The Paladin Energy Ltd (ASX: PDN) share price has been on a relentless rally this month, up 90% to an 8-year high of 97 cents.
The sudden re-rate in Paladin Energy shares has largely been driven by an uplift in uranium spot prices, running to an 8-year high of ~US$40/lb.
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Uranium prices explode out of nowhere
Uranium prices have emerged out of a prolonged bear market where prices plunged from ~US$140/lb in 2007 to mid-US$20/lb between 2016 and early 2020.
This is why the Paladin Energy share price is still down ~90% from its 2007 highs.
The 2011 nuclear disaster at Fukushima Daiichi in Japan was arguably one of the major catalysts for a fallout in uranium demand.
After grinding around mid-US$20/lb, uranium prices pushed above US$30/lb in April this year. And jumped from US$30/lb to US$40/lb since mid-September.
Uranium prices have been propped up by a Canadian investment fund, Sprott Inc and its Physical Uranium Trust (SPUT).
S&P Global reported that "The spot uranium price for deliveries this month leapt 30.8% over 30 days to $39.75/lb as of 1 p.m. on Sept. 7 — a steep rise for a commodity market that previously saw years of sagging prices, according to data from S&P Global Platts."
"Market analysts credited Sprott Asset Management LP, a uranium trust formed in July to buy up low-cost uranium on the spot market and hold it for the long-term, for jolting the market with a wave of purchases," it added.
The fund has been aggressively buying uranium off the spot markets, acquiring more than 3 million pounds of uranium between 2 and 7 September, according to S&P Global.
Why the Paladin Energy share price is surging
Paladin Energy was once a major player in the uranium space, producing 119,586 pounds of uranium oxide in 2007 with plans to ramp production to over 3.7 million pounds by 2010.
The decline in uranium market conditions led Paladin Energy in May 2018 to place its Langer Heinrich project into care and maintenance.
It wasn't until June 2020 that the company announced plans to restart the project followed by a $192.5 million capital raising in March 2021 to prop up its balance sheet.
Paladin Energy estimates that the project will require US$81 million of pre-production capital expenditure with a peak production of 5.9 million pounds of uranium oxide for 7 years.
The company believes it's in a "competitive cost position" where life of mine production cash costs come in at US$27/lb in addition to freight and logistics of US$0.95/lb and sustaining capex of US$2.9/lb.
From an operational perspective, Paladin Energy is still in its early days of bringing the Langer Heinrich Mine back to life.
However, accommodative uranium prices have helped drive the Paladin Energy share price to fresh multi-year highs.
