In order to combat the disastrous effects of climate change the United Nations (UN) has agreed that greenhouse gas emissions must drop 7.6% per year between 2020 to 2030 to keep temperatures from rising 1.5°C, an additional 2.7% must be added to that annually to stay below a 2°C increase.
Electricity production remains the second largest contributor to greenhouse gasses with as much as 62% of global electricity coming from the burning of fossil fuels.
“To follow a 1.5°C-consistent pathway, the world will need to decrease fossil fuel production by roughly 6% per year between 2020 and 2030,” the UN’s climate change fast facts state. “Countries are instead planning and projecting an average annual increase of 2%, which by 2030 would result in more than double the production consistent with the 1.5°C limit.”
In the face of this sobering reality support for nuclear energy has skyrocketed with nations working to grow, revamp and build nuclear capacity in an effort to meet the UN targets and the ambitious goals of the Paris Climate Accord.
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Over the last five years nuclear energy has undergone a massive image transformation, as nations and governments around the world recognize the role nuclear power can have in reducing global greenhouse gas emissions and climate change.
As the second-largest source of low carbon, nuclear energy currently produces 10% of the world’s electricity through 440 reactors. This number is expected to grow as the 50-plus nuclear reactors in construction begin to come online.
Add to that the growing list of countries that are strongly considering building a nuclear power fleet as they work to mitigate the effects of climate change. While the push towards more nuclear will aid in our collective efforts, there is the looming uranium supply shortage which could hamper efforts.
Nuclear fuel supply crunch
As the World Nuclear Association (WNA) pointed out, global uranium production in 2020 topped 47,731 tonnes, which was only 74% of current global demand.
Add to that mounting demand from uranium trusts and holding companies. Spot U3O8 (uranium) prices were pushed to a nine-year high in September 2021 when the Sprott Physical Trust added 1.25 million pounds (lb) of U3O8 to its holdings in one day. The newly formed trust has now amassed a U3O8 stock of 29,214,382 lbs.
The Sprott move led to a renewed interest in the sector, however, as Daniel Major, CEO of GoviEx Uranium Inc, explained the fundamentals for continued positive price growth have been present for quite some time.
“Uranium [prices] reached a low in 2016 and it’s been slowly and steadily picking up; it could have been a little more enthusiastic in its action, but at least it was going in the right direction,” he said. “I think that’s why people are very fixated on what the Sprott Uranium Trust is doing and actually missing and forgetting to look behind that (to) see the clear strong market fundamentals already which are required to support higher long-term prices.”
The CEO went on to explain that Africa-focused GoviEx, which has properties in Niger, Mali, and Zambia, began positioning itself in 2016-17 when leading producers Kazatomprom and Cameco began curtailing production. The latter also began making purchases of “substantial volumes of metal” on the spot market to fulfill existing contracts.
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This drawing down of global inventory was then heightened when Sprott also began buying on the spot market, which the Goviex boss said "has shaken up the market, which is what it needed to do, it was previously slow and painful, but we were getting there, it just needed a spike of coffee to get it really on the roll.”
The uranium development company, which is slated to enter first production by 2025, sees growing nuclear capacity as a long-term catalyst to sector and price growth.
Major highlighted the WNA’s recently released forecast which anticipates nuclear generation capacity growing by 2.6% annually around the world, with expected power generation to reach 615 GW by 2040.
“Finally, the energy market has woken up on mass,” he said of the plans to build out and expand existing nuclear capacity.
“We have all got stuck on cheap energy, assuming it was always going to be cheap, forever,” the Goviex CEO added. “So, this rush up in the energy price combined with energy restrictions, and security of energy problems have completely refocused people to look at where their energy comes from and what it's doing, and you have seen probably in the last couple months a rapid turnaround, where people realize they have to go back to nuclear.”
In fact, in mid-October 2021, German academics penned a letter to country politicians asking them to reexamine plans to shut down the country’s reactors. The open letter urged politicians to be "brave enough" to change legislation to at least postpone the shutdown.
Even Australia, which has been against nuclear energy on its continent has begun to consider the potential nuclear energy could add to its climate change targets.
Ultimately, Major wants investors and sector participants to look at the macro fundamentals and drivers.
“Go back to the original thesis, which is we are in a supply deficit and utilities need this stuff and we've got substantial growth in nuclear demand coming, and it cannot be filled from existing projects,” he said.
Contact the writer at georgia@proactiveinvestors.com