Spot prices jumped about 40% last year, and while a small slice of the market, it boosted the fortunes of uranium-exposed stocks on global stock markets, which Canaccord noted in a recent note was further proof there's a fundamental supply deficit.
The market was already under pressure, impacted by COVID-19, underperforming mines, geopolitical risks, and ongoing supply curtailments that have gradually removed excess pounds from the market as major producers continue to purchase spot material to fulfil sales commitments.
The traditional demand outlook also strengthened in 2021, with China planning doubling of its nuclear fleet by 2030, and an increased willingness in North America and Europe to consider supporting nuclear energy.
Canaccord warns there is "no longer a reliable source of incremental supply for utilities", but while it remains bullish about the outlook for uranium, it expects short-term volatility.
Despite mine supply sitting at a 12-year low, the current cycle "still has a long way to go", so it has scaled back its pricing forecasts out to 2024, although it still believes the price will eventually reach $65/lb.
Canaccord expects to see utilities swinging back to long-term contracts to secure supply. Contracts dominate the market, and that would send the positive pricing signals required to bring idled production back online.
Given utilities usually hold 2-3 years of forward coverage, many will need to renegotiate long-term contracts by 2023, and these are likely to be struck at a premium to stimulate mine restarts and greenfield developments and improve supply certainty - particularly given Kazakhstan, which produces almost half of global supply, is suffering high levels of political risk.
Buyers will want to diversify their risk, Canaccord said.
Ultimately, Canaccord forecasts the price could each $50/lb by the end of 2022, which should incentivise mine starts, including Australia's Honeymoon, but it won't be sufficient to underpin new production, as suppliers aren't willing to front run demand.
Canaccord sees new tier one projects, such as NexGen Energy's Arrow deposit in Canada, needing around $60/lb.
"Even after including these projects, we continue to see the potential for significant sustained market deficits from 2029 onward. In our view, tier two and tier three projects will be required to meet this demand, which have notably higher incentive prices," Canaccord said.
Looking at the markets, its analysts' top stock picks for 2022 include TSX-listed developer Denison Mines, AIM-listed holding company Yellow Cake, and three ASX-listed players: Paladin Energy, Boss Energy and NexGen.
It has target prices of A$2.88 on Boss, for its Honeymoon development in South Australia; $1.05 on Paladin, for its "underappreciated" Langer Heinrich restart plans in Namibia; and C$10 on NexGen, which is also listed on the TSX.
Currently, Boss is trading at A$2.08, Paladin at 74c and NexGen at C$5.31.
It has also upgraded ASX-listed Lotus Resources from a hold to a speculative buy rating, setting a target price of A30c, up from currently levels of 25c, anticipating progress on the restart of the idled Kayelekera operation in Malawi.
Canaccord also noted an improving outlook for US-focused Australian junior Peninsula Energy, despite complexities with its Lance project in Wyoming, and Vimy Resources, which is undergoing a strategic review following management changes last year, but has one of the largest undeveloped uranium resources in Australia at Mulga Rock.
Both stocks are considered speculative buys.
