Is NexGen Energy stock a buy amid the uranium rally?
TThe price of uranium has skyrocketed in recent weeks as global economies reopen after the pandemic and countries increasingly turn to nuclear power as a clean energy source.
According to Trading Economics, the price hit its highest since June 2012 and is up about 48% since the start of the year. It has been driven by a pickup in demand from business and industry as COVID-19 closures end and mines are forced to close during the crisis.
Raising prices further are supply constraints. Uranium must be less than $ 60 for new mines to operate sustainably. On Monday, the commodity closed at $ 43. Investment firm Sprott Asset Management physically bought uranium for the launch of its Physical Uranium Trust in July, pushing the price even higher.
Uranium prices rise since early 2021
Nuclear power is being rehabilitated as a clean energy option as part of the move away from fossil fuels. The EU’s European Green Agreement has underscored the importance of nuclear power to achieving climate goals and US President Joe Biden pledges $ 6 billion to support US nuclear power as part of the $ 1 billion infrastructure bill. New reactors are under construction in China, Turkey, India and Russia.
These factors are expected to increase global uranium production by 6.2% at a compound annual growth rate by 2025.
How stocks react
Uranium stocks benefit from this. NexGen Energy [NXE] shares more than doubled from $ 2.66 at the Jan.4, 2021 close to $ 5.9 at the Sept.15 close.
Cameco’s [CCJ] the share price fell from $ 13.39 at the January 4 close to $ 24.73 at the September 15 close. Energy fuels [CLNE] was up 4.5% from $ 7.83 at the Jan. 4 close.
The recent fall in the price of some stocks was largely caused by an interview Sprott gave to the Financial Time stating that he did not intend to “capture the market” on nuclear fuel. This dampened hopes that he would continue to pick up uranium and raise the price.
This decline could present a buying opportunity for investors and NexGen stands out from its peers as the stock to turn to. In July, the company began its 2021 field and regional exploration drilling program at Rook I.
âThe NexGen Group has an exceptional discovery track record, and the geology team was eager to restart exploration drilling on what they consider to be the most promising land set in the world. In addition, this summer’s detailed fieldwork provides a basis for future surface and underground infrastructure for the Rook I project â- eigh Curyer, CEO of NexGen Energy
According to InvestorPlace analysts, NexGen’s main strength is that it is more undervalued than its uranium counterparts. As a loss-making company in the development stage, it is pinning its hopes on the Rook I project in Canada, which it believes is the largest development-stage uranium deposit in the world. It forecasts an average annual production of 28.8 million pounds between the first and fifth year.
Leigh Curyer, CEO of NexGen Energy, and former CFO and head of business development at Canadian miner Uranium One, said at the time of the launch of Rook I: âThe NexGen Group has a tremendous track record of discoveries, and the The geological team looks forward to restarting exploration drilling on what they consider to be the world’s most promising land set. In addition, the detailed fieldwork this summer forms a basis for future surface and underground infrastructure for the Rook I project. â
The after-tax net present value of the Rook I project is estimated at $ 3.47 billion, according to InvestorPlace, compared to NexGen’s current market valuation of around $ 2.1 billion. “NXE stock is therefore worth accumulating as a correction for bullish uranium investors,” says InvestorPlace.
Timing is the key to profit
Marketbeat analysts are also bullish with buy consensus and a price target close to $ 8. Raymond James has an “outperformance” rating and a price tag of C $ 8.50.
The uranium industry, like many others in the mining world, can be cyclical. An imbalance between supply and demand leads to a rise in prices, which makes a further ramp-up of production attractive. However, when this happens and the supply arrives, the price inevitably drops.
This means that investors must choose the right time to take advantage of it. NexGen is perfectly positioned for the recent drop in the price of uranium, the expectations that it will rise to around $ 60, its valuation and its prospects for development in Canada.
Investors can also benefit from sector ETFs such as the Global X Uranium ETF. [URA] where NexGen has a 7.69% weighting and the North Shore Global Uranium Mining ETF [URNM] where it has a weighting of 4.15%. The Global X, which has assets of nearly $ 1 billion, has a daily total return of 15.91% year-to-date, with North Shore having $ 630 million in assets and a return of 30, 72%.
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