The Atomic Opportunity: How Uranium is Reshaping the Energy Landscape

11th Dec '23 by hugoc

5 comments 659 reads

“I have spent 37 years in this wonderful uranium and nuclear energy industry. We’ve gone through all the highs and lows. We are probably in the most exciting phase in the nuclear energy industry’s history in these years that lie ahead of us.” Scott Melbye, Uranium Royalty Corp & VP, Uranium Energy Corp. (2023)

Is it really two months since I submitted my first piece on Uranium's Unstoppable Rise? Much has happened; the price of uranium has continued to rise and the market has tightened further. This previous post was backward-looking; today we look to the future.

Shifts in Uranium Supply and Demand

Global uranium production was 48,888 metric tons in 2022. Ten years earlier, it was 20% higher. Years of destocking by shuttered nuclear programmes, halted investment and mine cut-backs and closures led to U308 (Yellowcake) prices falling well below production costs. Similar forces froze investment in Conversion and Enrichment.

Cameco (TSE:CCO) shut its Cigar Lake and MacArthur River mines and even NAK Kazatomprom AO (LON:KAP) , the world's largest and lowest-cost producer, finally reduced output. ~https://www.statista.com/stati...

The uranium-buying utilities lived off the pigs-back while middlemen, brokers and the miners all peddled low-cost, long-term, soft contracts with favourable flexible uptake terms.

For highly inelastic products like oil and natural gas, price action works both ways. It does not take significant undersupply for prices to skyrocket, nor does it take significant oversupply for prices to crash. Doomberg, Crazy Pills, June 2022

There is no commodity where demand is less inelastic than uranium. If the price of oil doubles, recession arrives; people drive less and lower the thermostat. The price of uranium has quadrupled from its low of $19, in November 2016, while demand has risen. If the price doubles again there will be no effect on demand.

Western uranium buyers did not capture the opportunity of such low prices to increase their stocks. Remarkably, inventories actually declined over the last seven years.

Did the buyers become complacent?

All the evidence is they had become overconfident and took the worldwide shortfall of mine output versus demand for granted (76% in 2022). Just as Germany allowed itself to become reliant on Russian gas, Western U3O8 buyers shut their minds both to these shortfalls and also to their reliance on Russian enrichment.

In mitigation, one reason for their complacency was the environmental panic, after the Fukushima Daiichi tsunami…

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kuronagi

11th Dec '23

There is one important point which you don't mention. Private investors have minimal interest. Over the past few months, there have been several posts (like this of yours) pointing out the compelling fundamental arguments in favour of investing in uranium. Very little interest or discussion has been stimulated. This is good for those of us who have invested already as there may be substantial buying in the wings once the penny drops.

My chosen vehicle is Geiger Counter (LON:GCL). I have over 2% of my portfolio in GCL. The premium to NAV has shrunk to around 7% but in the past it has traded at a premium.

I am a retired investment analyst and head of research and I stay in touch with other investment professionals in different parts of the world. People who I consider to be "smart investors" are buying uranium.

Some of the best research I have read on uranium is produced by the specialty natural resource investors Goehring and Rozencwajg. They produce four excellent quarterlies each year covering all commodities. They are available on the web-site gorozen.com.

Gorozen are big bulls of oil and most base metals and gold; their research has been a significant reason for my large overweight position in oil and mining totalling around 45% total portfolio and including around 7% gold (Barrick Mining plus gold ETF).

The uranium argument is partly related to the price of oil argument. If I am correct in my belief that a demand/supply squeeze will push the POO sharply higher in the short term, this will only increase calls for more nuclear plants.

I am a convert to the case for uranium and am just puzzled why I appear to be in a minority.

Indie

Thank you for clarifying the charge on Geiger Counter (LON:GCL) . The value on the AIC website had put me off investing. I didn’t realise this was something to check further.

af20001

12th Dec '23

Thanks for the well researched post.

I'm long Yellow Cake (LON:YCA) & Geiger Counter (LON:GCL) .

It's worth reiterating the point that buyers*have* to buy, regardless of the price, to avoid shut downs.

China alone is building 22 new nuclear power stations, with another 70 planned. I can only see demand going one way!

Aislabie

13th Dec '23

This article seems to cover the mining opportunities, is there a way to benefit from what I expect to be a huge need for western-based conversion and enrichment capacity?

mojomogoz

I've a position in physical and equity in uranium. I disagree with the positioning advice given in this post in that now is more a time for uranium equities than physical.

Equities have paced alongside physical rather than outpace the commodity....a little surprising and suggests that equity has reacted modestly so far.

The higher the price of physical goes the more potential energy there is in the equities.

With today's indication of rate cuts to come from the Fed I decided to balance some physical out of my portfolio (nice return!) and put it into equity (also done well but I believe the optionality is now even higher)

*Uranium is high risk and very volatile investment area. I don't believe that timing is particularly possible, particularly as predicting where spot price of commodity goes in short term is very difficult as there is an absence of supply and volume at the moment. The recent US political moves around import of Russian sourced uranium fuel could make for volatility and even a sudden squeeze in prices

The Atomic Opportunity: How Uranium is Reshaping the Energy Landscape

Shifts in Uranium Supply and Demand

Did the buyers become complacent?

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Hugoc

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