Uranium Royalty signs supply agreement with CGN

Uranium Royalty (TSXV: URC; NASDAQ: UROY), the world’s only uranium-focused royalty and streaming company, has inked a deal with CGN Global Uranium to purchase 500,000 lb. of uranium oxide (U308) from it from 2023 through 2025 at a weighted average price of US$47.71 per pound.

CGN Global Uranium, a subsidiary of CGN Mining Company, is the overseas nuclear fuel business of China General Nuclear Power Group (CGN), China’s biggest nuclear power operator. It has uranium production ownership interests in the Husab mine in Namibia and the Ortalyk, Irkol and Semizbay operations in Kazakhstan.

Of the 500,000 lb. of uranium oxide Uranium Royalty is buying, 300,000 lb. will be delivered on Oct. 20 2023, and the remaining 200,000 lb. will be divided into two deliveries, the first on June 14 2024 and the second on April 2 2025.

Uranium Royalty CEO Scott Melbye noted in a press release that “in addition to attractive pricing” the supply stream will give it “access to physical uranium in a timeframe, 2023-2025, where industry analysts forecast large 45-50 million pound annual supply deficits between production and reactor requirements at a time utility procurement volumes are expected to return to higher levels.”

In addition, payment is made upon delivery, he said, which means “no cash outlay today.”

Katie Lachapelle, an analyst at Canaccord Genuitiy, described the transaction as “attractive” in a research note to clients.

“In line with URC’s strategy, it provides shareholders with increased leverage to uranium at a time when prices are expected to rise due to a fundamental supply demand imbalance and increased long-term contracting by utilities,” she wrote.

“Although still early, believe a term contracting cycle is now underway; utilities are more actively engaged in off-market and on-market discussions,” she added. “This is due to recent price volatility and price discovery, a tightening spot market, and increasing concerns around security of supply long term. As a result, we continue to expect upward pressure on spot and term prices in the coming months.”

Lachapelle also noted that following the transaction with CGN, Uranium Royalty “will have a total of 1,548,068 lb. of U308 at an average cost of US$40.89 per lb.,” and based on current spot prices, “represents an unrealized gain of ~$6.75 million.”

The analyst has a price target on Uranium Royalty of $7.50 per share. At presstime in Toronto the company was trading at $5.00 per share within a 52-week trading range of $1.11 and $7.31 per share.