Uranium – CGN Mining supply contract at big premium

CGN Mining unveiled a new uranium supply contract with its controlling shareholder CGNPC – the Chinese state-owned nuclear utility. The new agreement runs for three years starting January 2026. We thought the pricing terms were worth highlighting.

The equation factors in a 30% fixed term pricing which they set at (high) $94.2/lb and indexed at 4% inflation, and a 70% spot price component prevalent at time of delivery. In comparison, CGN Mining’s average realised price in Q1 was just below $80lb. The term price selected is based on the average of the two key price reporters’ price projections, they argue. This selected price is c18% and 30% higher than current term and spot prices respectively.

Is this reflective of upward pricing currents in the sector as a whole? We don’t think so at this stage, for several reasons but it should be monitored. Firstly, the price premiums here are very similar to when it announced its prior supply agreement for period 2023-2025. The equation at the time had a larger 40% fixed term pricing which was set at $61.8/lb, inflation indexed. This was c19% and 29% higher than where term and spot prices were then. Market prices only really rose subsequently later in 2023, to reach these levels 15 months later, after the unexpected supply disruptions in both Niger and at Cameco.

Secondly, we would argue CGN Mining is being and has been subsidised by its parent and key customer: the Chinese state. For sure, this is bullish the share price of CGN Mining and comparatively bullish the stock vs Kazatomprom or Cameco.

Thirdly, the industry-wide reported term price has remained stable at $80/lb for the fourth month in a row, at a level we would argue is close to the incentive price.

CGN M fixed price contract prices, term, spot and implied Sput Uranium prices (USD/lb)

Source: Asymmetric Research

On another note, with forest fires in Saskatchewan, Cameco just announced that there were no risks to their sites, and there were no fires in their vicinity. They did mention of some temporary disruptions due to wildfires impacting power and communication services to operations, and road closures having impeded some deliveries to sites but that at this time, production guidance remains unchanged. We understand that heavy fires are >100km away from its key mines.

Fires can be followed at:

https://www.ciffc.ca/