Uranium is on the move.
So says Georges Lequime, manager of the TB Amati Strategic Metals Fund.
Recent strength has been due, says Lequime, to “accelerated decarbonisation initiatives and the emergence of financial players in the uranium spot market.”
In consequence over the past three years spot uranium has risen by 120% over the past three years, with what he calls ‘term’ prices up by 60%.
It’s no coincidence that the price rise also follows years of underinvestment in the primary supply of uranium.
“A supply deficit is forecast to continue for a few years, which is being exploited by financial players trying to soak up as much supply on the spot market, in an attempt to establish a more realistic incentive price for new supply coming onto the market,” says Lequime.
“In addition, the West is facing a real threat of a bifurcated world, where the continued source of cheap uranium is no longer guaranteed.”
According to the World Nuclear Association, nuclear energy generation accounted for 10.3% of the world’s electricity generation in 2021. The totals involved in making up that 10.3% are 2,653 TWh of energy from 427 active nuclear reactors.
Another 56 reactors are currently under construction, mainly in China, India and South Korea, with a further 434 reactors either planned or proposed. Western Europe and the USA account for almost 65% of world’s current nuclear energy generation, while Kazakhstan, Russia, Uzbekistan and China account for 60% of the world’s primary U₃O₈ supply.
“The shift away from the burning of fossil fuels and biomass, coupled with the clear geopolitical issues surrounding the dependency of the sourcing of natural gas is putting greater and greater focus on nuclear power and renewable technologies.” Lequime said.
“The difficulty in the scalability of hydropower, solar and wind power in a reasonable timeframe suggests that nuclear power will assume a more prominent role in the energy mix going forward. Uranium is seen to be at a critical turning point, where there is no path to zero that does not involve uranium.”
China sources just 5% of its energy needs from nuclear, but is rapidly scaling up. The United States, meanwhile, gets 20% of its’ energy needs from nuclear. The US Department of Energy is currently requesting US$3.5bn to rebuild America’s nuclear fuel supply chain, including uranium mining, in order to eliminate US dependence on Russian nuclear fuel imports. A further US$2.6bn has been requested to stimulate the small modular reactor industry.
And the recently enacted Inflation Reduction Act included investment tax credits, a US$700mln grant to build an enrichment facility and further loan guarantees of up to US$40bn to the uranium fuel supply chain.
In October 2022, Cameco, the world’s largest global supplier of uranium fuel for nuclear energy, and the private equity firm, Brookfields, acquired Westinghouse Electric Company, which services about half the nuclear power generation sector and is the original equipment manufacturer to more than half the global nuclear fleet.
“We believe that the move by Cameco to vertically integrate its business is motivated by a desire to counter Russia’s dominance in the conversion and enrichment side of the industry and influence in the nuclear reactor industry in Eastern Europe,” said Lequime.
“At present, nuclear fuel from Russia has escaped sanctions due to the West’s dependence on the fuel. The US still sources 20% of its enriched uranium from Russia, while Europe sources 40% of its needs from Russia. Capacity in Western Europe and the US can be expanded but will be maxed out in 2027-2029 without building new enrichment plants, which takes time. The conversion capacity can also be expanded in the West but will also be maxed out by 2027-2029. Introduction to Uranium The various activities associated with the production of electricity from nuclear reactions are referred to collectively as the nuclear fuel cycle.”