that is estimated to contain 665,000 of U308 in Q2 alone, which will be milled in Q4. In other words, this isn't a true cost of production that was provided, and explains part of the massive $48.2 million net loss recorded by Energy Fuels in the first half of the year. The company claims that they are implementing a strategy of building inventory, but it remains to be seen how effective that ultimately is.
Rounding out the comparison here amongst Hard Rock miners is the ASX listed Paladin Energy. Calendar first half of 2025 saw total production of 1.7 million alongside the sale of 1.6 million. Doing the math based on average selling prices and the cost of production figures provided for Q3 and Q4 of their fiscal 2025 year brings us to average realized prices of $63.48 US a pound and an average cost of production of $38.83 a pound in the first half the calendar year, which is good for margins of roughly 38.8%. But again, these figures are based on what Paladin tells the market. The cash flow report filed by the company tells a different story with production costs of $47.5 million exceeding receipts from customers of $37.1 million. So take those numbers as you will.
And then there are the in-situ miners, which basically consists of Encore Energy and Uranium Energy Corp. In the case of Encore, the company reported first half 2025 sales of 350,000 of uranium, which sold at an average price of $62.58 a pound. Cost of sales on a per pound basis, meanwhile, were $59.42 a pound, resulting in margins of just 5.1%. With some of that cost attributed to purchased pounds and some of it related to extracted pounds. Broken out, purchased inventory came in at negative margins of 9.6% based on an average purchase price of $68.58 a pound, while extracted inventory came in at margins of 31.4% based on average cost per pound of $42.92. Yet again, the company posted a net loss for the first half of $34.2 million.
As for Uranium Energy Corp, they reported on an adjusted timeline with their year ending July 31st, which makes comparisons a bit difficult in terms of H1 2025. So, we're going to have to roll with the 9-month period because we're focused on margins. And well, fiscal Q3 had no revenue anyways. So there's no associated cost of sales either. Sales revenue here totaled $66.8 million alongside cost of sales of $42.4 million, resulting in margins of 36.5%. However, those figures come entirely from the purchase and sale of uranium with production said to still be ramping at UEC's operations despite operating licenses being issued a year ago in August of 2024 for their Christensen Ranch mine. The net effect is the numbers don't even matter for the purpose of this exercise.
And then there are the developers, for which we are relying on some technical reports to get an understanding of what we can expect once these new operations hit production. For this, we'll look at both a hard rock and an ISR developer. Starting with the ISR developer, we're looking at Denison Mines's Wheeler River Phoenix ISR project, which is set to be one of the first ISR operations in Saskatchewan's Athabasca Basin. The mine, which is expected to have total production of 56.7 million pounds over a 10-year mine life, is estimated to have average cash operating costs of just $6.28 per pound based on an average price of $68 per pound uranium, resulting in estimated margins of 91%. The related Griffin underground deposit at Wheeler River, meanwhile, is expected to run for six and a half years and extract on average 7.66 million pounds of U308 a year at a cost of $12.75 a pound using a $75 per pound uranium price, which results in estimated margins of 83%. Both the Phoenix and Griffin estimates are based on an economic update issued back in June of 2023.
Of course, the other comparable here is NexGen Energy and their Rook One project, which is also found in the Athabasca Basin. This massive project, which is anticipated to produce up to 30 million pounds annually, is expected to have an industry-leading low cost of production. Revised economics released in August of 2024 suggests that the mine will produce those pounds of uranium at just $9.98 per pound, placing it amongst the lowest cost operations globally. That estimate is based on a long-term average price of $95 per pound as per modeling by UXC, resulting in a margin estimate of 89.5%. But even using the spot price of $78.50 for the period ended June 30th, 2025 would place margins at roughly 87%. Which by and large is the highest margin amongst any of the referenced uranium miners.
All right, let's do a quick comparison of all these figures on a simplified basis. Here's how things tally up. Amongst Hard Rock producers, Cameco is averaging margins of 31.7%. Energy Fuels comes in at average margins of 30.9%, and Paladin Energy sits at 38.8%. In the ISR category, Encore Energy sits at margins of 5.1%, while UEC is effectively not in the conversation. And among developers in the ISR category is the Wheeler River Phoenix project at 90.8%. While in the Hard Rock category, Griffin sits at 83%, and NexGen Energy takes the crown at 89.5%. And you can bring that figure down to 87% if you think the reference price is a little too high. And you can bump Griffin to 83.8% just to be consistent using that $78.50 per pound reference point. In any case, both developers offer an appealing alternative to the current producers out there whom seem to have beat themselves up in the costing department. Well, there might be something to be said about the realities of production. The common denominator here appears to be not contracting out more than you can handle in terms of production over anything else. Otherwise, you're buying up pounds on the spot market and blowing out your balance sheet in the process.
All right, so let's wrap it up. The uranium market is headed for a reckoning. In recent days, all equities across the board have seen a surge as prices of yellowcake continue to climb. We're in a supply deficit, and well, there's not really any near-term solutions to resolve that. While more supply is coming online, so too is plenty more demand. Yet, despite the rise in price, many producers simply aren't in a good spot as a result of their tendency to purchase production shortfalls. Cameco may have rallied on their guidance cut because it meant each pound produced was more scarce, but it doesn't mean much when margins start to get shot as a result of the need to buy that production shortfall in the open market. And if you're buying on fundamentals, i.e., cash flows, margins, and overall quality of operator, well, there might soon be some better fits out there for you to take a look at.
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