CGN Mining is one of the listed subsidiaries under CGN Group, the world's third-largest nuclear power group. It is also the only platform for the development, investment and financing of overseas uranium resources under the CGN Group. CGN Mining will seize the opportunity of global nuclear power recovery and continued growth in natural uranium demand, obtain highly competitive uranium resource projects, and strive to become a world-class natural uranium supplier. In 2023, the company achieved significant revenue growth, reaching HK$7,368 million, an increase of 101.04% year over year. This increase was mainly due to a significant increase in the company's revenue in the natural uranium sector, with natural uranium revenue reaching HK$7359.95 million, accounting for 99.96% of the company's annual revenue.
CGN Mining has 60% exposure to uranium spot prices and is expected to benefit from rising uranium prices. On May 13, 2024, US President Joe Biden signed the “Prohibition of Importing Russian Uranium Act”. According to regulations, US companies will not be allowed to import low-enriched uranium produced in Russia for 90 days after the law comes into effect. The Act provides exemptions for utility facilities such as nuclear power plants that may shut down nuclear reactors due to cutting off Russia's uranium supply. The exemption policy will end on January 1, 2028 at the latest. Given that Russia's uranium enrichment supply accounts for about 46% of global production capacity, this will lead to an increase in demand for uranium in the US and other Western countries, which in turn will drive up the cost of nuclear fuel. Furthermore, as global AI data centers and the electrification of the industrial and transportation industries soar demand for electricity, this has contributed to a certain extent to the restart of nuclear power. Since uranium is a key raw material for nuclear power generation, advancing the nuclear energy revival will greatly increase demand for uranium, and it is expected that it will further drive the price of uranium to rise.
The global natural uranium market is still facing a situation where supply is in short supply. Uranium mines in Kazakhstan are gradually facing exhaustion. It is expected that starting in 2028, the average life expectancy of mines in production around the world will decrease, and one after another they will enter a peak period of production cuts and decommissioning. Furthermore, the commissioning of Kazatomprom's TAZLLP (sulfuric acid plant) is also expected to be delayed from 2026 to 2027.
According to forecasts, global demand for uranium will reach about 76,000 tU in 2024, while the supply volume is only about 60,000 tU. The medium- to long-term supply gap is expected to continue to expand. Long-term trade contracts are still at a historically low level, and long-term demand due to global production capacity restrictions has not yet been met.
With low cost mining resources, production is growing steadily. The company's current mine production in Kazakhstan remains at 80% of the allowable level, and will gradually increase to more than 90% in 2024-2025. The company's total production capacity is expected to reach 3,969 tons/year in 2025, and equity production capacity is expected to reach 1945 tons/year. The company is also actively promoting the construction of Canada's Fission PLS project, with an estimated lifetime output of about 35,000 tU.
Profit forecast and investment advice: The global uranium market is in short supply, and global uranium prices are expected to rise. We expect the company's main operating income for FY24-26 to be HK$9203/11267/HK$13162 million, respectively, and corresponding net profit of HK$543/642/745 million. We used DCF for valuation estimates, and the target price was HK$3.39 per share (+21%, due to sustainable growth rising from 1% to 2%), maintaining the “superior to market” rating.
Risk warning: Changes in non-controlling interests in mine assets; there is great uncertainty about uranium exploration input and output; uranium demand falls short of expectations.