Uranium Investing

U3O8 spot prices climbed above US$27 per pound in Q3 after a number of production decreases, site closures and acquisitions. Here’s an overview of the period, plus a look at what’s next.

U3O8 spot prices grew considerably in Q3, experiencing their longest steady growth period for the year. Prices were at US$22.75 per pound at the end of June, and have jumped to US$27.55 where they currently sit.

The third quarter of 2018 was also one of the busiest for the global uranium sector with a number of production decreases, site closures and acquisitions.According to Sightline, the Q3 spot market saw more transactions and volume than any other time in history.

“Uranium has emerged in 2018 as the strongest-performing commodity,” said Craig Parry, president, CEO and director of IsoEnergy (TSXV:ISO,OTCQX:ISENF). “The spot uranium price has risen 35 percent in recent months to a 29-month high of US$27.50 per pound. We are now seeing a number of conditions emerge that are similar to those that drove the 2004-to-2008 boom in uranium price and equities.”

Many market watchers, including Mercenary Geologist Mickey Fulp hadn’t expected the spot price to gain so much momentum so quickly.

“I’m pleasantly surprised, I figured the spot price would go up, but I’ve been pleasantly surprised,” said Fulp. “The last three months every week it takes a step up. On April 20 it was at US$20.50 and it has marched upward during that period of time, five and a half months on a weekly basis it has only been off four weeks in that five and a half months.”

U3O8 price update: Supply

The trend of decreasing U308 production continued in Q3 and likely boosted the spot price growth during the period. Cameco (TSX:CCO,NYSE:CCJ), one of the largest international uranium producers, announced it wouldindefinitely shut is McArthur River and Key Lake mill.

McArthur is the largest producing high-grade uranium mine in the world, accounting for roughly 11 percent of global supply.

Despite spot prices trending upward steadily, the current price is not enough to entice current miners to produce or potential miners to explore.

“Today’s spot and term prices are below the cost of most of global production,” pointed out Curtis Moore, VP of marketing and corporate development at Energy Fuels(TSX:EFR,NYSEAMERICAN:UUUU).

“This is simply an unsustainable situation, so a recovery will happen at some point. And, we might be starting to see the beginning of just such a recovery.”

The Cameco production halt, coupled with decreased production in Kazakhstan, will ultimately create a supply shortage, however just when that deficit will materialize is uncertain. While global production of U3O8 is down, another 8 percent of the energy fuel from Kazakhstan will be removed from the market and held by Yellow Cake Fund (LSE:YCA).

It’s all these factors, according to Mickey Fulp, that will spur on a shortage in the near future.

“2016 mine production was 161 million pounds, 2018 projected totals are 135 million, so that’s 21 million pounds off the market right now, add in Cameco and Kazakhstan that’s another 15,” pointed out Fulp.

A limited supply is not music to the ears of consumers; however, it does create the perfect environment to drive spot prices up to the much needed US$40 a pound.

“During the last boom, prices rose strongly from US$9 per pound to US$130 per pound due to a combination of supply constraints and the emergence of investment in the sector from financial investors,” added Parry. “This drove a boom in uranium equity markets that peaked in 2007.”

U3O8 price update: Demand

Uranium is a green energy that can be used in lieu of oilgas, coal and other pollutants to power nuclear reactors, submarines and other military vehicles. It is only natural that demand grows as more countries commit to adopting green strategies and grids.

However, as Parry points out, mining the energy metal is not cheap and if increased demand doesn’t translate into increased spot prices a global shortage is unavoidable.

“All uranium buyers are now realizing that Cameco isn’t going to sell its great resources cheaply and at a loss when there is product available in the spot market at a price lower than its cost of production and that it can buy to meet its supply contracts,” he said.

Even when the spot price hits the mark of US$40, it will still take a considerable amount of time to get Cameco’s production restarted, and other uranium projects off the ground.

“Overall the key effect of this closure has been to throw the market into undersupply and that means one thing — higher prices are on the way,” added Parry.

Demand is expected to steadily increase in the coming years, as 50+ plus nuclear reactors come online around the globe. Which will be another test in the supply demand fundamentals of the sector. 

Ironically, while nuclear reactors may be the factor that drives spot prices incrementally higher over the next decade, it can be argued that it was nuclear reactors, or the lack thereof that caused the spot price to drop drastically after the Fukushima meltdown in 2011.

Prior to the earthquake that rocked Japan in March 2011, the country had 54 functioning nuclear reactors. Seven and a half years later, and only eight of the reactors are back online with a ninth just receiving approval to restart.

“The real problem here was Japan was running about 12 percent of the world’s nuclear reactors, and using about 10 percent of the world’s uranium, the suppliers did not adjust to that they just kept making uranium and then and we had recycling and reprocessing, all those things increased willy nilly without real concern for supply demand fundamentals,” explained Fulp.

“I think the uranium industry itself is to blame for a lot of what has happened.”

U3O8 price update: What’s ahead?

The fourth quarter of 2018 and the coming year will be really interesting times for the uranium space.

A flurry of recent US announcements will likely bolster domestic production in the country. Energy Fuels, along with other key US-based uranium producers, has been instrumental in calling on the US to reduce its dependence on foreign U3O8.

The company believes the US’ new stance will be positive to spot prices, even if those benefits aren’t felt right away.

“We also believe the recovery of uranium may be delayed right now due to the 232 Petition our company filed with the US government earlier this year, in which we ask the Administration to limit imports of uranium into the U.S., in order to provide support for US producers like Energy Fuels,” Moore said.

Deeming uranium an issue of national security in the US is likely to affect pricing of the metal as well.

“This national security issue in the US would require 25 percent of US uranium to come from domestic mining, that’s going to take a US$40 spot price,” said Fulp.

“People in the know on the supply side seem to think that we could end with a two-tiered price structure where the price in Us is the US$40 – US$45 a pound and perhaps a lower price worldwide, but the lower worldwide price is eventually going to catch up to the US.”

It won’t all be smooth sailing to increased production for the US. Just last week the Supreme Court decided it would not hear arguments to reverse a Grand Canyon mining ban that established a 20 year moratorium on uranium mining on a substantial area around the international landmark.

The US isn’t the only country mulling over the idea of increased uranium production. The Mineral Council of Australia is appealing to its federal government to rethink its stance on uranium mining on the continent, in an effort to make Australia competitive with uranium hubs like Canada and Kazakhstan.

Globally, demand increases from the Eastern world will continue to grow.

“Longer term the market is forecast to move into deep supply deficit in 2020/21 as forecast production growth is muted but Chinese and global reactor build out continues at a pace,” added Moore.

Moving forward, experts see the price steadily increasing, by just how much varied on their optimism.

For IsoEnergy, a US$30 per pound spot price may materialize in Q4, trending to over US$35 in 2019.

“However, I think we could see US$50/lb or more for the reasons I’ve outlined. It’s a mug’s game to try to predict prices but we now have the foundations in place for a serious price rally,” said Parry.

At the end of Q2 Sightline was predicting the spot price could hit US$37.50 by the year’s end, and it appears that the energy metal is well positioned to hit that price, and continue its upward momentum.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Energy Fuels and IsoEnergy are clients of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

This article is updated each quarter. Please scroll the top for the most recent information.

U3O8 Price Update: Q2 2018 in Review

By Georgia Williams, July 12, 2018

U3O8 spot prices experienced growth in Q2, reversing a downward trend experienced in late 2017 and early 2018. Prices were at US$22.80 per pound as of June 30, up slightly from US$22.62 month-on-month, however during the quarter prices were up by as much as 15 percent.

Despite improvement in the month over month trend, U308 was down 3.10 percent on a year-to-date basis.

Meanwhile, long-term U3O8 prices were down 3.33 percent for the quarter, sitting at US$29 in June.

Although uranium didn’t’ experience significant growth during the second quarter of 2018, market watchers believe the path to higher uranium prices is inevitable as more countries build, restart and work to integrate nuclear energy into their power grids. Read on to learn more about what happened to uranium in Q2 2018 and what may be coming as we enter the second half of the year. 

U3O8 price update: Supply

U308 production continued to decrease in Q2 driven by supply cuts that came as a result of low uranium prices. Kazakhstan and Canada, two of the leading U308 producers, both made drastic production cuts in late 2017 to early 2018.

Canadian producer Cameco (TSX:CCO,NYSE:CCJ) announced in late January it was going ahead with a temporary shuttering and production halt at its McArthur River mine and Key Lake milling operations. Cameco expects the temporary closure to last approximately 10 months with the 28 to 30 million pounds in committed sales volume coming from the company’s current inventory.

“With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings,” Tim Gitzel, Cameco’s president and CEO wrote in apress release.

This follows an announced 20-percent reduction in production over three years by Kazatomprom, Kazakhstan’s premiere mining company and the world’s largest uranium supplier.

The sentiment of Cameco was reiterated by the International Atomic Energy Agency (IAEA).

“Over the past few years a surplus of inventory of uranium ore concentrate has developed, leading to lower prices. This is a result of a combination of increased production and reduced demand,”said Brett Moldovan, uranium production specialist at the IAEA. “Operating many of the mines under the current price for uranium is a challenge economically.”

Increased demand over the next decade will likely drive prices higher, which could entice uranium miners to commission new projects.

Mickey Fulp ofMercenary Geologistbelieves there are several catalysts behind uranium’s positive Q2 movements. The most prevalent being an additional production cut in Kazakhstan, reducing production from 64.5 million pounds to 56 million pounds this year. He also noted a 600,000 pound purchase made by utility companies as contributing to the price increase.

According to Fulp, it’s only a matter of time until utility companies stop picking at the spot market and start looking to long term miners.

“Whenever that happens we expect uranium to have another boom; it’s a boom and bust commodity,” said Fulp. “When that’s going to happen, no one, not even insiders have an idea of when this is going to turn because the market is so opaque.”

U3O8 price update: Demand

Uranium prices have dropped by more than 70 percent since March 2011, when the Fukushima earthquake and subsequent meltdown occurred. Four of the countries 54 nuclear reactors were directly affected, while the country vowed to shut down its remaining 50 reactors.

With the expectation that Japan would take all its reactors offline, uranium demand weakened and the price continued to fall. 

Fast forward seven years later and Japan has changed its tune saying “the country cannot live without nuclear power,” and has since begun the restart process at a variety of sites. As of July 6, 2018 Japan had receivedapproval from the Nuclear Regulation Authority (NRA) to restart 15 of the shuttered reactors, with six already up and running.

Almost simultaneously, Japan announced plans to supply 22-24 percent of its power grid through renewable sources by 2030; with an additional 20+ percent of energy being provided through nuclear.

There are currently451 nuclear reactors generating power in some 30 countries around the globe with an additional 58 under construction. As these reactors are continuously brought online U308 demand is expected to surge.

The IAEA predicts world energy consumption to increase 18 percent by 2030 and 39 percent by 2050. According to IAEA estimates, we can also expect a 42 percent increase in nuclear electrical generation capacity by 2030 and 123 percent increase by 2050.

Fulp sees recent developments in the US as an additional catalysts to increased demand.

“[President] Trump about a month ago, because of National security issues, signed an executive order requiring utilities to buy electricity from both nuclear power plants and coal power plants in order to keep some of these things open and not have everything converted to natural gas,” said Fulp.

Trump may have been motivated by a petition launched by two of the country’s uranium producers. In January, Energy Fuels (TSX:EFR) and UR Energy (TSX:URE), the two leading uranium companies in the US, filed a section 232 request with the Department of Commerce, asking for an investigation into the national security around uranium.

The two U308 miners want the country to review its dependence on foreign countries for uranium, and instead source as much as25 percent of the country’s uranium from domestic producers.

Currently, America imports 40 percent of its uranium from state-owned and state-subsidized enterprises in Russia, Kazakhstan, and Uzbekistan. Uranium produced in the US only accounts for less than 5 percent of supply.

If Energy Fuels and UR Energy are successful, production in North America, particularly in the US, could double.

As Fulp noted, this is the type of development that could drive spot prices above US$40, which in turn would entice uranium miners like Uranium Energy Corp. (NYSEAMERCIAN:UEC) to commence production at its ready to go sites.

U3O8 price update: What’s ahead?

Looking ahead it’s almost inevitable that there will be a global production increase, however it may not come from the countries known as top producers, like Canada and Kazakhstan; and instead may come from the US.

Last month, the Department of Energy (DOE) announced plans to investUS$64 million in 89 advanced nuclear projects underway in 29 states.

Just days later, the Federal Budget numbers for 2019 were released, which earmarked US$1.2 billion to the DOE to support the existing fleet and advanced reactors. 

“The legislation passed today offers significant support for continued development of accident tolerant fuel, advanced reactor technologies, and fuel for advanced reactors,” Maria Korsnick, President and CEO of the Nuclear Energy Institute said in an announcement.

“Investment in nuclear energy technologies like this will deliver enormous benefits to our energy system, our environment, our workers and our national security.”

Is now is the time for investors to buy stocks in U308 miners?

“I have no idea, the uranium market is always throwing us surprises,” said Fulp. “I can tell you what I would do; I am a contrarian, I buy things and wait.”

Spot prices are expected to hit US$37.50 by December 2018, and the long term price is pegged to reach US$44.50 by year’s end, according to Slightline

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

This article is updated each quarter. Please scroll the top for the most recent information.

U3O8 Price Update: Q1 2018 in Review

By Nicole Rashotte, April 4, 2018

U3O8 spot prices continued a long-running downward trend in Q1. Prices were at US$21.30 per pound as of March 26, down 4.5 percent month-on-month.

Prices were also down 10.5 percent on a year-to-date basis.

Meanwhile, long-term U3O8 prices remained flat in January, and were sitting at US$30 in February.

Even so, many market watchers believe that the path to higher uranium prices is already in place. Read on to learn more about what happened to uranium in Q1 2018 and what may be coming as Q2 approaches.

U3O8 price update: Supply

In 2017, persistently low U3O8 prices prompted a number of high-profile supply cuts. Kazakhstan said at the beginning of the year that it would reduce its uranium output for the year by 2,000 tonnes, sparking a brief price spike.

Then, toward the end of the year, major uranium producer Cameco (TSX:CCO,NYSE:CCJ) announced plans to suspend production at its McArthur River mine and Key Lake milling operations by the end of January 2018. Kazatomprom followed with another announcement, saying it would reduce its output by 20 percent over the next three years.

Those moves sparked optimism, but as can be seen prices have yet to be significantly affected by reduced supply. Nevertheless, experts agree that it’s only a matter of time before the market turns.

For example, Ross McElroy, president and COO of Fission Uranium (TSX:FCU), commented in March that as low-cost producers like Cameco dial back on production, the uranium market is being set up in a way that will “force the price of the commodity higher.” He added, “we’ll be able to get more uranium in there to continue to feed the reactors.”

The Stock Catalyst Report’s Mike Alkin also sees Cameco’s simmer on production as a positive for U3O8 supply and pricing. He commented in January that “it should have a great effect because McArthur River is the largest producing mine in the world … primary mine supply is already in a deficit. The market is filled by secondary supply. So this just exacerbates that down, that power pressure on supply.”

Nick Hodge of the Outsider Club made a similar statement earlier this year, noting that secondary supply is being taken out, and “now the mines have got to make up the difference. That’s really what we as investors have been waiting for — because there’s a lot of uranium in the world, there’s just not a lot of uranium mines.”

U3O8 price update: Demand

Demand for uranium is expected to rise as excess supply starts to come off the market. In fact, according to a report from the World Nuclear Association, there are currently 447 reactors in operation worldwide and an additional 61 in construction.

Overall it has been forecast that uranium demand could grow nearly 60 percent to more than 300 million pounds by 2030, up from 190.2 million pounds in 2016. The consensus seems to be that China and India are the places to watch in terms of demand.

According to analysts at FocusEconomics, “[t]he Indian government announced on March 7 that the country is planning a tenfold increase in uranium production over the next 15 years. The same day, the Chinese government announced that China intends to bring five new nuclear power plants online this year, which should support uranium demand.”

Similarly, McElroy commented, “China is the biggest story out there where they’re continuing to put new reactors on the grid. They’re building I think at a rate at around eight to 10 new reactors a year. We’ll see them become one of the largest consumers of nuclear fuel — uranium. Probably 15 years from now, they’ll be the largest single country out there using nuclear power.”

Japan could also be an area to keep an eye on. As Rick Rule of Sprott US Holdings said earlier this year, “the determinate as to whether 2018 is the year that uranium really moves will be made by the pace of Japanese reactor restarts.”

U3O8 price update: What’s ahead?

Diverse analysts believe uranium is set to see increases in price and demand, and ultimately supply. Both the Indian and Chinese governments have announced that they will be increasing their uranium production, and countries such as China and India have witnessed an uptick in demand. These increases in demand are expected to add upward pressure to prices in the coming years.

FocusEconomics analysts project prices will average US$26.3 in Q4 2018 and US$31 in Q4 2019.

For his part, Rule put into words what many believe about the uranium space, saying that it’s “a when market — there’s no doubt it’s going to happen.” He believes investors should “not worry so much about uranium as worry about your own reaction to the market and determine whether you do or do not … have the mental discipline to stand volatility.”

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.



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