Uranium Outlook 2022: Prices Have Broken Out, How High Will They Go?

The conditions from 2007 don’t apply this time around, and Lobo Tiggre, founder and CEO of IndependentSpeculator.com, noted that a different set of factors will be important to watch next year.

“There was no Kazatomprom holding super-cheap supply back voluntarily back then," Tiggre told INN. "And Cameco’s (TSX:CCO,NYSE:CCJ) production was down because its key mine, Cigar Lake, was flooded. Not so this time. And there weren’t companies and funds sitting on enough pounds to fuel entire countries back then either.”

Those funds include the Sprott Physical Uranium Trust (TSX:U.UN), which has purchased more than US$1 billion worth of uranium since debuting partway through 2021, and ANU Energy OEIC, a physical uranium fund launched in October by Kazakhstan's Kazatomprom (LSE:KAP).

Tiggre explained that the Sprott trust could serve as either a price catalyst or a headwind. “(It) could reignite the fire, but the real catalyst this market needs — and should soon see — is utilities coming to the table to sign long-term supply contracts with miners,” he said. “Until that happens, it’s all noise and thunder. When it happens, an industry that’s currently insolvent turns positive again and should be able to deliver for shareholders.”

On the flip side, Tiggre warned that the Sprott-initiated spot price rally may be unsustainable.

“The (Sprott trust) phenomenon may have sent spot prices up higher than they 'should' be until those long-term contracts put a real floor under this market,” he said. "That makes the spot market vulnerable to correction — especially if funds that bought in the US$20s and US$30s decide to become sellers in the US$40s.”

He also pointed out, “And, as always, there is always a chance a major nuclear accident will torpedo the entire sector. Bulls who are convinced uranium will go to triple digits should never forget this.” Prior to the 2011 Fukushima nuclear disaster, U3O8 prices had touched US$70 before steadily falling to 2016’s low of US$17.95.

As Tiggre noted, utilities coming to market is a major move that the sector is anticipating, because the primary end use of U3O8 is the fueling of nuclear reactors.

For his part, Gerardo Del Real of Digest Publishing believes utilities companies will begin purchasing once the price ticks higher. Of course, investors who want to ride the uranium wave will want to get in before that happens.

“They'll come to market when the price goes higher, because that's what the utilities do,” he said. “It's always amazing to me that the 'buy low, sell high' equation is one of the simplest equations in history. Yet it's so hard for people to get that part right. Because nobody wants to buy at the lowest because it's not attractive, it's not fun.”

He continued, “But man, is it profitable to buy at the low, hold and just wait for it to turn, especially if you're getting in on some of the better names and understand the leverage that comes with being early.”

Uranium outlook 2022: Energy correlation key to value

While gold is tied to monetary policy and the US dollar, uranium also has correlations, primarily to energy.

“Uranium marches to the beat of a very different drummer,” Tiggre said. “It will often suffer or enjoy knee-jerk reactions to news markets see as good or bad for energy, but this is usually a short-lived mistake. Consumers spending less on gas is a very different thing from utilities deciding to pull the plug on base-load energy.”

Frank Holmes, CEO and chief investment officer at US Global Investors (NASDAQ:GROW), believes the uranium market is heavily correlated to oil and gas, and is wary of the discourse around clean and green energy, especially from countries that are heavy users of coal and fossil fuels.

“What happens is a lot of these social, politically correct policy makers do not look at the law of unexpected consequences. They don't look at the collateral damage, they only see that it's going to be their utopia, but without cost,” Holmes said. “There's no free lunch on the periodic table.”

Undoubtedly, the movements of the energy sector will influence the uranium space; however, for Del Real uranium's correlation to the nuclear fuel market and utilities companies will be the key driver.

“When I look at the fact that there are 52 nuclear reactors that are under construction, (and) 120 additional ones already having their plants completed, and I look at more than 300 others that are being contemplated,” he said. "And then you consider that the utilities, which are the largest consumer of uranium, haven't even stepped off the sidelines ... I am extremely bullish on the uranium price and its ability to go higher in 2022."

Del Real also sees investment demand being a significant influence on future prices, and suggested investors look at uranium as an asset class similar to gold.

“We often get stuck in being gold bugs, or just uranium bugs, or just US dollar bugs. And, you know, there's so many different ways that you can balance out a portfolio,” he said.

“Personally, I have copper names, I have uranium names, I have gold names, physical gold and lithium names. I would just caution people to not be so married to one idea, right? We can do a couple of things at a time. And we can do those things well, if we're just paying attention.”

Uranium outlook 2022: Price expectations next year

As one of the few commodities to register two consecutive years of gains during the pandemic, uranium is poised to rise even more in 2022 — but by how much?

“I think it'll overshoot to that US$200 level, and then you're going to get one of those 50 percent retractions where it comes back to that US$100 to US$110 level,” Del Real said.

He went on to explain that the higher price point will incentivize new production to come online, which could meet the expected demand. “And then at that level, the projects that are better — sustainable and scalable — will rise to the top, and those are going to be the winners in the market,” Del Real said.

Tiggre of IndependentSpeculator.com gave a more conservative price forecast.

“My expectation is for the spot price to continue making big moves, two steps forward, one step back, until it hits at least US$60, but probably US$70,” he said.

“After that, it may or may not spike, but long term, I expect it to settle in this range (adjusting for inflation). And that will be just fine for the better exploration, development and mining companies.”