What’s Driving the Bull Run in Uranium?

Nuclear energy’s role has become crucial, particularly given the global energy crisis that began in 2021. It resulted from a swift post-COVID-19 economic recovery that outstripped energy supply, was worsened by the Russian-Ukraine conflict that sent natural gas prices soaring and essentially revived thermal coal.

Amid the current global geopolitical unrest, more nations are focusing on nuclear energy as a key aspect of their energy mix. Consequently, uranium became the new darling in the commodity space as its prices soared above $100/lb last year, the highest since 2007, following a bull run that began in mid-2020 after a decade-long decline from $143/lb to $18/lb.

The uranium market is facing a supply deficit due to years of underinvestment in new primary uranium supply, compounded by geopolitical and security issues in Niger and Russia. Meanwhile, demand remains steady, driven by the global need for clean energy and carbon-free electricity.

But what’s next for uranium? What does the demand side look like going forward? Can uranium producers/supply side ramp up production capacity to ease the ongoing tension in the market? In this article we take a peek under the hood to understand key aspects of the uranium market. We discuss:

• Context for the current uranium market, including its previous boom-bust cycle

• Key drivers for the uranium demand-supply equation going forward

• Recent fund flows into uranium investment vehicles

A Trip Down Memory Lane

To understand the current price action, let's revisit uranium's previous bull market in 2005-2007. Before the Great Financial Crisis in 2008, uranium prices increased to a record ~$140/lb from ~$10/lb in 22 months. The surge was due to rising demand from China and India and supply disruptions at major production centers. For example, there was flooding at Cameco’s (CCO-CA) Cigar Lake mine in Canada and disruption at Rio Tinto’s (RIO-GB) Ranger mine due to cyclone Monica.

However, the financial crisis halted the uranium bull market as prices fell to ~$40/lb. That was due to less demand and better supply with the production restart at Cigar Lake and the rapid ramp-up of new production from the National Atomic Company Kazatomprom JSC (KAP-GB). Kazatomprom is the Kazakhstan state-owned uranium producer that currently produces ~25% of world’s total uranium on an attributable basis and ~43% on a 100% basis.

As the economy rebounded after the financial crisis, the uranium market improved with prices reaching ~$70/lb by early 2011. But the Fukushima Daiichi nuclear disaster in 2011, followed by a wave of negative sentiment towards nuclear energy around the world led to a sharp price decline in uranium spot prices to below ~$45/lb by the end of that year.

For much of the last decade, uranium prices hovered between $20/lb and $30/lb due to market oversupply from Japanese and other secondary-source inventories plus weaker demand. Major producers announced production cuts in 2016 - 2017 to aid market normalization. This started an upward trend in uranium prices in 2019 - 2020, supported by the 2021 energy crisis and the 2022 Russia-Ukraine war.

The conflict prompted several Western nations to look for other sources of energy to diversify away from Russian natural gas. The US wasn’t dependent on Russian natural gas, but it sourced part of its enriched uranium supply from the country. The recent US legislation banning Russian-enriched uranium imports could have further negative impacts on the existing supply deficit.

A common theme to note is the limited number of players who control the uranium market supply. As highlighted in the Figures 2 and 3, Kazakhstan, Canada, Namibia, and Australia produce over 70% of mined uranium. Their dominance hasn’t changed in the last 10 years.

Similarly, Figure 4 shows the concentrated nature of uranium enrichment capacity with over 50% of the enriched uranium being produced just in Russia and China. We note a similar concentration theme on the consumption side as well given the US, China, France, Russia, Japan, and South Korea comprise over 70% of the market. This makes it relatively easier to monitor developments and risks in the uranium space.

Further, in Figures 5 and 6 we highlight the location of uranium projects and major current and historical clusters for uranium production around the world. This includes the Athabasca basin in Canada, the Powder River basin in Wyoming, South Texas (historical uranium production units), South Kazakhstan, the Namib Desert in Namibia, Agadez in Niger, Southern Australia, and Northern Territory in Australia.

Clean Energy Push and Geopolitical Arm Wrestling Underpin Demand Side

Nuclear power has a crucial role to play in the energy mix going forward. It is a low-carbon source and can provide baseload power to offset the intermittency issue of renewable power sources such as solar and wind. According to the International Energy Agency (IEA), nuclear power contributes ~10% of global electricity, and the IEA’s pathway to net-zero emissions by 2050 expects nuclear power to double between 2020 and 2050.

The 28th United Nations Climate Change Conference (COP28) in November 2023 acknowledged nuclear energy’s role in the clean energy transition. Twenty-two nations pledged to triple global nuclear capacity by 2050, recognizing nuclear energy’s key role in achieving global net-zero greenhouse gas emissions by that year. As shown in Figures 7 and 8, the installed capacity for nuclear power grew ~6% between 2014 and 2022, and it is expected to grow 15% to 466GWe by 2030.

China, currently third in the world for nuclear power generation, is expected to surpass France by 2030 (Figures 9 and 10). Globally, there are 440 operational nuclear reactors with a combined installed capacity of 406GWe, which is expected to grow ~15% by 2030 to 465GWe. Much of the growth will come from countries with large populations, massive electricity requirements, and deteriorating air quality, such as India and China.

China, the world’s fastest-growing market for uranium, has 56 operational reactors (with an additional 27 under construction) that provide a combined installed capacity of 55GWe. India has 23 operational reactors with a combined installed capacity of 6.2GWe, and seven additional reactors are under construction. According to the Nuclear Power Corporation of India (NPCIL), the country also plans by 2032 to build 18 nuclear reactors with a combined capacity of 13.8GWe.

Looking to the western world, France recently committed over €100M to nuclear training, research, and innovation. At COP28, French President Emmanuel Macron declared “nuclear energy is back.” The US, with its Inflation Reduction Act, committed $370B to clean energy, including $40B of loan guarantees for all technologies, including nuclear. Up to $1.5B of these funds were conditionally awarded in March of this year to recommission the 800 MWe Palisades facility in Covert, Michigan that ceased operations in May 2022. Additionally, the Civil Nuclear Credit Program, funded by the Bipartisan Infrastructure Law, was implemented to provide $6B in funding for preserving the existing US nuclear reactor fleet. This program directed $1.1B in January to keep the 2.2 GWe Diablo Canyon facility in California operational.

Although clean energy will drive future uranium demand, the concentrated supply necessitates understanding the geopolitical risks of energy security (Table 1). Trade sanctions on Russia affecting enriched uranium supply to the West and civil unrest in Niger have sparked a global scramble to secure reliable uranium sources. For example, the US, China, and the EU, are building strategic uranium stockpiles and diversifying their sources. That is fueling demand for new uranium mining projects and the restart of previously mothballed mines.

Table 1: Major Uranium Projects Headlines Pointing Towards Geopolitical Tussle Over Nuclear Fuel Source

Source: FactSet, Mining.com, Nuclear News Org, Japan Times, NEI Magazine, Financial Times, Reuters, US Department of Energy, The Associated Press

Supply Side Grim as Primary Sources Continue to Underserve Demand

Uranium supply today comprises primary mining production and secondary sources such as civil stockpiles, decommissioned warheads, recycled plutonium, reprocessed uranium, and re-enriched depleted uranium tails. As shown in Figure 12, primary uranium production has declined over the past decade—from meeting 91% of world demand in 2013 to 74% in 2022, with secondary supplies filling the gap.

The steady secondary supply kept uranium prices low. Lower uranium prices, along with the commodity’s rapid boom-bust cycle since 2006, led to a significant capital outflow from the sector. This in turn made miners more conservative about investing in new projects, which require significant capital and time (typically 10 to 15 years) to take a grass-root discovery to a ramped-up mine.

From 2017 to 2019, major producers cut production due to low uranium prices, and several high-cost marginal mines were shut down. The strenuous state of affairs was compounded even further for junior developers/producers looking to survive let alone flourish in this space.

With uranium sentiment turning positive, equity markets have been favorable, particularly for uranium developers. A sustained inflow of capital in the space could lead to new production capacity in the near to medium term.

The quickest way to increase primary production is to expand current operations or restart marginal mines shut down due to market conditions. While it may take over a decade to develop and ramp up a new mine, restarting an existing operation would only take two to four years. Therefore, it’s crucial for uranium prices to remain at current levels or higher to incentivize junior mining firms to restart their assets and invest in expansion.

A Look at The Flow of Capital into Uranium

Due to the commodity price rally, the uranium market has attracted investor attention. Uranium mining equities have outperformed the underlying commodity and the S&P 500 over the past five years: The S&P 500 has returned ~89% since May 2019 compared to uranium’s ~281% return.

Consequently, uranium-focused ETFs have seen significant fund inflows since 2021. Four top Uranium ETFs—Globe X Uranium (URA-US), Sprott Uranium Miners (URNM-US), Sprott Junior Uranium Miners (URNJ-US), and VanEck Uranium (NLR-US)—have received a combined fund infusion of over $4B since 2021, a record high.

Investors have also gained exposure to uranium spot prices through physical trusts like Sprott Physical Uranium Trust (U.UT-CA) and Yellow Cake Plc (YCA-LON). These trusts hold around ~76Mlb of yellow cake worth over $7B.

The aggressive fund inflow into uranium in the last three years has fueled the current rally, taking uranium spot prices to $106/lb in late January 2024. However, prices have since corrected and are now between $85 to $90/lb. That correction may present an opportunity for investors, as there could be more value to uncover in the long term.

Conclusion

The scarcity of nuclear fuel and the urgency to secure sufficient uranium supply are valid concerns and have been the key drivers of the current bull run in Uranium. According to the World Nuclear Association, the supply gap is estimated to exceed 40Mlb of uranium in 2024, with demand set to rise due to the expansion of nuclear power in China, India, the US, and additional countries. Geopolitical instability, such as the Russia-Ukraine conflict, has also intensified interest in nuclear power for energy security. And that has prompted North American and European utilities, suppliers, and governments to diversify supplies as they construct new reactors and restart the existing ones that had been idled.

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