The Nuclear Renaissance: Why Investors Should Pay Attention

• Nuclear energy is experiencing a renaissance as countries prioritize energy security, sustainability, air quality, and land use efficiency. Major users like China and Japan are expanding capacity.
• Small modular reactors (SMRs) and advanced reactors are game-changing technologies that reduce nuclear project risk and costs.
• Merger and acquisition activity is increasing as uranium producers and utilities position themselves for expected growth in nuclear power.
• More consolidation is likely as utilities seek reliable fuel supplies and uranium assets remain attractively valued.
• With uranium demand forecast to outpace constrained supply, the nuclear energy sector offers compelling investment opportunities across the value chain.

Nuclear energy is undergoing a renaissance as countries around the world look to meet growing electricity demand and decarbonization goals. Major shifts in policy and public sentiment, along with new technologies like small modular reactors (SMRs), are driving renewed interest in nuclear power. For investors, this resurgence presents compelling opportunities across the nuclear value chain.

In this weeks Energy Show, Siobhan Lancaster of 92Energy joined us to talk about the demand side of the nuclear equation and how the uranium mining industry might play out and reorganise itself in the coming decades. Siobhan provides an overview of where current nuclear power production comes from, with the US as the largest producer followed by China and France, and notes that most major nuclear power producers are not significant uranium suppliers themselves.

Interview with Siobhan Lancaster, CEO/MD of 92 Energy Ltd.

Surging Nuclear Demand Driven by Energy Security and Sustainability Goals

Several powerful forces are propelling nuclear energy back into the spotlight after years of decline following the 2011 Fukushima disaster in Japan. The top drivers include:

• Energy security - Russia's invasion of Ukraine underscored for Europe the risks of over-reliance on imported fossil fuels. Nuclear provides energy independence and insulation from volatile prices. Countries worldwide want to avoid future shocks.
• Sustainability - With COP26 goals in mind, nuclear energy’s low-carbon credentials make it an attractive baseload power source as countries phase out coal. Nuclear offers reliability that wind and solar cannot.
• Air quality - Nuclear energy helped China combat dangerous levels of air pollution from coal power in major cities like Beijing. Other Asian countries face similar problems.
• Land constraints - Compared to sprawling wind and solar farms, nuclear’s small footprint is appealing for densely populated countries where land is scarce.

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'In the latest edition of its annual Energy, Electricity and Nuclear Power Estimates for the Period up to 2050, the IAEA has revised upwards its global growth projections for a third straight year. In both its high and low case scenarios, the IAEA now sees a quarter more nuclear energy capacity installed by 2050 than it did as recently as 2020.' World Nuclear News - October 2023.

Several major nuclear countries aim to expand capacity:

• China plans to double nuclear generation by 2040, accounting for 20% of electricity. It will build more plants than the rest of the world combined.
• Japan is restarting nuclear power post-Fukushima, targeting over 20% nuclear energy by 2030.
• The U.S. is extending plant licenses to 80 years and has bipartisan support for new nuclear projects.
• Canada, the UK, and others are backing new SMRs and advanced reactors.

New Nuclear Technologies Reshaping the Industry

Traditional large-scale nuclear reactors have struggled with high upfront capital costs and long construction timelines of over 5 years. Now, a new generation of SMR and advanced reactor technologies promise to disrupt the industry:

Small modular reactors - With output of 300 megawatts or less, SMRs offer a flexible, affordable option suitable for replacing fossil fuel plants. Their modular construction enables incremental capacity expansion. SMRs can be manufactured in factories and shipped to sites, reducing costs.

Advanced reactors - Futuristic designs like molten salt reactors, high-temperature gas-cooled reactors, and sodium-cooled fast reactors offer new approaches to safety, waste, and costs. Bill Gates' TerraPower is developing a next-gen traveling wave reactor.

'There is strong interest in small and simpler units for generating electricity from nuclear power, and for process heat. This interest in small and medium nuclear power reactors is driven both by a desire to reduce the impact of capital costs and to provide power away from large grid systems. The technologies involved are numerous and very diverse.' The World Nuclear Association - July 2023

For investors, SMRs and advanced reactors check important boxes:

• Lower project risk - Newer technologies reduce capital requirements and construction times
• Proven designs - Many SMRs scale down existing large reactor tech rather than reinventing the wheel
• Large potential market - SMRs can readily replace coal and gas plants in many countries

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M&A Heating Up as Utilities and Producers Prepare for Growth

Recognizing nuclear power's renewed potential, consolidation is picking up as companies position themselves to benefit:

• Cameco acquired Westinghouse in 2018 to vertically integrate fuel services and reactor tech
• In 2022, Paladin Energy merged with global producer Deep Yellow in an all-stock deal worth US$717 million
• SMR developers like NuScale and Rolls Royce are attracting fresh investment from utilities and public markets

More M&A is expected as utilities seek reliable fuel supplies and uranium asset valuations remain attractive versus spot and term contracting prices. Deep-pocketed state-owned companies may pursue international acquisitions aligned with their nations' strategic interests.

Investors can gain exposure to consolidation through uranium producers, developers, and royalties/streaming companies active in M&A. Geopolitical considerations favor Western-aligned nations like Canada and Australia.

Conclusion: Set to Outperform Renewables and Fossil Fuels

After a prolonged slump, nuclear power is primed for new glory in the 2020s as countries prioritize energy security and sustainable baseload electricity. New technologies will reshape how nuclear plants are built. With uranium demand forecast to outstrip constrained mine supply, asset valuations across the nuclear energy value chain appear compelling for investors.

Siobhan concludes that nuclear demand is likely to exceed forecasts and highlights the crucial significance of uranium within the context of nuclear energy. In our last interview, Siobhan took us through a beginners / refreshers guide to uranium supply and presented an informative overview of the global uranium market.