Ground Breakers: Boss signs uranium supply deal as Honeymoon period continues; Liontown drops on royalty claim

Uranium renaissance continues as prices lift in the vicinity of US$90/lb
Boss Energy signs first contract for Honeymoon mine ahead of planned 2024 production
Liontown drops as royalty dispute revealed

Unlike The Cruel Sea, Boss Energy (ASX:BOE) managing director Duncan Craib says the Honeymoon is not yet over for uranium as the nuclear fuel threatens to move beyond US$90/lb.

Yellowcake’s stunning rise in 2023 has coincided with the biggest lift in uranium contracting by nuclear power plants in years, threatening a breakout hoped for by the sector since the Fukushima incident in 2011 saw cheap inventory flood into the spot market when the Japanese power sector shut its nuclear capacity.

Boss is planning to produce its first drum of yellowcake through ion exchange processing around the end of February at the Honeymoon mine in South Australia, where production was shuttered by old owner UraniumOne a decade ago.

The more than $100 million redevelopment has picked up its first long term contract, with Boss selling around 4% of its capacity in a deal that will see it supply the US customer with 1Mlb of uranium oxide over a seven-year period from 2025-2031.

It’s moved to derisk the restart of the Honeymoon mine by spending US$60 million for 30% of Encore Energy’s advanced Alta Mesa project in South Texas, something that came alongside a $205 million capital raising.

It also has 1.25Mlb of uranium purchased on the spot market at much cheaper prices in its inventory.

Craib is betting prices will continue to rise from here, saying the $1.65 billion miner will keep that inventory in hand in the anticipation we are still early in a major bull run.

While there have been some notes of caution, experts like Terra Capital’s Jeremy Bond and US fundies Goehring and Rozencwajg believe uranium could bound beyond previous records of US$149/lb seen in the last bull market in 2007.

“At the moment, I think we’re going to be OK with our current cash for the actual honeymoon restart. My view is that we’d like to hold on to the strategic inventory and take advantage of when the prices really move higher,” Craib told Stockhead.

Contracting shows utilities believe in strength of market

For years utilities have held the whip hand, with prices so low even major producers at the bottom of the cost curve were incentivised to idle output.

But this year has seen contracting reach a more than decade high.

Most uranium is sold in this way, with only limited pounds available in the spot market. The return to form for the commodity was kicked along by non-utility players like Sprott and Yellowcake PLC, who’ve hoovered up inventory previously accessed as cheap back-up material by power plants.

Boss did not disclose its floor and ceiling prices, but said the contract was market linked and that its floor price was above its expected cost of production.

It expects to tie up around 25% of its production in contracts at this stage, with the rest exposed to a spot market Craib believes has more legs.

“There’s no doubt that there’s been more contracting this year than previous years. It’s a sign that utilities don’t want prices to run away from them,” Craib said.

“So they’re desperately trying to fill all their contractual needs.

“There’s not a lot of inventory available. And the key now is, where’s the new production going to come from? So it’s a fantastic time to be bringing on a new uranium mine; it’s the start of a new bull run really.”

Down a little under 1% today, Boss is up over 100% this year to date. The question is whether it can produce as expected when Honeymoon returns from the holiday period and how much higher prices can run.

Boss Energy (ASX:BOE) share price today

Lithium stocks in the red as Liontown hits legal challenge

Liontown Resources (ASX:LTR) has disclosed a legal challenge from the holder of a private royalty over tenements at its Kathleen Valley lithium project, sending its shares down over 8% despite saying the claim is not material to the company.

According to Liontown’s 2021 DFS, Drem holds a private royalty for 2% of gross sales not including ore sourced from the exploration licence that was converted into mining licence M36/696.

The same document showed that lease was the intended location for its mine village and solar farm.

“The Company has received notice that the private royalty holder, Drem Pty. Limited (Drem), has filed legal proceedings seeking declarations regarding the interpretation of the relevant documents and the amount of the royalty payable,” LTR revealed in a note to the market today.

“In summary, the dispute between the parties is whether the amount of the royalty is
calculated as 2%, or a lesser percentage, of gross sales of production from the relevant tenements.”

Liontown says it will not impact plans to enter production at the roughly billion dollar mine in mid-2024.

The project, which turned Liontown from a penny stock into a market darling, came close to winning investors including founder and chairman Tim Goyder a massive win with a $6.6 billion takeover offer from Albemarle that would have made 15% holder Goyder $986 million in cash accepted in September.

But the deal was scuppered after Gina Rinehart played spoiler, paying $1.3 billion on market to acquire a near 20% blocking stake in the company.

Down 7.5% today, LTR is now paying $1.56, almost half Albemarle’s abandoned $3 per share bid price.

Spodumene prices have also fallen hard since the beginning of the year as a period of oversupply has swept over the battery metal, dropping from upwards of US$8000/t late last year to a little over US$1000/t, around double the lows seen in the 2018-2020 crash.

It isn’t the only lithium stock suffering today, with all of the big four of Pilbara Minerals (ASX:PLS), Allkem (ASX:AKE), MinRes (ASX:MIN) and IGO (ASX:IGO) down.

Allkem shares fell over 5%, but the company remains headed for a rebirth next year as Arcadium Lithium (ASX:LTM) after shareholders voted up a multi-billion dollar merger with Nasdaq listed brine producer Livent.

The materials sector fell 0.56% in early trade.