An employee assesses the control rods unit for fuel elements while the reactor is turned off for a routine inspection at a nuclear power plant in Kruemmel, Germany, on Aug. 15, 2007. Recent plays in the uranium spot market have occurred amid a torrent of change in the nuclear power space.
Uranium juniors faced with the prospects of a nuclear renaissance and prices below the cost of production are trying to capitalize on their dilemma with a simple strategy: buy, buy, buy.
U.K.-based uranium purchaser Yellow Cake PLC elected March 15 to fully exercise its $100 million uranium purchase option for 2021 with JSC National Atomic Co. Kazatomprom and agreed to purchase another 440,000 pounds from the Kazakh uranium major. The move may prompt Kazatomprom, which is the largest uranium producer in the world, to purchase material on the spot market to fulfill outstanding contracts.
"We will evaluate our inventories and it's possible we will buy material from market," Kazatomprom Chief Commercial Officer Askar Batyrbayev told Bloomberg News on March 16.
On the same day as Yellow Cake's option exercise, Canada-based Denison Mines Corp. announced it would run a financing targeting roughly $75 million to purchase uranium concentrates "as a long-term investment." Two days later, U.S.-based Uranium Energy Corp. purchased 800,000 pounds of uranium and launched a $30.5 million financing to fund additional purchases. The financing closed March 22.
These uranium spot market plays have been announced amid a torrent of change in the nuclear power space. Large power consumers such as China and the U.S. are growing more open to nuclear power as a pathway to decarbonization. But uranium supply has not seen mainstream investment in years due to the souring of market sentiment after the 2011 Fukushima Daiichi nuclear disaster.
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The coronavirus pandemic worsened the supply issue by shutting down output from some of the largest uranium mines. This imbalance created a bull market that has attracted increased investment from a range of sources, from seasoned financiers to retail players getting advice on Reddit.
Uranium Energy Executive Vice President Scott Melbye explained the spot purchases as a "very strategic decision" during an interview. Carbon-neutrality plans in China have become a "strong bullish catalyst" for uranium producers and Uranium Energy is "hearing the right things" from the Biden administration in the U.S., Melbye said.
"Obviously we can't see the future any better than anyone else but we do understand the uranium market, [and] I think the fundamentals look as strong for uranium supply and demand than they have ever looked, frankly," Melbye said. "[We] think the market will get back to a more normal procurement cycle and the supply side has really changed."
Chinese investment in nuclear power will specifically be pivotal for bringing new supply into the market, Kopernik Global Investors analyst Taylor McKenna told S&P Global Market Intelligence. Supply is expected to be in deficit for years to come after the pandemic and the goals set forth by China make it "pretty hard for us to envision how they get there without nuclear power," McKenna said.
McKenna noted that Chinese nuclear buildouts may result in a demand increase sufficient to rocket uranium prices to levels that would incentivize new production.
S&P Global Platts assessed the 12-month average of uranium spot prices at $30.14/lb as of 1 p.m. on March 23, based on the mean of assessed activity for U3O8 over the next 12 months to Canada. The assessment is $2.29/lb higher week on week.
"It's very important for the incremental supply in the long run. There's very few markets that are pricing in the commodity overall the commodity," McKenna said. "Its hard to be exact. But without China it would be much harder to paint a rosy picture for uranium rising to the incentive price."
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.