When the global coronavirus pandemic led to a monthslong closure at the world's largest source of uranium, the Cigar Lake mine in Saskatchewan, mine owner Cameco Corp. initially believed that the positive price movement created by the supply cut would finally give lift to a stuttering market.
But gutting output from the Cigar Lake site contributed to two quarters of net losses for Cameco. The company now believes that the nuclear fuel market has stalled as utilities continue to negotiate long-term supply contracts that were in discussion before the pandemic began. Cameco may also be one outbreak away from pulling production back again as reports of coronavirus cases surge in Saskatchewan.
Cameco President and CEO Tim Gitzel outlined these concerns during a Dec. 1 panel hosted by Scotiabank Global Banking and Markets, saying the pandemic "really slowed things down" in the uranium market. Utilities were "interested but unwilling" to commit to long-term fuel contracts in 2020, and the "full pipeline of discussions going on early in the COVID outbreak" were ongoing, Gitzel said.
"We're looking forward to a fairly healthy 2020, 2021 in the uranium space, and this COVID has really put a damper on things," Gitzel said. "[Utilities have] been taking pounds off the spot market and saying, 'Can we kick some of these long-term contracting issues down the road?'"
As COVID-19 made its way around the world and the pandemic impacted the few mines that produce the bulk of the Earth's uranium, analysts predicted that by short-circuiting the supply chain, the health crisis could have prompted utilities to engage more with the spot market and enter into long-term supply contracts to avoid the worst of a price increase. Observers said the shutdown of Japanese reactors after the 2011 Fukushima Daiichi disaster left a glut of uranium supply, and mine shutdowns would lead to rebounds in pricing and a return to robust market activity.
Gitzel said that instead, the steep rise in the uranium spot price witnessed early in the pandemic has entered a holding pattern at about $29 per pound to $30/lb, which he acknowledged could be a floor. The executive thinks that the market experienced "a bit of short-term-ism in 2020" as utilities around the world that have previously worked with Cameco just bought pounds of material on the spot market to fill inventory fuel gaps.
"[They] have been sitting on the sidelines saying, 'Is now the time to commit to a five-year, 10-year program with Cameco, with the Kazakhs, with anybody? When we don't know what the future's going to look like?'" Gitzel said.
While Cameco and uranium consultancy UxC have noted "a recent pick-up in term contracting interest from both U.S. and non-U.S. utilities," and off-market activity in the uranium space "has been trending higher," term contracting is on track to be the lowest since 2013, TD Securities analyst Greg Barnes said in a Nov. 25 note.
Uranium mine output in 2020 is estimated to be at a 12-year low due to the pandemic, while Barnes said the catalyst that could support the next rise in uranium pricing would be "a meaningful return of utilities to the term contracting market."
As a result, Cameco may for the first time face a double-whammy of poor market conditions and virus-related production cuts.
The number of daily new confirmed cases of COVID-19 in Saskatchewan has been trending upward since the end of September, according to provincial government data. Cameco disclosed Nov. 28 that an employee at Cigar Lake tested positive for the virus and had been in isolation for days and said it would provide further updates when possible.
"We're an outbreak away from having to take other decisions," Gitzel said during the panel. "We had a case. We were able to manage it. But Saskatchewan is not a great place for COVID. We're going the wrong direction."