Is it finally uranium's time?

After nearly a decade in the doldrums, uranium may at last be finding its feet (reports MiningNews).
1st April 2021
Resources Rising Stars

After nearly a decade in the doldrums, uranium may at last be finding its feet (reports MiningNews).

COVID-19-related supply disruptions helped trigger a record supply deficit in 2020, sending uranium mining equities skywards, but further bullish signs abound.

Uranium miners UEC and Denison both announced on March 16 they were venturing into the market to buy spot material, the former for 400,000lb and the latter for 2.5Mlb.

On the same day, Kazakh producer Kazatomprom, which controls 40% of the market, flagged the possibility of buying more material from the market.

Meanwhile, uranium ‘holder' Yellow Cake said it was using its recent US$99 million raising to buy more volumes from Kazatomprom, and that it was "actively looking for further selective market opportunities to increase our exposure to the uranium price".

And only yesterday, ASX-listed Boss Energy raised A$60 million to buy 1.25Mlb of uranium.

The combination of these developments triggered an 8% rise in the uranium price to just north of US$30/lb, where it has been hovering since.

But market participants say the combination of a tightening market and rising demand could trigger a much more substantial price rise in the near term.

Panellists on a virtual discussion hosted by Canadian investment bank Canaccord Genuity on the uranium market earlier this month pointed to a number of reasons why they felt a price move was likely over the coming 12 months.

On the demand side, growing urgency around the shift to net zero emissions has seen more countries turn to nuclear power as part of their collective bid to reduce carbon emissions.

"It's all very well and good saying that we're going to invest however many trillion in new wind farms and new solar plants, but we need a pretty quick fix today, which is carbon free," said one London-based analyst who wished to remain anonymous.

"Let's be clear, there is almost nothing better than nuclear for the space it takes and the amount of power it generates. So therefore, it has got to be something that's at least a part of the conversation," added the analyst.

According to the World Nuclear Association, about 100 reactors with a combined capacity of 110GW are either on order or planned worldwide, with over 300 more proposed.

Central to the growth is Asia - particularly China, which plans to expand its nuclear fleet to 70GW by 2025 - up from 47.5GW at present - as part of its 14th Five Year Plan.

In the US, there are signs of a more supportive stance, with a shift to bipartisan support for nuclear.

Other Western nations including France and Germany have faced challenges in their efforts to scale back nuclear.

France has already pushed back its plans to reduce its dependency on nuclear, while Germany's attempt to exit from atomic energy sent emissions skyrocketing after the country was forced to ramp up its coal fired power stations to plug the generation gap.

Canaccord itself said with climate change at the forefront of government policy, "sentiment for the uranium market has improved dramatically over the last 12 months, in our view".

On the supply side, uranium prices well below marginal costs - together with an absence of long-term contracts at prices high enough to produce economic pounds - have made life difficult for producers.

With uranium mines such as Ranger in Australia (shut down in January) and Cominak in Niger (set to close at the end of this month) coming offline, and a lack of investment in new mine supply, the state of future supply is looking "very fragile", said Canaccord.

"This fragility is becoming more apparent as secondary supply markets, such as carry trade and underfeeding, become less attractive (as spot prices rise)," the bank continued.

While panellists on the discussion said the presence of long-term contracts had masked the gulf between spot prices and production costs, they expect the situation to change as utilities are left with no choice but to pile back into the market over the course of 2021 to begin large scale contracting.

"This is already happening behind the scenes even if some of those deals are not yet public," said Canaccord.

"With significant supply having already been removed from the market, and a slow ability to respond by producers, this is expected to be a tighter environment than what we have seen over the last decade."

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