FEATURE: Uranium to take on bigger role as energy transition metal

Upward pressure on energy prices resulting from the Russia-Ukraine war is set to further boost interest in nuclear energy and uranium mining, already rising as nations seek to decarbonize energy supplies, prospectors and analysts told S&P Global Commodity Insights.

Uranium prices – stable between $20-$30/lb for several years until late 2021– have responded vigorously to the current decarbonization drive and to the war. On March 3 the spot uranium price shot to $50.75/lb, a near 10-year high, having risen by $7.50/lb, or more than 17%, in the previous seven days, as armed conflict in Ukraine created supply concerns.

S&P Global Commodity Insights' assessment of the current month spot price of U3O8 -- a uranium oxide compound -- to Canada at $50.75/lb at 1 pm ET March 3, is the highest reported since June 8, 2012, bolstered by strong purchasing by the Sprott Physical Uranium Trust, a Canada-based investment fund. The price weakened only marginally March 4 after a Russian attack on a Ukrainian nuclear power plant.

Buyers in the energy generation sector were said to be seeking to replace Russian-origin supply.

Uranium mining has been largely the domain of specialist companies including Canada's publicly-traded Cameco, Kazakhstan's state-owned Kazatomprom and Orano, part-owned by the French government. Mining major BHP produces some uranium at Olympic Dam mine in Australia. Rio Tinto sold its interest in the Rössing uranium mine in Namibia to China National Uranium Corporation Limited (CNUC) in 2019 to simplify its portfolio, and closed its Energy Resources of Australia Ltd (ERA) uranium mine and oxide processing operation in 2021. Junior miners are, however, now taking a more active role in this space. They maintain uranium's potential deficit and rising prices may bring some mining majors back onto the scene.

"The Russia-Ukraine conflict could encourage more interest in nuclear," said Kyler Hardy, CEO of London-listed mine developer Cloudbreak Discovery, an emerging lithium mine developer, who also admits to being "in love" with uranium.

Lithium and uranium are both now viewed as "energy transition metals," the difference between them being that depressed natural gas prices for many years delayed investment in uranium mining, while interest in lithium mining took off in 2016-17 after the Paris Agreement sparked the electric vehicle boom.

"Nuclear, and uranium, are needed to achieve net-zero," said Dev Randhawa , CEO of Canada-based uranium project generator and exploration company Fission 3.0 Corp. "Unfortunately the wind and the sun are intermittent. The need for electrical energy is going through the roof...for electric vehicles, cryptocurrencies. The middle-income population in India and China is growing very fast and will require more energy: it's estimated that by 2030 we may need 75% more power and where is that going to come from? Oil? Gas?"

Fission 3.0 raised C$18 million in Q4 2021 to prospect for uranium in Canada and will drill at three or four sites this year, Randhawa said. The idea is to identify mines that can be sold on to larger companies and brought on stream in 5-10 years' time.

"What determines the investment level is the price of the commodity," the Fission 3.0 CEO said.

Cameco mine expansion

Vertically-integrated Cameco is "very optimistic" on market prospects. "We're seeing countries move to nuclear with an appetite not seen in four decades," CEO Tim Gitzel told the BMO Global Metals and Mining Conference March 1. With around 70% of the world's energy currently still deriving from fossil fuels, decarbonization targets look difficult without more nuclear, he noted.

Cameco is expanding its uranium production from 12 million lb in 2021 to a projected 20 million lb this year and 28.5 million lb by 2024 on a 100% basis: the company also has mine partnerships with Orano. While spot prices have skyrocketed, the main part of the market is in long-term contracts, with very buoyant prospects, Gitzel said.

BMO analyst Colin Hamilton notes the emergence of small, modular nuclear energy reactors could "bring solid growth" to uranium demand in the longer term, as these don't need the same cooling waters of large reactors.

According to the World Nuclear Association, representing the global industry, two-thirds of the world's production of uranium from mines is from Kazakhstan, Canada and Australia. Mined production in 2020 at 56,287 mt of U3O8 accounted for just 74% of world demand -- a percentage that has been declining since 2015 -- putting pressure on stockpiles and on miners to boost output. And the association foresees huge demand growth: as of February there were 437 nuclear power reactors operable worldwide: 58 under construction, 96 planned and 325 proposed, including 168 in China. Fission 3.0 estimates current production levels at around 150 million lb (68,000 mt) this year but still with a 40 million-50 million lb deficit, which may persist until the price goes higher.

The Russia/Ukraine conflict has meanwhile intensified mined supply concerns.

Kazakhstan is the world's largest supplier of uranium, with around 41% of world supply. "Because of the control Russia has over Kazakhstan, Sweden has said they won't buy uranium from Kazakhs. That's why uranium from Canadian sources is more valuable than that in Kazakhstan," Randhawa said. "That's why the spot price went up and long-term deals are being signed by Cameco."

The war has led exports of various minerals from Ukraine including uranium to be suspended as shipping is at a standstill, points out broker SP Angel analyst John Meyer.