It seems like yesterday - July 5, actually - when I asked whether a new bull market for uranium had begun. The answer to this question is apparent today - it's a resounding yes!
Uranium prices (UXU23) have surged to their highest level in 12 years - since 2011, before the Fukushima nuclear disaster - jumping about 12% to $65.50 per pound over the last month, according to data provider UxC. This price gain underscores a global renaissance in nuclear power, as utilities race to lock in nuclear fuel supplies.
Uranium demand has been lifted by governments around the world seeking energy independence, by both extending the lifetime of the existing fleet of nuclear reactors, as well as possibly building new nuclear plants.
Uranium Market Now
As the world continues to grapple with the challenges of climate change and energy security, uranium will likely continue to play a significant role in the global energy mix. Here’s where the nuclear power industry stands currently:
- 440 nuclear power plants are operating in 33 countries, providing 10% of the world’s electricity.
- Globally, a total of 90 nuclear reactors are on order or planned, with over 300 more in the proposal stage.
- The International Energy Agency (IEA) says that the nuclear industry will need to double in size over the next two decades in order to meet net zero emissions targets.
- Meanwhile, the near-collapse in uranium demand and prices following the Fukushima disaster led to a dearth of new uranium mining projects being developed. This has laid the groundwork for higher prices now.
- In addition, a coup in Niger (which produces about 4% of the world’s uranium) has added to the upward price pressure, as did Cameco (CCJ) lowering full-year forecasts for production in September, due to challenges at its Cigar Lake mine and Key Lake mill in Canada.
(Cigar Lake is the world's highest grade uranium mine; McArthur River/Key Lake are the world's largest high-grade uranium mine and mill.)
Uranium’s Glowing Future
Cameco is the world’s largest publicly-traded uranium producer and the second-biggest producer of uranium globally. Company CFO Grant Isaac said, “The days of buying $40 uranium are over — and probably also for $50 or $60. We’re going to need new supplies.”
He’s spot on. Here’s why:
A unique characteristic of the uranium market is its near-inelastic demand. Utility companies are compelled to purchase uranium for their reactors, no matter what the price of uranium is. So even if uranium’s price soars from $50 to $500 per pound, the change in cost per kilowatt-hour isn’t that bad, especially when compared to equivalent price surges in natural gas or coal.
According to Katusa Research, if there’s a tenfold price jump in uranium, the cost for electricity generation from a nuclear reactor would only rise by about 24%.
Another factor starting to come into play are innovations in nuclear technology, such as small modular reactors (SMRs). These newer technologies may not only increase the efficiency of uranium usage, but also boost its demand.
Smaller, more compact, and producing minimal emissions, SMRs are receiving more attention from both the public and private sectors. According to a report released in 2022 by research firm Valuates, the global market for SMRs is expected to surge a record 15.8% year-over-year to hit $18.8 billion by 2030. That is up from just $3.5 billion in 2020.
In addition, in early September, the World Nuclear Association (WNA) raised its forecasts significantly for nuclear power’s contribution to worldwide electricity generation and uranium demand.
It now estimates that more than 140 reactors could operate longer than previously expected, and 35 gigawatt hours of small modular reactors could be developed by 2040. This will require new mines to be developed to meet uranium’s demand, doubling to 130,000 metric tons annually.
By 2030, there should be another 32 nuclear power plants coming online, mostly in China, according to investment research firm Liberum. Each new reactor in China will need more than 100 tons of the mined U3O8 equivalent.
That growth, plus life extensions for U.S. nuclear power plants, means demand should exceed supply from 2025 forward.
Keep in mind, too, that the world’s two largest uranium producers - Kazakhstan and Canada - account for 58% of output. Close Russian ally Kazakhstan did supply some western buyers, but Russia has since blocked its obvious export routes.
Uranium Investments
All of this will translate to uranium prices continuing on their upward trajectory. It is very possible uranium may exceed its previous all-time high price of $148 a pound, which was set in May 2007.
There are a number of ways to play this new bull market for uranium.
First, you can buy the biggest uranium producer that is publicly traded - the aforementioned Cameco. It has already sold all of its output for years into the future. Its stock is up 39% over the past year, and more than 72% year-to-date!
There are also a few broad-based ETFs that invest in uranium miners. For example, the Sprott Uranium Miners ETF (URNM) is up 20% in the past year and more than 39% year-to-date.
Finally, you can purchase one of the funds that actually buys physical U3O8. An example of this type of fund is the Sprott Physical Uranium Trust Fund (SRUUF). It is up 37% in the last year and 41% year-to-date.
I believe all three of these instruments will see substantial gains (100%+) over the next several years - although I slightly favor SRUUF, which I think is less subject to investors’ whims.
