Uranium Update 3
Q3 2022
Demand update
Japan
Japan aims to restart seven more reactors from next summer onward. This would increase the total number of reactors online to 17 out of 33 operable reactors in-country. Japan also scrapped the lifespan cap of 60 years for nuclear plants. The country is also exploring the development and construction of new next-generation reactors
South Korea
South Korea wins US$2.25B order to build 4 -1200 MW nuclear power plants in Egypt.
United States
US Senate has passed the Inflation Reduction act. Provides US$30B in Nuclear reactor support and US$700M for High-Assay Low-Enriched Uranium. It has US$15 per MWh production tax credit for existing nuclear reactors.
Diablo Canyon is saved.
There is a push to reopen the Palisades nuclear plant. Decision will be made by Jan 2023.
Tennessee Valley Authority is planning to extend the lifespan of its largest nuclear plant (Browns Ferry) by two decades – from 60 to 80 years.
Pickering nuclear plant in Ontario to be extended.
China
China has 21 reactors under construction. China's target is to build 6-8 a year. But they state that they have capacity to build 10 reactors a year.
Europe
Germany will keep all three of the country’s remaining nuclear power plants operating till mid-April 2023.
Unfortunately, Belgium has shut down Doel-3. But it has extended the lifespan of its youngest nuclear plants.
European Parliament's Committee on Industry, Research, Telecoms & Energy has voted in favor of authorizing EU nations to finance nuclear energy projects from 723.8 billion Euro RePowerEU plan.
Supply update
Conversion and Enrichment
Rosatom has been removed from the list of speakers at the International nuclear energy summit in Washington.
In an interview, Orano communicates that:
There is still uncertainty over whether similar bans on Russian uranium as those for gas will happen. There are strong statements from the US and EU, but no final decisions yet. Not all, but some of the utilities are starting to consider not buying from Russia. Some, such as those in Eastern Europe (understandably), are quite adamant about not purchasing from Russia.
They are seeing stronger demand for enrichment than for conversion, which is surprising. They are ramping up conversion capacity, but are not seeing any need to expand capacity yet.
For enrichment, they are seeing stronger demand and hence more open to building new capacity, but not yet. They estimate new capacity will take 5 to 6 years to build.
There is no underfeeding anymore, but there is no overfeeding yet, because there is no UF6. Conversion is the bottleneck. Orano believes this to be the case for Urenco as well.
Miners
Kazatomprom warns that shortages of materials has led to production shortfalls and that delays in commissioning new wellfields has led to lower capital spending & postponement of mine development which is expected to negatively impact 2023 & 2024 Uranium production. Meanwhile, it has made a decision to shift production from minus 20% subsoil in 2023 to minus 10% subsoil in 2024. This is based on their success in signing mid- and long-term contracts with new and existing customers.
Year to date for Cameco, they have added more than 50 million pounds in long-term contract portfolio and more than 7 million kgU UF6 conversion in their fuel services segment. In addition, they have advanced contracting discussions for about 27 million pounds of long-term uranium contracts and 7.5 million kgU of conversion services. Once all contracts are finalized, the total volume of uranium successfully contracted since the beginning of 2022 is expected to be about 77 million pounds, and the total volume of conversion services contracted is expected to be about 14.5 million kgU.
Cameco restarts: McArthur River/Key Lake continue to expect first production in fourth quarter.
Cameco is also moving into energy provision, with a partnership with Brookfield Renewable Partners to acquire Westinghouse Electric Company.
Market update
The spot market for Q3 was quiet, with utilities shifting their attention to potential bottlenecks in the conversion and enrichment segments. Uranium spot activity was very limited throughout July and August, with the spot price ranging between US$45.00/lb U3O8 and US$50.00/lb U3O8. Activity in the spot market picked up in September pushing the price to US$52.00/lb U3O8.
According to third-party market data, spot volumes transacted over the first nine months of 2022 were about 40% lower than the same period last year. A total of approximately 41 million pounds U3O8 was transacted at an average weekly spot price of US$49.67/lb U3O8, compared to about 71 million pounds U3O8 at an average weekly spot price of US$31.96/lb U3O8 during the first nine months of 2021.
In the term market, third-party data indicated that contracted volumes totaled about 80 million pounds U3O8 (30,600 tU) through the first nine months of 2022, compared to about 53 million pounds U3O8 (20,200 tU) in the same period of 2021. The 50% increase in term contracting activity to date in 2022 led to a significant US$8.50/lb U3O8 increase of the long-term price indicator at the end of the third quarter, resulting in an average term price of US$51.50/lb U3O8 (reported on a monthly basis by third-party sources).
UxC reports that utilities have signed contracts for 106.5M lbs so far (as of 8 November 2022) in 53 transactions, which is the largest term contracting volume in a decade. Spot volume is reported at 52.7M lbs YTD.
Rest of fuel cycle:
Conversion UP +$2 to a new All-time Record High of $40/kgU
UF6 UP +$12 to $176.75/kgU
Enrichment SWU UP +$2 to $94
Equity update
The equities have been rangebound for months. The miners remain undervalued relative to the commodity, at lows not seen since August last year.
Company update
Global Atomic
Global Atomic expands ore body: Global released new drill results from their Dasa Project located in Niger. These most recent drill results from the 15,000-meter drill program that commenced September 2021 at the Dasa Project clearly show that the orebody is expanding with attractive grades, to boot. The current drill program was designed to infill and expand the Dasa orebody and upgrade Inferred Mineral Resources to the Indicated Resource Category by drilling the deposit with tighter drill spacing that would then qualify for Mineral Reserves once the updated Mine Plan is completed. The news is very positive as these new results confirm the expansion of Zone 4, filling in the gap between Zones 3 and 4.
Encore Energy
Encore Energy consolidates shares and uplists to Nasdaq.
My thoughts
Watching this sector is like watching paint dry. The fundamentals do continue to improve, with nuclear restarts. There are short term bullish factors, such as production shortfalls. Term contracting is picking up.
But enrichment and conversion are still bottlenecks, and while the fuel cycle is prioritized in reverse and underfeeding is gone, for us to see overfeeding, it may be a year or more.
Meanwhile, term contracting is picking up. Nobody knows when the market will want to price that in (or may it already has?).
So I remain long term bullish, and there’s almost nothing that can shake that conviction. But the speed at which the thesis plays out depends on many factors:
Sanctions on Russia
Degree of stockpiling by governments
Further supply challenges (like another flood)
How far utilities are going to kick the can down the road
These are things that are difficult to assign a probability or time to. Sanctions may not be put in place as fast or as hard as we think. Governments can be remarkably slow. Unexpected supply challenges may never happen. Utilities seem to mostly content to live in complacency for now.
But while “when” is difficult to answer with the Uranium thesis, “how” is largely a given. The longer the returns take to manifest, the more violent the eventual move. And it has to happen, because there is no alternative. And it will be violent, because of the degree of the shortage, and also because utility demand is procyclical. The utilities have to buy.
In the meantime, I’ll wait.