Uranium, What Makes it Different this Time?

Growing demand, shrinking stockpiles, struggling supply. The uranium industry has been talking about the same thing for years, so what’s different this time around? That was the opening question I was asked by several attendees at an investor conference last week.

The bearish tide in the uranium sector ended in the latter part of 2020 but it lasted so long (a decade), and so many investors left the sector, that some residual wariness is to be expected. Also, uranium equities have seen major gains since their low point in Q1, 2020 but for the last twelve months, additional gains have ebbed and flowed along with the uranium spot price. This is despite the fact that our industry has continued to experience positive, even profoundly positive changes. So, I found myself thinking, if you only had a few minutes to describe what’s different this time around, what would you focus on?

There are plenty of ways you can answer that question.

For instance, you can talk sentiment. What has become nothing less than a sea change in public and government sentiment really gained pace in line with the global drive to decarbonize energy generation. As fans of nuclear power already know, there is simply no feasible way for the world to hit decarbonization targets in the agreed timeframes, without expanding nuclear energy generation.

More recently, sentiment received another huge push forward when Russia invaded Ukraine. A dominant amount of natural and enriched uranium comes from that part of the world, and, post-invasion, a lot of influential people realized that phrases like “security of supply” and “safe, stable jurisdictions” were more than just concepts. This has shone a very favorable light on world class districts like Canada’s Athabasca Basin as a supply source for existing European reactor fleets. It’s also further highlighted the economic, security and climate vulnerabilities of relying so heavily on fossil fuels for energy.

Of course, you can also talk about the growth side of the uranium story because the worldwide reactor build out continues. In fact, it is gaining pace with multiple nations, such as France, Poland and the UK, announcing new construction plans in recent months. In addition, the first commercial small modular reactors (SMR) are entering the permitting stage and preparation for the first full scale SMR factory began this year.

However, when I am talking to investors who are new to the sector and who only have a few minutes to spare, I like to start with uranium pricing.

The spot price – notoriously thin and susceptible to pressure by financial actors – remains volatile. However, the term contract pricing, which reflects the vast majority of purchasing by actual uranium consumers (utilities), continues to tick upwards and currently sits at over $51.50/lb – up from $34.25/lb in August, 2021.

You see, there was a large supply overhang for much of the last ten years. This kept prices low and stockpiles high. Producers eventually cut back and stockpiles began to shrink quickly. We are now in a contracting period – accelerated by concerns related to the Ukraine war and the new geopolitics of Eastern Europe – which is moving the contract price upwards.

And I don’t believe we have approached the upper limit of uranium pricing, not even close. The fact is, demand growth, combined with dwindling reserves of existing mines, means new production is needed this cycle. For that to happen, prices have to rise further because it costs a lot of money to restart mothballed mines and to build new ones.

It’s at this point that I typically get asked what price is needed. For that, I’m going to defer to Tim Gitzel, CEO of Cameco, the western world’s most significant supplier of uranium, who said on the most recent Cameco earnings call that $95/lb uranium would be needed to incentivize new production.

$95/lb is more than double the current spot and long-term price. It’s a figure we’ve not seen since 2007. As the industry’s senior and most respected producer, Cameco is quite rightly conservative when it comes to making statements and giving forecasts. If their calculations show that another 100% price increase is required, then there is a lot of upside still to come for our sector.

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Ross McElroy, President and CEO of Fission Uranium