Uranium stocks are soaring on Thursday following an unexpected hike in uranium extraction taxes in Kazakhstan. This move is anticipated to curb future supply growth from the country, home to the world's largest producer, Kazatomprom.
Amendments to the tax legislation, signed by President Kassym-Jomart Tokayev, will increase the Mineral Extraction Tax (MET) from 6% to 9% in 2025.
The most significant change will occur in 2026, when the government will introduce a two-tier MET based on production output and uranium spot prices. According to BMO, the "new rates are not marginal, thus the new MET penalizes large mining assets with potential MET of up to 20.5% (18% for anything over 4ktU, or ~10.4Mlb U3O8, plus an additional 2.5% if the uranium price is >US$110/lb)," as reported by Zerohedge.
Analysts warn that the new rates "appear to provide less incentive for Kazatomprom to increase production, with less penalty for higher uranium prices than production, which could add support to the uranium price."
A MET tax of up to 18% linked to production and an additional 2.5% linked to uranium prices could reduce Kazatomprom's future cash flow by 5-12%. Another important factor to consider is the significant short interest in major uranium stocks. As of July 4, Paladin Energy, Boss Energy, and Deep Yellow had short interest levels of 4.22%, 6.36%, and 5.69%, respectively.
Note: Short selling data is four days behind today's date because reporting is not mandatory until three business days after the trade.
While the high short interest is notable, it's premature to declare a short squeeze. Most uranium stocks are rebounding today after a 20-40% decline from their late-May peaks. The sector's long-term outlook remains optimistic, driven by factors like energy security concerns, decarbonization efforts, and growing nuclear energy adoption. However, it's hard to deny that uranium remains one of the most volatile sectors.
At the big end of town, Paladin Energy (ASX:PDN), Deep Yellow (ASX:DYL) and Boss Energy (ASX:BOE) are up 5.9%, 8.9% and 7.6% respectively. Whilst at the smaller end, Cauldron Energy (ASX:CXU) is trading 17.4% higher.
