A sea of red for ASX uranium shares. Is the run over?

Does the uranium bull run still have legs to run?

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ASX uranium shares have enjoyed some monstrous gains in the past month thanks to skyrocketing uranium prices.

Between 31 August and 16 September, the largest ASX-listed uranium player, Paladin Energy Ltd (ASX: PDN) surged almost 120% from 51 cents to 9-year highs of $1.120.

Prospective explorers such as Deep Yellow Limited (ASX: DYL), Peninsula Energy Ltd (ASX: PEN), 92 Energy Ltd (ASX: 92E) and Boss Energy Ltd (ASX: BOE) delivered similar triple digit gains over the same period.

But more recently, ASX uranium shares have been running out of steam, many of which have declined 20-30% from recent multi-year highs.

Why are ASX uranium shares tumbling?

The sharp re-rate across the uranium sector was fueled by Sprott’s Physical Uranium Trust, a Canadian investment fund focused on aggressively buying physical uranium off the spot market.

Uranium is an illiquid commodity that does not trade on an open market like copper or oil. Buyers and sellers typically negotiate contracts privately.

By 18 September, Sprott had already amassed 28 million lbs of uranium, according to the fund’s Twitter.

To add some perspective, uranium investment firm Yellow Cake PLC reported total spot volume for 2020 of 92.2 million pounds.

Broadly coinciding with Sprott’s shopping spree, uranium spot prices rallied above US$50/lb on 20 September, the highest since June 2012.

Previously, many ASX uranium shares halted production and exploration activities due to weak uranium prices. The recent move to multi-year highs has encouraged many players such as Paladin Energy and Boss Energy to pick up where they left off.

Since then, prices have eased to around US$44/lb according to Trading Economics.

In addition, Sprott’s buying activity appears to be slowing down, with the fund’s last uranium purchase on 17 September.

With both spot prices and Sprott’s uranium fund taking a breather, ASX uranium shares have followed suit.

Is the run over for uranium?

Director of Sprott, Rick Rule, told Kitco News that current uranium prices are still cheap.

He said that the fund was going to make an application to list the Uranium Trust on the New York Stock Exchange, where “the overwhelming majority of the volume that [investors] enjoy in their precious metals trusts occurs.”

From a more fundamental perspective, many investors have backed ASX uranium shares as it plays into the theme of green energy.

In a separate interview with Kitco, CEO of Sprott Inc, Peter Grosskopf said, “We think uranium is entering a new bull market as the world looks for a mix of clean energy in the new green energy revolution.”

“If you want a low carbon grid, you can achieve it by spending an enormous amount of money and having a highly inefficient grid, which is inherently unstable, or you include nuclear as a core part of the power base. We think uranium has been underplayed for the last 15 years.” 

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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