The uranium market is on the cusp of entering a new "supercycle" according to some analysts, but that doesn't mean all uranium mining companies are an automatic buy.
The team at Macquarie have looked at two Australian uranium companies and believes one's looking good, while the other has some issues to work through.
Let's have a look at what they're saying.
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Bannerman Energy Ltd (ASX: BMN)
This company is not a producer yet, but has recently made significant progress on funding for its Etango project in Namibia.
In mid-February, Bannerman announced that a Chinese company, the China National Nuclear Corporation, would invest up to US$321.5 million in the Etango project for a 42.75% stake.
Bannerman would then own 52.25% of the project with a Namibian organisation holding the remaining 5%.
The company said the funding would allow for the debt-free construction of the Etango mine, and CNNC had also agreed to buy 60% of the production from the mine.
Macquarie said in a research note to clients that CNNC was a strong partner for the project, given it already owned a majority stake in the Rossing uranium mine in Namibia and 25% of Paladin Energy Ltd (ASX: PDN)'s Langer Heinrich mine.
Macquarie said the deal substantially reduces equity dilution to finance the project, and added:
Etango Financial investment decision mid-year now looks a lot more certain, placing it at the front of the greenfield uranium project queue – something that customers should value as BMN markets the remaining 40% of the initial (production).
Macquarie has an outperform rating and a $5.60 price target on this ASX uranium share, compared with its current price of $4.38.
Boss Energy Ltd (ASX: BOE)
Boss Energy recently reported what it called a strong financial and operational result, chalking up a net loss of $7.9 million; however, this was largely due to the accounting treatment of inventory, while free cash flow was robust at $36.2 million.
The real story for investors is around what will happen longer term with the Honeymoon uranium mine, where the company said in mid-December that it had to throw away the assumptions under a previous feasibility study and start again.
On the upside, the company said there was a potential pathway forward for an alternative wide-spaced well design; however, it remained at concept stage at this point.
The company said there was the potential for lower costs and better production from the new design; however, more work remained to be done.
The team at Macquarie says this constitutes a major risk for investors.
As they said:
We still hold the view that Honeymoon will be challenging, and wide spacing trials carry risk. A complicated proposition; we believe investors should wait to see more definitive results from wider spaced leach trials first before making an investment decision.
Macquarie has a price target of $1.30 on this ASX uranium share, compared with $1.74 currently.
