The uranium industry is in for a record year of term contracting as the Ukraine conflict continues to disrupt nuclear feedstock markets and exacerbate a supply deficit, according to Paladin Energy Ltd. CEO Ian Purdy.

A "massive disruption" hit nuclear fuel supplies following the invasion of Ukraine by Russia, which mined 6% of the world's raw uranium in 2020. As uranium prices climbed to a decade high, Paladin is preparing to restart the Langer Heinrich mine in Namibia by the first quarter of 2024. The asset has been under care and maintenance since 2018.

While industry veterans say uranium prices need to rise even more to entice widespread mine restarts or capital-intensive mine builds, Purdy observed a strong increase in both term and spot pricing this year.

"Term contracting volumes are on the rise. What's held back the uranium industry for the last decade was a lack of term contracting ... [which] has been well below consumption [since 2013]," Purdy told the Diggers and Dealers Mining Forum in Kalgoorlie, Western Australia, on Aug. 1.

"Utilities have been living off stockpiles, but in an environment of rising prices and shrinking secondary supplies, particularly out of Russia, this is no longer a viable option, and we're set for a record year of term contracting."

Both the spot and term prices have risen over the last 12 months, and projections from uranium pricing agencies UxC and TradeTech as well as broker consensus, for the first time in a decade, are consistent in their belief that the uranium price will significantly improve over the next five years, Purdy said.

"[TradeTech has] increased the deficits [it sees going forward] from the prior year's estimates," the CEO said. "The current primary uranium supply, including all the restarts like [Langer Heinrich], [is] insufficient to meet consumption not only today but into the future. There is an annual average deficit of some 40 million pounds per annum out for the next decade."

Uranium exploration, production

Paladin is moving into exploration again, Purdy said. In an environment where nearly 500 reactors are currently operating or under construction, nuclear energy accounts for almost half of the U.S.'s carbon-free electricity generation, while China has committed about 150 nuclear reactors for construction over the next 15 years.

"The message I would like to give today is: We're back," Purdy told delegates, referring to exploration work.

Paladin is starting exploration and development activities at the Michelin high-grade project in Labrador, Canada, reworking the 2009 concept study while pursuing a staged development focused on shallow materials. This year's focus will be airborne and field work activities ahead of a drill program in 2023 to 2024, Purdy said.

The miner expects peak production of just over 6 million pounds of uranium oxide per year from Langer Heinrich, which would represent about 4% of annual global production, Purdy told delegates.

Paladin announcing a return to production has "opened the door for the company to have bilateral talks with customers," given booming demand.

This is a big deal, Purdy said, as aspiring producers often have a tough time in actually landing a contract, and Paladin has had strong engagement in the U.S. and from Tier 1 counterparties in Europe and Asia.

Paladin already has off-take contracts secured, including a deal with CNNC Overseas Uranium Holding Ltd., which owns 25% of Langer Heinrich and a unit of major Chinese nuclear utility China National Nuclear Corp.

The Ukraine conflict has disrupted the market for enriched material, which is "occupying a lot of attention" among utilities, Purdy said.

"We see that cascading down to uranium supplies, particularly with utilities now questioning their ability to get secure supply from Kazakhstan and other jurisdictions that are affected by the Russian conflict."

S&P Global Platts is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is owned by S&P Global Inc and produces content for distribution on S&P Capital IQ Pro.