Justin Huhn: Uranium Supply, Demand and "Hugely Important" Price Tell

One final thought on this truly excellent interview which I am not sure that many Uranium market watchers understand. A regular refueling cycle for most reactors that are batch fueled (PWR BWR designs) is about a year to 18 months. To make the fuel last 18 months it requires higher enrichment otherwise reactivity drops off and power output falls. Only about one third of the core is refueled at that time and existing fuel is repositioned in the reactor to ensure maximum fuel burn up (utilization of fissile atoms). So a routine fueling outage does not require as much fuel as a brand new reactor core does. Right now as we speak there are 60 nuclear reactors under construction. Not only are these units very large...1000MW or more and some as high as 1700MW...they are much larger than the current average reactor. So they need more fuel AND more enriched fuel. That means more U3O8. All of these 60 or so reactors need a full core so orders for a new core are much much larger than refuel orders for established cores. In short 60 new nuclear reactors are the equivalent of placing 3 x 60 = 180 steady state cores on the demand side of the equation. We are currently building more nuclear plants now than at any time since 1992 and that is accelerating, THAT demand has not hit the market yet. It is the exact reason why the Chinese will not be selling a single gram of their Uranium stockpile. They need it all. So some really good points and it is now without doubt that Uranium will easily hit $200/lb. The big question is what will cause the price to come back down. I do not see the mine capacity anywhere close to meeting this demand. In short Uranium prices will be much higher for much linger. We may have a spike well above $200/lb then it will settle back down to a very much higher average for a sustained period until several large mines like Arrow com on stream. We are 4 to 5 years out fro m seei9ng first production from Arrow and it is the only mine with enough capacity to make a dent. By the time it does come on line we will need another 4 Arrows. I see none. Great job of the interview Charlotte and Justin. Always a pleasure to listen to you both. Malcolm

Another great point Justin made was the impact of Small Modular Reactors. This is new to the market and we do not have a good handle on how it will impact Uranium prices. What we do know is that there will be a new industrial use segment of SMR's which is outside the normal electricity production model fuel markets are used to supplying. However one of the key features of SMR's is that they are quick to construct. No longer are we looking at a 10 to 12 year time frame. These can be constructed in 4 years or less. The major components are modular and factory made. One construction manager once said to me that building a nuclear power plant is like trying to assemble a Swiss Watch is a farmers field. I have first hand experience as to how accurate that is. But now the Swiss watches can be made in a clean Swiss Watch factory and made on an assembly line much much faster. So how does that affect the fuel cycle? If you order an SMR now in 2023 you can expect that you will need fuel for it before it starts up...say 2028 for arguments sake. That means you had better order the fuel now because it takes 2 years to manufacture it...especially so for newer designs. No fuel buyer want to have a finished reactor with no fuel to put in it. That is exactly the reason why we saw a major Canadian Utility buying material recently for its fleet of 4 SMR's. Now imaging hundreds of SMR orders. Almost all of them require enriched Uranium so the U3O8 must be purchased, converted to UF6. Enriched then converted back into UO2 (the actual fuel in the fuel pins inside the reactor. Then the fuel pellets must be manufactures and placed into the fuel rods and all of that assembled into a fuel element. That all takes time. In other words orders for SMR's translate almost immediately into fuel demand and that is so very different to large reactors where you place and order and maybe 5 years into construction you order the fuel. The impact of SMR's on the Uranium markets will be dramatic and we have not witnessed anything like this before.

Always great to hear Justin's perspective on the Uranium market. A very logical investor with a clear insight into what matters in this market. While we have our differences of opinion from time to time Justin's analysis of how the Uranium markets work is always spot on. For my part I have been bullish on Uranium since 2015. As with Mike Alkin we could see this coming a mile away. Fuel buyers have never been in an actual Uranium shortage like the one we are entering now. This is new to every fuel buyer out there. Mike Alkin warned of this some years ago but was disregarded by the industry. Those who did listen have bought Uranium far ahead of the time it is required. Those that failed to take note of the warnings are going to find it very difficult in the next few years. Justin touched on a couple of technical points regarding "stocking up" uranium. What goes into a nuclear reactor is not U3O8 or UF6 it is finished manufactured fuel elements. The orders that are placed by buyers are for those end products. Now remember that these fuel elements for a PWR and BWR have a length of 4 meters or 13 feet. To answer Justin's point as to why fuel buyers do not buy more is quite simple...there isn't anywhere to put it. New fuel storage facilities are licensed by the USNRC in the US and CNSC in Canada and similar regulatory bodies throughout the world. In other words these facilities are expensive and few because you must prevent fuel from becoming critical outside the reactor (not good). They must also be protected from damage. So should a wise fuel buyer place an order for a 10 year supply of reactor fuel it is unlikely there will be anywhere on the site to put it. That is the reason why usually only two or three refuels are stored in New Fuel Storage at any one time. There is no room for any more. Now that does not mean that a buyer might not be interested in purchasing and storing U3O8 for future use, or UF6. They do in fact do that but once again you cannot just store this stuff in any old warehouse. It must be stored in a fully licensed facility and there are very very few of those. I hope that explains why you do not see utilities ordering large supplies in advance and taking advantage of lower prices. The cost of storing that material far outweighs any cost savings by a wide margin.