EDITOR: | November 6th, 2017 | 19 Comments

Gearing Up for a New Uranium Boom

| November 06, 2017 | 19 Comments
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Few markets have suffered more over the last decade than our heavy radioactive friend; the Fukushima incident of 2011, as would be expected, sent investors running for the bunkers as Japan took an astounding 54 reactors offline and sold off much of their remaining uranium stockpile. Resultantly, prices have been in decline ever since, now sitting not-so-pretty at around $20/lb for over a year. As with all commodity markets, however, the lowest low only serves to signal the oncoming rush, and so any company that manages to survive can have the rather schizophrenic time of celebrating the poorest financials on record. What a world we live in.

Before any of you start accusing me of trying to predict the bottom, according to the World Nuclear Association, China and India are currently building a combined 26 new reactors and plan to build just under 250 more in the near future. Additionally, fervent support from the Trump Administration to resuscitate the nuclear industry in the USA is adding more fuel to the fire. These key growth factors have motivated a number of industry experts to claim that the price of uranium could as much as quadruple over the next five years as current stockpiles would be insufficient to meet this level of demand.

Others have remained a little more conservative, stating that prices won’t truly begin to recover until at least 2020, leaving a little more time to thin the already attenuated supply chain. Regardless of when, the fact remains that numerous population-heavy nations have committed to massively ramping up nuclear capacity, and although uranium buyers most frequently found themselves purchasing from stockpiles in the past, the market of the future is likely to be considerably more producer-focused.

Demand for uranium of course recovered after Fukushima and continued to increase as supply disruptions appeared amid the price slump, meaning that inventories were consumed at a much faster rate than they otherwise would be. The likelihood of a much greater future need has shifted the world’s attention to supply, something that the uranium market has not had to worry about for decades. Sustained low prices will always concentrate supply since a substantial number of operations will be forced to close (not many companies can make money extracting uranium for $20/lb), and this creates a very real risk, especially when countries such as Russia and China are pushing nuclear power harder than ever.

More than 90% of the roughly 55 million pounds of uranium used in US nuclear reactors each year is imported, primarily from Canada and Kazakhstan, according to the US Department of Energy, but a new growth period would create a major opportunity for the country to get back into the uranium game as a major exporter. Historically, Wyoming has been the largest American producer, and miraculously, it still houses five active uranium processing plants today (the only other being in Nebraska).

Each year, the OECD’s International Energy Agency (IEA) sets out the present energy situation as well as a variety of scenarios, most of which relate to reducing emissions. In the 2016 edition of its World Energy Outlook report, the IEA’s ‘New Policies Scenario’ sees installed nuclear capacity growth of over 50% from 2014 (about 390 GWe) to 2040 (about 590 GWe). The scenario envisages a total generating capacity of 11,200 GWe by 2040, with the increase concentrated heavily in Asia, and in particular China (33% of the total). Considering that, in this scenario, nuclear’s contribution to global power generation would remain static at about 11% of the total, there is still acres of room for growth to trounce expectations. Either way, uranium is currently more of a buyer’s market than it has ever been, and investors are encouraged to sift through the doom and gloom and await payday.


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>


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Comments

  • John

    The world nuclear association has in September that we are oversupplied until 2025. So all of this is true but you can sit on your stocks painfully for another 8 years. We are sitting in a world of oversupply uranium and they can write theses articles with a straight face

    November 6, 2017 - 12:48 PM

    • Tony

      John I have read.the World Nuclear Association latest report and see nothing relating to what you have declared. Please provide your reference source to substantiate your claim.

      November 6, 2017 - 4:34 PM

    • Brent

      Nearly all of the supply/demand imbalance projections I have read are in line with thoughts in this article. I would also be interested in being directed to commentary suggesting that this market will be over-supplied until 2025. I could accept that pricing may not react until 2020 at the latest (not likely, but possible) but have a hard time accepting over-supply until 2025 based on my current research. Thank you.

      November 6, 2017 - 6:43 PM

    • Malcolm Rawlingson

      Thanks for your comment John, I would provide a note of caution when you say the world is oversupplied with Uranium. There are a lot of dynamics in this market that were not there before. One of them is the secondary supply coming from enrichers who are underfeeding their centrifuges to keep them operating. They are doing that because the demand fro enrichment capability has fallen so they are producing from tailings and selling into spot market. Utilities have no desire to buy long contracts when there is spot supply available at such low prices. However that will change rapidly when enrichment demand picks up.
      Also we have the Kazakhs who are about to launch an IPO for Kazatomprom. I am sure they have something up their sleeve to drive up Uranium prices. I had suspected something to happen this fall but all is quiet….eerily quiet.
      I don’t think the market is actually oversupplied. It appears that way. In fact there is less above ground supply now than there was in the last Uranium Bull so I conclude that is not what drives prices.
      The key is Japanese Reactor restarts and that is going to accelerate in 2018…especially now Abe Shinzo has a new mandate for 4 more years.
      Appreciate your post. Thank you.
      Malcolm

      November 8, 2017 - 11:48 PM

  • Bill

    Appears to me John is quoting a now obsolete 2013 article which states in part:-

    “In the report, The Global Nuclear Fuel Market: Supply and Demand 2013-2030, the WNA expects demand for uranium to increase considerably up to 2030, resulting in a substantial need for additional supplies of nuclear fuel. In the WNA’s most optimistic scenario (referred to as the upper scenario), uranium demand would reach 119,000 tU by 2030, from today’s level of 62,000 tU, and about 97,000 tU in the reference scenario. Provided that all uranium mines currently under development enter service as planned, the report finds that the uranium market should be adequately supplied to 2025;”

    http://www.world-nuclear-news.org/ENF-Uranium_supply_and_demand_in_balance_for_now-1209137s.html

    Fact is since the since this article was written and since these projections were made we have witnessed uranium spot prices and long term contract prices fall significantly to current levels which – and they are now contributing to supply destruction:- with CAMECO in 2016 announce it was closing it’s Rabbit Lake mine, then KAZATOMPROM (the worlds biggest producer) – then earlier this year (2017) the worlds largest uranium producer announced its production would be reduced by 10%, and recently AREVA announced its Niger operations would be shut down – “We are forced to make this decision: it is a matter of survival for Somaïr,” AREVA justified, and in recent days CAMECO announce further production cuts. Also Paladin is not viable at current prices.

    The projections John is referring did not foresee or factor in these production cuts – so I ask how good are those 2013 projections.

    We now have a situation where producers are cutting production whilst demand for uranium is increasing as more and more nuclear power reactors come online.

    For some current research which supports this excellent article by Lara Smith, I recommend you google “Uranium’s Time is Now!”

    November 7, 2017 - 3:00 AM

    • Brent

      Thank you Bill. Very helpful. I also find the Kazatoprom 2018 IPO and marketing arm set up another interesting development in this market. Thanks again for your comment and google reference (interesting).

      November 7, 2017 - 4:24 PM

  • John

    The wna latest projection. Is a deficit by 2025, meaning supply and demand will met until then .Besides Japan has been sitting ona 10 year surplus accumulating past 5 years, and selling inthe spot price. The last bear marketing uranium took from 1981 to 1999. Everyone thought it’s just around the corner to explode on the upside. We had a bear rally from nov 2016 to march2107. Unless all of those japaneses reactors come online the oversupply will not be addressed. Besides kazakstan past 5 years has completly flooded the market , there 10 percent too little too late, they have renegades so far to cut . We can sit in this situation with the prices an7 to 8 years

    November 7, 2017 - 7:56 PM

    • Malcolm Rawlingson

      Not sure it is correct to say the Japanese have been flooding the spot market. Some utilities have been doing that but the Japanese tend to manufacture the fuel bundles so the material is in the form of processed fuel elements rather than raw Uranium. Both fuel fabrication plants in Japan are now licensed by their NRA to start producing again. Interesting times. If it takes 8 years I can wait that long.

      November 8, 2017 - 11:59 PM

  • Jimmy

    Supply destruction is gathering pace:-

    Reuters 8 November 2017:-
    Cameco to suspend production from McArthur River mine, reduce dividend
    https://www.cnbc.com/2017/11/08/reuters-america-cameco-to-suspend-production-from-mcarthur-river-mine-reduce-dividend.html

    Uranium analyst Mike Alkin:- Uranium oversupply is over:- https://vimeo.com/213105388

    November 8, 2017 - 11:13 PM

    • Malcolm Rawlingson

      Jimmy, That is a good presentation from Mike Alkin. I agree with everything he says. I have been steadily accumulating positions in Uranium stocks over the past 2 years (point of maximum pessimism). I had expected a faster destruction of production but it is definitely occurring now and I fully expect the Kazakhs to make another production cut soon. It is better to leave it in the ground than mine it because its future value is so much higher. The key is convincing utility buyers that the era of cheap Uranium is over. I always bear in mind that reactors do not run on any other fuel but Uranium so once built you gotta have the stuff. 57 plants being built now, Japanese reactors now coming back, many countries embarking on new nuclear plants. Yesterday Macron of France said he doubted he could meet a 50% phase out of nuclear by 2025 (well what a surprise!!) likely 2035 at the earliest and of course he will be long since gone by then. Same with all the rhetoric in South Korea. Shin Kori 5 and 6 are resuming construction…so much for nuclear phase out there.
      So buy and hold for the long term and watch your money turn into millions.

      November 9, 2017 - 8:30 PM

  • Bill

    Just out on Reuters:- Cameco just announced it would suspend uranium production from its McArthur River and Key Lake Uranium Mine

    Average annual production is 18 million pounds of uranium

    and with that it appears to me any uranium oversupply just evaporated

    The new Uranium Boom has commenced !

    November 8, 2017 - 11:39 PM

    • Malcolm Rawlingson

      It had to happen sooner or later. CCO has enough Uranium in stockpile to supply all of its contracts so why spend money mining it. Cigar Lake is operating though. This is going to be one massive Uranium Bull run. When it will start is a guess but there are a lot of new reactors coming on line next year and the year after and these are BIG reactors that will use A LOT of Uranium. It is just a matter of time before supply on the spot market cannot keep pace with demand and no miner is going to contract at $20/lb. More like $80 to $100. Then the panic will start.
      Malcolm

      November 8, 2017 - 11:54 PM

    • Malcolm Rawlingson

      My thoughts exactly Bill. This may well be the start of it. This market needed a catalyst and taking one of the largest Uranium mines off for almost a year evaporates any oversupply situation. As I noted in my reply to John…you can bet the Kazakhs are looking very closely at the effect this has had on Uranium stock prices. I expect they will remove another whole slug of production. That is a double edged sword of course. Not only will there be even less production from the Kazakhs but that product is not going to end up on the spot market. Result…spot dries up…utilities start to panic and the whole cycle starts again. I made very good money on my U stocks today but I don’t think we have seen anything yet. For the Kazakhs…their IPO will make a ton more money when Uranium is at $60/lb…and they plus CCO have the clout to take it there.
      Malcolm

      November 9, 2017 - 8:19 PM

  • John

    Last year they did the same same , as soon as prices spiked they went into selling and production again ,and prices after march got depressed. This is a pump and dump scheme like last year to get naive investors on board and then dilute there shares. Investors be aware

    November 9, 2017 - 9:09 AM

    • Malcolm Rawlingson

      I don’t think that is the whole story John. Cameco shutdown its in-situ leaching operations in Wyoming and the Rabbit Lake Operation (the latter permanently) but maintained what they called the “Tier One” plants – McArthur River and Cigar Lake. These are very smart people who know their business. Why dig material out of the ground when you have a big stockpile of it AND you have Nukem which can buy it on the spot market for less than it costs you to produce it. I am 100% certain that the people doing some of the spot buying are not the utilities as is commonly stated but producers buying it at less than their own production costs. The long term is where the money is – not short term speculation. Today the energy information administration (EIA) in the US forecast increases in nuclear production of 1.6% per year out to 2040. If you calculate 1.6 compounded over 23 years that is a huge increase in the demand for Uranium. All current mines will be exhausted in 15 to 20 years with no new mines on the horizon to take their place. Reactors are built to operate for 60 to 80 years.
      You can also bet the farm that the Kazakhs are looking at the effects of this production cut on stock prices. They are about to make their state company Kazatomprom a publicly traded enterprise and low Uranium prices are not very good for launching an IPO. They, together with the Russians, control 60% of Uranium production. All they have to do is announce another 10-20% production cut and Uranium prices will go ballistic as utilities will realize the party is over and they better start long term contracting or risk shutting their plants down because there is no fuel for them. If you hold any Uranium securities I would hold on to them tightly.
      Malcolm

      November 9, 2017 - 8:10 PM

      • John

        I. Have to come d cameco for being business savvy.,and using there brains, something they should have done 3 years ago. I looked at kazakstan quarterly reports they not only have not cut but have increased production. They did the same with OPEC cuts. There business acumen is zero. Their CEO said last year we did not realize by producing so much we are going to effect the prices. Sorry but is he a complete retard. They are unfrotunately unscrupulous and greedy. We need to get rid 0f 20 million pounds before we go into a deficit. 5 million supposed to come from kazakstan. Which they may or not honor by the year. The other miners need to get on board but they need to sell to pay the employee and not shut down. My guess is speculators will get burned like last year. Kazakhstan is the number reason for theses awful oversupply.

        November 9, 2017 - 9:07 PM

        • Malcolm Rawlingson

          This market is a lot more complex than you suggest. Firstly the Kazakh mines are not unlimited producers as is often thought to be the case. Many of the mines (ISL) are at or near their peak production and output will fall off in the coming years. ISL mines have many similarities to shale oil and has production and output is neither constant nor unending. The Kazakhs know that, which is why they are trying to sell off Kazatomprom in the upcoming IPO to shift that risk (considerable risk) onto future shareholders.Wise move. What they know is that they have had all the low hanging fruit. Now they have to invest large amounts of money to keep production at previous levels…hence the need for the IPO.
          Secondly, I do not think they “overproduced” out of stupidity. They are one of the few miners that can still make money at $20. What they have done is forced many western producers out of business or to curtail operations and reduced investment in future production.
          The latter is the key. With no new mines coming on line and demand increasing inexorably the price of Uranium is going to go up. When it does it will move up violently…as it has done before. But this time the effect will be prolonged giving time for the Kazakhs to use their IPO investment money to build production once again but this time at prices many times the price they can produce for.
          CCO taking 18 million pounds off the supply chain is a major event as it takes time to ramp up production again once a facility is closed. Cameco and Tim Gitzel are very smart. They know that the Uranium in the ground is worth more than selling it at a loss. What you are witnessing is the supply chain slowly collapsing at a time when demand is set to accelerate rapidly with 58 large new reactors coming on line in the next few years and more starting construction.
          A major investment opportunity is unfolding.

          November 12, 2017 - 11:35 PM

  • Wal

    “Cameco has been partially sheltered from the full impact of weak prices by its portfolio of long-term contracts, but those contracts are now running out.

    By 2020 it is estimated that 40% of all existing long term contracts, will have matured, and by 2022 that number increases significantly to sound 70%.

    Those utilities will re-enter the market looking to renews their long term contracts and they won’t leave it till that contract runs out – generally they will come into the market a couple of years before. When that happens uranium prices will run hard.

    November 10, 2017 - 1:46 PM

  • Jayson

    Following the Comeco news the uranium spot price has now moved straight up for 5 days in a row, representing an increase in the uranium spot price of 20%

    This indicates a significant fundamental change to the market has just taken place.

    It’s early days yet – but if these spot price increase continue then a flood of money will come back to the junior uranium stocks.

    November 17, 2017 - 11:03 AM

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