Rising Contract Prices & Global Decarbonization Goals Reviving the Uranium Market

• Uranium spot prices were low at the end of 2024 due to liquidation by some holders and lack of buying volume, but contract prices increased.
• Jurisdictional risk is a major factor for uranium projects, with examples of projects being derailed in Mongolia, Niger, Kazakhstan and Canada.
• Nuclear energy currently provides 9% of global electricity supply but faces headwinds in growing its share due to long development timelines for new reactors.
• Explorers and producers are optimistic about the uranium market in 2025, with more investment expected in exploration and development.
• Analyzing company spending, especially on general and administrative costs, is important for investors to assess the prudence of uranium companies.

The global uranium market has faced challenges in recent years, with spot prices remaining depressed through much of 2024. However, there are signs of optimism emerging, as uranium producers and explorers gear up for what they anticipate will be rising demand driven by a growing need for carbon-free baseload power from nuclear energy. 

Current Market Dynamics 

Uranium spot prices languished in 2024, ending the year on a weak note. According to Chris Frostad, CEO of Purepoint Uranium, this was primarily due to some holders liquidating their uranium inventories and an overall lack of buying in the market. The seasonality in uranium markets, with tax loss selling and general year-end slowdowns potentially exacerbating the softness.

However, despite the spot market weakness, uranium contract prices, which represent the majority of utility purchasing, showed strength in Q4 according to Frostad. He believes the muted spot buying indicates that purchasers shifted their focus to contract negotiations to secure long-term supply. This is an important distinction, as spot prices tend to be more volatile and less reflective of true market fundamentals compared to contract prices.

Looking ahead, Frostad expects uranium prices to strengthen in 2025. He points to a renewed interest in nuclear energy globally as a reliable, emissions-free power source. Many countries are reevaluating their energy mixes in the context of decarbonization goals and energy security concerns. This is translating into more investment in the uranium production pipeline.

Jurisdictional Risk 

A key factor for investors to consider when assessing uranium companies is jurisdictional risk. As Frostad explains, the rules and operating environment vary significantly between countries. He provides the cautionary example of Khan Resources in Mongolia. Despite investing tens of millions into a uranium project in partnership with Russian interests, Khan saw its mining licenses revoked and reissued to its Russian partner in a process Frostad describes as lacking the "civil approach" expected in Western countries.

Similar issues have impacted projects like Paladin's mine in Malawi, and Rio Tinto's in Namibia. Even in Canada, Frostad notes Strateco Resources had a project in Quebec shut down after significant investment due to local opposition. He stresses the importance of understanding the nuances of each jurisdiction, down to the state or province level. British Columbia is generally mining-friendly but opposes uranium, for instance.

On the positive side, improving sentiment toward nuclear energy could lead to the lifting of current moratoria on uranium mining in places like Virginia and Australia. Frostad believes a change in federal government in Australia could open the door to uranium development. In Canada, the government insisted on measures to limit China's influence over uranium assets when approving Paladin Energy's merger with Fission Uranium.

The Energy Show with Chris Frostad, President & CEO of Purepoint Uranium

Nuclear Power Outlook 

Nuclear energy provides about 9% of global electricity currently and faces some headwinds in substantially growing its share. Bringing new nuclear capacity online is a lengthy, expensive process fraught with potential delays. This makes rapid nuclear growth challenging compared to alternatives like natural gas and renewables which can be deployed much faster.

"You're talking about many multiple years, you've got a lot more hurdles to get a nuclear reactor going than your average [setup]."

However, nuclear power still plays an important role as a stable source of emissions-free baseload power. Many experts contend that a push to decarbonize the grid and electrify sectors like transportation will necessitate growth in nuclear power. Frostad expects rising demand for uranium as more reactors are built globally. While the growth trajectory may not be as rapid as some uranium bulls forecast, the need for new supply appears inevitable as reserves deplete at existing mines.

Uranium Equities 

Uranium producers and explorers saw their equity prices drift lower in late 2024 along with the spot price. However, Frostad reiterates his view that there is a lot of seasonality in uranium equities as well due to factors like tax loss selling. He notes prices rebounded in early 2025 as they typically do.

For companies, Frostad reports anecdotally that industry giants Cameco and Orano are investing more in exploration than they have in the past 5-7 years as the market outlook improves. Previously, during the downturn, they pulled back on exploration to conserve cash like most miners do in lean times. The renewed exploration spending is a positive signal for sentiment:

"We're seeing a lot more effort on the exploration side... both of them [Cameco and Orano] are opening themselves up to making more investment in exploration than they have over the last five or six, seven years. When things get tightened, things get slow, that's usually where mining companies will pull back on the exploration."

When assessing uranium equities, Frostad underscores the importance of strong management teams with a track record of creating value and advancing projects. In the exploration and development stage, companies need sufficient capital to weather the long lead times and potential setbacks in the uranium space. Jurisdiction is also key - ideally assets are located in areas with clear regulations and mining-friendly governments. Firms with diverse asset bases are generally lower risk than those concentrated in one area.

The Investment Thesis for Uranium

• Demand for nuclear energy as a reliable, clean baseload power source is likely to grow as grids decarbonize and electrification increases. Uranium demand would rise in tandem.
• Higher contract prices and renewed investment in exploration and development signal that producers expect uranium prices to rise in the years ahead.
• Geopolitical events and government policies can rapidly reshape the uranium landscape. Look for assets in jurisdictions with stable regulations and "mining-friendly" stances. Monitor potential removal of current restrictions in places like Australia and the US.
• Analyze corporate spending closely. Favor companies allocating the bulk of funds to value-add activities like measured exploration and development of quality assets.
• Back credible management teams with the expertise, relationships and financial prudence to endure the long cycles of uranium markets.

The uranium market appears poised for an upswing after a challenging period, but investors need to be highly selective in choosing companies to gain exposure. Strong due diligence to evaluate asset quality, jurisdictional risk, management capability and capital allocation is essential.

Uranium bulls will need some patience, as lead times in the industry are lengthy compared to many other sectors. However, the necessity of nuclear power in a decarbonizing world is becoming increasingly clear, setting the stage for a potential surge in uranium demand and prices.