The uranium market could be headed for a rebound as it faces supply cuts and demand for nuclear power as a renewable energy source.
International energy demand is driving global uranium markets as nuclear power gains in popularity.
For nearly half a century, nuclear power has been an important contributor to energy security in many countries and a key source of zero-emission generation. Nuclear power is viewed by many as an essential part of the future global energy mix as the world turns away from fossil fuels and looks to alternatives such as solar, wind and other clean energy sources. New initiatives to advance innovative nuclear power technologies are underway, including those targeting the need for greater power system flexibility given the rise of energy generation from renewable sources.
After the doldrums of the post-Fukushima era, the uranium market is making a comeback, with more and more nuclear reactors coming online, under construction or in the planning stages. Today’s uranium fundamentals are showing the possibility of a coming supply shortage in the face of renewed demand. “Seven years of oversupply since the Fukushima incident finally resulted in production cuts from the world’s largest uranium miners in Kazakhstan and Canada,” said Mercenary Geologist Mickey Fulp. “(The) removal of excess mine supply from the market has resulted in a 40 percent jump in the spot price since April (2018).”
Nuclear power demand
As the world’s exponential population growth over the coming decades leads to widespread urbanization, the demand for energy is expected to rise at the same time that countries around the world are increasing efforts to reduce carbon dioxide emissions. The trend toward a greener, cleaner energy future means that the primary energy sources for the future global energy mix are set to change as the reliance on fossil fuels decreases in favor of low-carbon emitting sources.
Nuclear power is one of the world’s most commonly used low carbon-emitting sources of electricity. “It is the second-largest source of low-carbon electricity production globally (after hydropower) and provided over 30 percent of all low-carbon electricity generated in 2016,” according to the World Nuclear Association (WNA). “Almost all reports on future energy supply from major organizations suggest an increasing role for nuclear power as an environmentally benign way of producing reliable electricity on a large scale.”
Today, about 11 percent of global electricity is generated by about 450 nuclear power reactors, with about 60 more reactors now under construction. In 2017, nuclear power provided 2,487 terawatt hours (TWh) of electricity, up from 2,477 TWh in 2016. 2017 also represented the fifth consecutive year that global nuclear generation had risen since 2012.
As urbanization continues to transform major powers like China and India, nuclear energy continues to show significant potential for low-carbon energy creation. “(Nuclear power) is especially suitable for meeting large-scale, continuous electricity demand where reliability and predictability are vital — hence ideally matched to increasing urbanization worldwide,” noted the WNA. China is quickly bringing new nuclear power plants online in lieu of coal-fired ones in order to reduce carbon emissions and improve the country’s air quality. The WNA has put forward an ambitious plan that would allow for 25 percent of global energy supply to come from nuclear plants by 2050.
Uranium markets: supply and demand
Nuclear power generation requires enriched uranium. In 2007, uranium reached a high of US$135 per pound, but it entered a nearly decade-long slump since the 2011 Fukushima disaster, with spot prices dipping as low as US$18 per pound in December 2016.
However, renewed optimism in the future of nuclear power in the global energy mix and supply-side disruptions from the largest uranium producers have pushed both spot and long-term contract prices up over the past year, with more gains possible in 2019. In 2017, uranium producer Kazatomprom cut its output by 2,000 tonnes, and in early 2018, Cameco (TSX:CCO,NYSE:CCJ) suspended operations at its Saskatchewan-based McArthur River project, the world’s largest uranium mine. Cameco placed further pressure on the market when the company decided to close up shop at McArthur; it then became one of the world’s largest uranium buyers, scooping up U3O8 on the spot market to fulfill its contracts.
Uranium markets seeing growth
These supply cuts by two of the world’s uranium giants alongside new buyers like uranium fund Yellow Cake are expected to further reduce utilities inventories. This potential supply crunch could lead to a new round of contracts, which has the potential to create further price action.
Nick Carter, executive VP of uranium at UxC, told Northern Miner, “(UxC sees) a continued upward trend in the spot price over the rest of the year, as producers buy lower-cost inventories and utilities in the next 11 months.” In 2019, the nuclear industry market research firm predicts the spot price could reach into the low to mid US$30s and gradually climb into the low US$40s in the next five years. The long-term price movement is often slow to follow spot, but UxC thinks we may see a long-term price of US$36 per pound by the end of 2019, moving into the mid US$40s five years from now. The Bank of Montreal is more bullish in its uranium price forecast, projecting a long-term contract price of US$55 per pound by 2023.
Uranium companies to get a boost
The upward price movement is a good sign the uranium market has reached the bottom of the trough and is in the midst of a rebound. This positive sentiment bodes well for uranium stock valuations, and many in the business of uranium mining and exploration are excited by the turnaround.
“The disaster at Fukushima cooled the uranium market significantly, but we’re coming out of that now. More reactors are coming online and more are planned to come online in the future,” Azincourt Energy (TSXV:AAZ,OTC Pink:AZURF) CEO Alex Klenman told Investing News Network (INN) at the Vancouver Resource Investment Conference (VRIC) 2019. Klenman added that the shutdowns by both Cameco and KazAtomProm are “equivalent to Saudi Arabia shutting off all oil production. All of the fundamentals are there to continue to drive uranium prices up.”
Azincourt is developing a portfolio of uranium properties to fulfill the growing demand for clean energy sources, and the company holds interests in two highly prospective uranium plays in Canada’s prolific Athabasca Basin: East Preston and Patterson Lake North. The projects place the C$4 million market cap company in a neighborhood dominated by billion-dollar market cap players. Azincourt’s East Preston joint venture covers over 25,000 hectares of the eastern portion of the Preston project, one of the largest tenure land positions in the Patterson Lake region. The company also holds a 10 percent interest in the Patterson Lake North uranium project, a joint venture with Fission 3.0 (TSXV:FUU) as the operator. It sits immediately adjacent to Fission Uranium’s (TSX:FCU) Patterson Lake South property, which hosts the high-grade Triple R uranium deposit.
Uranium companies like US-based Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU), which was recently added to the Russell 3000 Index, have greatly positioned themselves to take advantage of the uranium market. Plateau Energy Metals (TSXV:PLU), which controls all reported uranium resources known in Peru through its Macusani uranium project, is in a similar position. Meanwhile Blue Sky Uranium (TSXV:BSK), which controls more than 5,000 square kilometers in Argentina, is targeting the energy of a nation where only 7 percent currently comes from nuclear energy.
As the world transitions to a clean renewable energy future, nuclear power will play a key role in that transition. Increased demand for nuclear power-generated electricity around the globe alongside a developing supply crunch is breathing new life into the uranium market and this is bound to factor into uranium equity valuations in 2019.
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