Uranium prices need to go higher to incentivize new mine builds amid growing demand from nuclear power plants. Source: Mike Kline (notkalvin)/Moment via Getty Images |
Uranium prices, up about 50% in the last year, have not risen enough to entice widespread mine restarts or capital expenditure-intensive mine builds, industry veterans say.
Over the past year, uranium prices have skyrocketed as Sprott Physical Uranium Trust Fund vacuumed up supply from the spot market, political instability flared up in Kazakhstan, Russia invaded Ukraine, and Japan heralded plans to restart nuclear reactors years after it idled operations in the wake of the 2011 Fukushima Daiichi disaster.
Platts spot uranium price is up about 45.6% to $47.25 per pound as of June 23 from $32.45/lb on June 24, 2021. It soared to nearly $64/lb on April 14, before pulling back through May and June.
Though the jump in prices helped spur Cameco Corp. to announce plans to restart some idled capacity earlier this year, it has not resulted in a broad push to reopen shuttered operations and build new mines, largely because uranium prices need to go higher for longer in order to convince investors the effort will be profitable, according to experts contacted by S&P Global Commodity Insights.
"Maybe five years ago we would have said $50/lb seems like the threshold to either restart or come back online," said Scott Melbye, president of the Uranium Producers of America, executive vice president of Uranium Energy Corp. and president and CEO of Uranium Royalty Corp. "But with inflation and higher capex, that threshold is definitely much higher for many operations."
Uranium mine restarts and, in particular, new mine builds need incentive prices in the $70/lb to $75/lb range, said Rick Rule, a Sprott Inc. director, former president and CEO of Sprott U.S. Holdings Inc. and a top shareholder of Sprott Inc., which launched the Sprott Physical Uranium Trust.
"Given there's an 80-million-pound supply deficit of uranium annually, and given the fact that uranium is an important source of carbon-free baseload power around the world, that means to me either the price clears through $75/lb in the next three, four, five years, or the lights go out," Rule said.
End of uranium's dark age
The past decade has been turbulent for producers. Uranium prices slumped after the Fukushima Daiichi reactor accident in 2011 and Japan decided to idle reactors amid public outcry over the safety of nuclear energy. In turn, low prices pushed producers to rein in mined output and Cameco found it cheaper to buy millions of pounds of uranium on the spot market to fulfill long-term contracts rather than mine it at a higher cost.
But in the past year, uranium prices climbed as geopolitical risks raised questions about the security of uranium's supply, among other commodities, and spot buying picked up through the Sprott Physical Uranium Trust.
Turmoil in Kazakhstan amid energy price-related protests in January and then Russia's invasion of Ukraine, which has isolated it economically from many U.S.-allied countries, have raised major concerns over U.S. dependence on imported uranium. Sixteen percent of the U.S. power sector's uranium needs came from Russia in 2020 out of a total of 48.9 million pounds, according to the U.S. Energy Information Administration. Other major suppliers included Kazakhstan and Canada, each accounting for 22% of 2020 purchases.
Melbye noted that some utilities in the U.S. energy sector are voluntarily moving away from Russian supply as U.S. politicians weigh measures to boost U.S. uranium mining and production and potentially ban imports from Russia.
"The energy industry is at the intersection of a number of megatrends: green energy ... security of supply and not having too many eggs in the Russian basket," Melbye said.
Russia's invasion of Ukraine has exposed supply-chain risk across multiple commodities, from uranium and other metals to oil, fertilizers and grain, Rule said.
"You'll find many societies beginning to attempt to diversify their access to a whole broad range of resources, understanding that even if they have to pay up a bit for supply, it will be less expensive in the end," Rule said.
But for that to happen through new mine builds, higher prices will have to come first to spur spending and meet growing global demand.
"We probably need eight to 10 new mines of varying sizes around the world coming online in the second half of this decade," Melbye said, pointing to uranium needs as China's nuclear fleet grows and other countries reconsider the role of nuclear power in the energy transition. "And they just haven't been incentivized."
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