Uranium ‘about to pop’

“We’re going through a nuclear renaissance,” 92 Energy managing director Siobhan Lancaster declared during her presentation.

Lancaster said uranium was “really about to pop”.

Boss Energy managing director Duncan Craib had just returned from the US where he said the CEOs of other uranium companies believed the positive market signals were there and there was an “overwhelmingly optimistic” sentiment at the World Nuclear Fuel Cycle held in The Hague last month.

The uranium price has been in the doldrums since the Fukushima nuclear disaster in 2011 with excess inventories suppressing prices.

Craib said that issue was no longer a concern.

“Mobile inventories are far lower than what they were in the early 2000s. Inventories held by utilities are lower, and they need to be replenished.

“This excess inventory has been soaked up, particularly in recent years, and that’s really surprised the industry.”

Political and public support growing

Craib noted that nuclear power was increasingly becoming a part of global net zero targets with 32 countries using it today, while Japan was restarting its reactors.

There are 57 reactors currently under construction.

“The world is crying out for baseload energy – and carbon-free baseload energy,” Lancaster said.

The last few years has also seen the emergence of physical uranium funds, the Sprott Physical Uranium Trust and Yellowcake.

“I’m aware of two other new funds about to enter the market that will further soak up excess inventory,” Craib said.

There’s also been widespread public opposition to uranium due to high-profile incidents including Fukushima and Chernobyl.

“Public perception of nuclear is driven more by the very small number of high-profile incidents, rather than the 19,500 reactor-years of safe commercial operation,” Jefferies analyst Chris Drew wrote in recent research.

“The reality is that nuclear is a safe means of power generation, with risks of accidents extremely low and declining as technology evolves.

“Recent signs show that public support for nuclear is now growing as people have begun to directly experience disrupted or expensive electricity supply.”

Craib said even before Russia’s invasion of Ukraine, new uranium supply was needed.

Russia produces about 5% of the world’s uranium but global leader Kazakhstan, which produces about 45%, is vulnerable to sanctions given it ships out of Russian ports.

The US has since moved to support its domestic nuclear and uranium industries with funding and legislation.

“The invasion has highlighted the geopolitical uncertainty and that need for energy security as a priority,” Craib said.

Drew’s research pointed out that the rapid rise of nuclear in the 1970s was partially a result of the oil price shocks during that period.

While Russia’s uranium/nuclear sector hasn’t been subject to any sanctions yet, it remains a possibility.

A uranium panel at Canaccord Genuity’s Global Metals & Mining conference in California this month noted that self-sanctioning was underway.

“Western utilities who were once reliant on Russian supply have self-sanctioned future purchases and producers/developers are seeing increased demand for a ‘Western’ uranium supply chain,” Canaccord analyst Katie Lachapelle said.

“For context, about 50% of the uranium used to produce 20% of the United States’ electricity (via nuclear) currently comes from Russia, Uzbekistan, and Kazakhstan. These utilities continue to take delivery under pre-existing contracts, but this is expected to change going forward.”

Craib recalled how exciting uranium was when he entered the industry in 2006, when the price was moving “like a freight train”, peaking at more than US$140 per pound in 2007.

It dropped to below $25/lb following Fukushima but has been on the move and is currently trading at above $53/lb.

Boss has been hosting potential uranium customers on site at its Honeymoon restart project in South Australia, which is due to be in production later this year.

Craib said there had been movement in contract pricing, with Cameco’s recent quarterly report referencing a contract floor price of $45-50/lb and a ceiling price of $75-80/lb.

“We thoroughly believe that there’s going to be a pinch point between now and the next three years, where it’s likely to give an overreaction to price because there’s simply not enough new uranium supplied,” he said.

“Last year 114 million pounds was contracted. This year already, year-to-date, 99-100 million pounds has been contracted.

“So the tide has turned and in fact, utilities are more concerned these days about the lack of inventory and the lack of new supply to meet that gap in growing demand. Where is that new supply going to come from?”

Jefferies sees prices firming over the medium term, peaking at $75/lb in 2026 and 2027.

“Following this, we see greenfield projects starting to have a more meaningful impact, contracting supply deficits resulting in prices easing to $65/lb by the end of the decade,” Drew said.

Canaccord forecasts spot prices to average $54.25/lb this year, slightly higher than recent trading levels, rising to $63.75/lb in 2024 and $65/lb longer-term.

“I think this is a very exciting time for this sector,” Lancaster said.