After years of anticipation spot U308 (ASX:UTO) (uranium) prices have finally sustained a bull run surging 68% between January and September 2021, when prices topped US$50 per pound for the first time since June 2012.
The primary tailwinds for the energy fuel are supply and demand fundamentals, which forecast shortages as the more than 50 nuclear reactors in construction globally, join the 443 operational reactors.
Nuclear energy provides roughly 10% of the world’s electricity and is the second-largest source of low-carbon power.
As nuclear capacity expands demand will stretch far beyond current production.
READ: Blue Sky Uranium worthy of active consideration, says Globe Small Cap Research
There is also a growing demand from uranium trusts and holding companies. This year prices were driven to a nine-year high when the Sprott Physical Trust added 1.25 million pounds (lb) of U3O8 to its holdings in one day, ballooning its U3O8 stock to 29,214,382 lbs.
The acquisition followed the company’s successful filing with Canadian securities regulators to enlarge its at-the-market fund. The move allowed Sprott to sell additional shares and use the ($1.3 billion) capital to buy additional uranium.
Not only did the purchase impact a tightening market, but it also highlighted the disparity between current production rates and future demand.
Unlike gold or copper mines, uranium is a much more regulated resource making the process from discovery to production anywhere from 15-25 years.
Explorers with proven resources key to supplying future market
According to the World Nuclear Association, global uranium production in 2020 topped 47,731 tonnes, which was only 74% of total global demand. In fact, 2020 production was the lowest in nine years, marking a dip below 50,000 tonnes annually.
While coronavirus pandemic-related closures and supply chain issues were a leading factor to the decline, demand has also outpaced production every year for the last nine.
As resource deposits age and mines near end of life, the next era of viable uranium projects is especially important.
One of those is Blue Sky Uranium Inc’s Amarillo Grande uranium and vanadium project in Argentina. The diversified project consists of three properties - Ivana, Anit and Santa Barbara.
Additionally, to the South in the Chubut province Blue Sky has three projects - Sierra Colonia, Tierras Coloradas and Cerro Parva. Combined, the company’s assets in both provinces comprise 450,000 hectares of mining tenures.
Blue Sky’s Amarillo Grande project is considered a new district-scale uranium discovery and includes the country’s largest NI 43-101 resource estimate for uranium, with a significant vanadium credit located within the Ivana zone.
According to a 2019 preliminary economic assessment (PEA) Amarillo Grande hosts 22.7 million pounds of uranium and 11.5 million pounds of vanadium with room for potential expansion. The project deposit has been likened to that in Kazakhstan, the leading nation in terms of uranium production.
"The neat thing about it [Amarillo Grande] is that this deposit occurs from the surface within the first 15 or 20 meters,” Blue Sky Uranium CEO Nikolaos Cacos said in an interview with Proactive.
DEEP DIVE: Blue Sky Uranium is positioned to be Argentina’s uranium supplier
This near-surface potential makes the development much more affordable than more complex deposits. In fact, as Cacos explained, the composition of the land is gravel-like and non-consolidated which allows the company to forgo costly blasting.
Economically, the project boasts average life of mine (LOM) all-in sustaining costs of $18.27 per pound, giving Blue Sky’s project the lowest quartile operating costs among global producers.
With current prices sitting at US$41.25, Amarillo Grande is positioned to be extremely profitable when it enters production. As Cacos added, every uptick in the spot price makes the project more economical.
“[Higher prices] could speed things up, it will make funding more readily available for us,” he said. “One of the considerations we're looking at is perhaps ramping up our exploration efforts and being able to speed ahead to take advantage of this current environment.”
Despite the uranium market cooling off in the weeks since Sprott’s large purchase, spot prices remain elevated and are likely to stay that way.
The widely considered threshold needed to promote new discovery and advance current projects is US$50/lb, however as Blue Sky’s CEO pointed out, maintaining that level will not instantly bring on new output in the market.
“You hear about it [US$50 threshold] because a lot of mines aren't profitable, their breakeven is around the $50 range,” he said. “It's not like you hit $50, turn the switch on, and then all of a sudden, you're producing, it'll take many, many years to get things moving again.”
Cacos continued: “This is a long-term process, and I think that this rise in the uranium price is here to stay for the long term for many, many reasons beyond just, some financial firms buying in the spot market.”
Situated for South American growth
Additionally, the company is positioned to be a key supplier for the Argentinian nuclear fuel market. The country currently has three operational nuclear reactors that require U3O8 to operate, however, the South American nation produces no uranium domestically.
Instead, the most southerly country in Latin America imports the energy fuel from countries as far away as Kazakhstan. But that will likely change when Blue Sky’s Amarillo Grande enters production.
As Cacos noted Argentina has been a leader in South American nuclear energy production.
“Most investors also don't appreciate that it is a nuclear country, they've been in the nuclear business, almost as long as the United States - since the 50s,” he said.
The CEO explained that Argentina has had the regulatory framework in place for the handling and moving of nuclear materials for decades.
“The only thing that Argentina doesn't have, and that's because of the lack of mining industry, is production of uranium,” said Cacos. “So, they import all their uranium, a lot of it comes from Kazakhstan. And they pay a tremendous amount for it, the average price is between $65 and $75 a pound.”
This excessive cost for imports makes Amarillo Grande’s uranium potential exciting and important to the country and the region's energy future.
“We have discovered an entire new uranium district that has the potential to rank amongst the lowest cost producers in the world, with multi-100-million-pound potential,” Cacos concluded. “We are also in a position where over the next couple of years, we could end up becoming Argentina's first source of domestically supplied uranium. It's a very unique opportunity for us.”
Contact the writer at georgia@proactiveinvestors.com
Follow her on Twitter @MissInformd