The Qaidam Basin has been the focus of sandstone-type uranium prospecting since the 1950s. In recent years, relying on the uranium geological survey project supported by the China Geological Survey, and the cooperation with the Qinhai oil company, drilling work at the Yuejin-II area in this basin has achieved breakthroughs on industrial-level sandstone-type uranium exploration. In this study, we present major, trace and REE geochemical analysis of the Qigequan Formation and the Shizigou Formation mudstones/silty mudstones collected from an industrial uranium ore drillholes in the Yuejin-II area. The Shizigou and Qigequan Formations exhibit signatures of non-intense alteration, low rock maturity and proximal provenance. The overall arid paleoclimatic conditions controlled the sedimentation of large volume of uranium rich materials. The period of relative humidity prompted the sedimentation of reduced agents. Aided by the neotectonic-induced slopes and tectonic windows, oxygenated fluids migrated along permeable layers and extracted the hexavalent uranium, transported in the form of uranyl ion (UO22+). When the oxygen–uranium-rich fluids finally infiltrated into the reductive sand body, the hexavalent uranium was reduced to tetravalent uranium and deposited in the form of uranium compounds. Large-scale and centrally distributed reductive sand bodies provided favorable ore storage space for the sandstone-type uranium mineralization in the Yuejin-II area.