Why the rally in uranium that lifted prices to a 15-year high may not be over

By Myra P. Saefong

Weekly uranium prices would still need to rise around 68% to reach a record high

Uranium prices have climbed to their highest level in more than 15 years, prompting investors to take notice, as analysts point out the obvious signs that the big rally in the sector was years in the making.

Weekly spot uranium prices stood at $81 per pound as of Nov. 27 - the highest since January 2008, according to data from nuclear-fuel market information and analysis firm UxC.

The uranium spot market had been tightening in the past two to three years due to a large "work-off of inventories," said Jonathan Hinze, president at UxC. That began during the COVD-19 pandemic, when some mines were taken offline and producers had to buy material on the spot market to cover deliveries, he told MarketWatch.

The entry of the Sprott Physical Uranium Trust SRUUF, which began trading in July 2021, and other large financial buyers, "sequestered" nearly 100 million pounds of uranium oxide in the past 2 1/2 years," said Hinze.

The exchange-traded fund is the world's largest physical uranium fund. As of Nov. 30, it held a total of 62.91 million pounds of uranium, with a total net asset value of $5.12 billion.

Russia's invasion of Ukraine, meanwhile, led utilities to either buy extra uranium to cover possible Russian delivery disruptions, Hinze said, or to cover new, unexpected requirements.

Those new demand requirements included the operating extension of the Diablo Canyon nuclear power plant in California. Federal regulators in March allowed Pacific Gas & Electric to keep the plant operating as it seeks approval to operate for up to 20 more years.

Supply and demand

The market has been in a supply deficit since 2019, leading excess inventories since the 2011 Fukushima nuclear accident in Japan to be "completely worked off," said Michael Alkin, principal of uranium- and nuclear-focused investment manager Sachem Cove Partners.

There is "very little extra uranium in above-ground stocks floating around for sale, which has caused buyers of the material - mainly utilities and producers - to pay higher prices to secure that material," he said.

Utilities had been "de-stocking" uranium as excess material was in the market and times have changed as prices have not been supportive of primary production, said Alkin. Utilities are "ramping up purchases at a time when the uranium mining industry is not yet in a position to respond to the new wave of utility demand coming to the market."

Utilities are "ramping up purchases at a time when the uranium mining industry is not yet in a position to respond to the new wave of utility demand coming to the market."Michael Alkin, Sachem Cove Partners

The market has seen supply in 2023 get a boost from a ramp-up of Cameco Corp.'s (CCJ) MacArthur River uranium mine in Canada, which had previously been closed since 2018 because of "uneconomic" prices, said John Ciampaglia, chief executive officer of Sprott Asset Management.

That, however, was offset by a stoppage of uranium exports from Niger due to a coup in July, he said. Niger supplies around 5% of the world's uranium, according to the World Nuclear Association.

Geopolitical risks to uranium supplies as well as nuclear power's role in global efforts toward net-zero emissions have led to a strong demand for the nuclear fuel.

Utilities have become increasingly concerned about the security of uranium supplies, in light of lingering geopolitical risks, said Ciampaglia. So far this year, utilities have purchased more than 150 million pounds of uranium - the highest amount since 2012, he said.

At the same time, the market has seen a particularly notable rise in interest in uranium and nuclear energy this year due to growing acknowledgment that nuclear energy is "critical to reaching net-zero carbon-emissions goals," said Ciampaglia.

Nuclear energy also provides "energy security and reliable baseload energy" to offset what he referred to as the "intermittency" of renewable energy sources.

UxC's Hinze said global uranium mine production is likely to be roughly 141 million pounds this year, while consumption is estimated to be around 178 million pounds.

That means the "delta is filled with secondary supplies and inventories," and that's "not a sustainable situation," he said. Mine production needs to increase in the coming years to cover future demand, but it usually takes four to five years, at a minimum, for a new mine to come online, he said.

Opportunities

Even as weekly uranium prices have gained nearly 69% year to date as of Nov. 27, there are still many opportunities in the sector, said Hinze.

"There will be winners and losers in the race to be the next uranium supplier," he said.

Ciampaglia said the price of uranium remains below "incentive levels to support the sizeable financing requirements and construction of new greenfield projects in North America."

However, the higher uranium price is "translating into higher revenue and cash flows for uranium miners and also supporting the progression of new projects for development-stage uranium companies," he said.

Sprott expects prices of uranium to continue to strengthen given "growing demand, a renewed focus on security of supply by utilities, and growing investor interest," Ciampaglia said.

For now, uranium prices remain well below their record high. UxC data shows an all-time high for uranium at $136 in June 2007.

While it's impossible to predict the timing, Sprott believes there is a "good probability the uranium price will exceed the previous record at some point during the bull market underway," said Ciampaglia.

-Myra P. Saefong

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12-04-23 1249ET

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