Uranium Week: The Need For New Supply

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With the attitude towards nuclear energy shifting positively worldwide, the need for new and restarted uranium production is becoming critical.

-New/restarted uranium production needed
-Spot price down month on month
-Baltimore bridge collapse adds to issues
-Paladin Energy produces first uranium

By Greg Peel

Last week Morgan Stanley hosted a webcast with S&P Global focusing on the current dynamics playing out in global uranium markets.

S&P Global sees a dramatic shift in attitude toward nuclear energy continuing to transpire, particularly as Western countries work towards becoming more self-reliant with regard to enrichment capacity as they move away from Russian supply.

Historically, Russia has played an outsized role in uranium enrichment. Enrichment remains a key pinch point for the industry, according to S&P Global, but not as much as uranium conversion capacity.

S&P Global sees sustained strength in uranium prices as having the potential to incentivise new projects to come online and/or projects to be restarted. New supply is potentially seen to be coming from the US, Canada and Africa, as exploration budgets continue to expand, led by investment from Canada.

The extent of supply shortfalls depends on the number and size of nuclear developments that are greenlit in the next 2-4 years, with S&P Global noting development of reactors requires significant amounts of capex. Despite a vast number of nuclear plant designs being developed globally, many of these have not operated in a commercial setting, posing risks to their viability.

Uranium inventories have been on the decline in North America and Europe since peaking in 2014-15, according to S&P Global. Current inventory levels are seen as supportive for new contracts to be signed between suppliers/buyers, with a number of US utility companies recently signing deals with new/emerging producers for supply.

S&P Global forecasts 7.9GW of new nuclear capacity to be added by 2050 in North America, with most of this ramping supply back-end weighted in the 2040 decade.

Prices

March represents the close of the fiscal year for several parties that participate in the spot uranium market, industry consultant TradeTech notes, which brought corporate year-end objectives into the picture last month. As a result, the market saw sellers aggressively lower offers throughout Good Friday in order to attract buyers.

TradeTech’s weekly spot price indicator fell -US$1.75 to US$86.25/lb.

One late buyer at March-end pushed TradeTech’s monthly spot price indicator to US$87.00/lb, down from US$95.00/lb at end-February.

TradeTech’s mid-term price indicator has fallen to US$95/lb from US$100/lb, while its long-term price indicator has risen to US$80/lb from US$75/lb.

Last month, US Energy Secretary Jennifer Granholm said that she encouraged the US Congress to ban uranium supplies from Russia, because doing so would free up funds to support domestic development of fuel for next generation nuclear reactors.

Even without sanctions in place in the US, Russia’s invasion of Ukraine has already fundamentally altered the uranium market by shifting buyer preference toward non-Russian affiliated sources of supply.

Adding further strain to the market was the collapse of the Key Bridge in the port of Baltimore, after being struck by a container vessel. The port is shut down indefinitely as authorities begin the salvage operation.

The port of Baltimore happens to be one of the ports in North America that accepts enriched uranium product, TradeTech notes.

Vessels originally scheduled to arrive in Baltimore containing both natural and enriched uranium will now be forced to find another port willing and able to accept them as shippers and port authorities scramble to handle the increased demand. This is expected to add delays and increased costs to shipments destined for North America in the coming weeks and months.

Restarted Supply From Africa

In line with its original target, Australian-listed Paladin Energy ((PDN)) has achieved first commercial uranium production and drumming at its Langer Heinrich operation in Namibia. The focus now shifts to sustainably ramping up production and building finished product inventory, ahead of shipments to customers.

Paladin currently has some 80% uncapped upside exposure to the uranium spot price through to the end of 2030. The set-up remains positive, in Canaccord Genuity's opinion.

With 28 countries signing a declaration at COP28 which aims to achieve a tripling of nuclear energy capacity globally by 2050, there is no doubt, in the broker’s view, of the need for increased mine supply.

After more than a decade of underinvestment and increasing market bifurcation, there is a clear requirement for the appropriate and sustained pricing signals to get the supply chain moving.

With Kazatomprom highlighting risks to its production targets, issues in Niger, and the potential for Russian sanctions, Langer Heinrich is coming online at the right time, suggests Canaccord Genuity.

Uranium companies listed on the ASX:

ASX CODE	DATE	LAST PRICE	WEEKLY % MOVE	52WK HIGH	52WK LOW	P/E	CONSENSUS TARGET	UPSIDE/DOWNSIDE
1AE	01/04/2024	0.1100	0.00%	$0.19	$0.05
AGE	01/04/2024	0.0600	5.36%	$0.08	$0.03		$0.100	66.7%
BKY	01/04/2024	0.2900	-10.00%	$0.80	$0.26
BMN	01/04/2024	3.8000	3.35%	$3.99	$1.19		$7.040	85.3%
BOE	01/04/2024	5.0300	– 0.21%	$6.12	$2.21	98.7	$5.697	13.3%
DYL	01/04/2024	1.4100	– 0.37%	$1.76	$0.48		$1.770	25.5%
EL8	01/04/2024	0.5000	0.00%	$0.68	$0.27
ERA	01/04/2024	0.0570	– 3.39%	$0.20	$0.03
LOT	01/04/2024	0.4100	0.00%	$0.44	$0.17		$0.610	48.8%
NXG	01/04/2024	12.8300	0.85%	$12.99	$5.16		$17.500	36.4%
PDN	01/04/2024	1.4400	– 2.14%	$1.46	$0.52	400.6	$1.513	5.0%
PEN	01/04/2024	0.1300	0.00%	$0.20	$0.08		$0.340	161.5%
SLX	01/04/2024	5.0000	7.10%	$5.78	$2.92		$7.600	52.0%

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