Uranium Market Dynamics Point Investors to Sustained Higher Prices & Producer Upside

• Significant deficits emerging in uranium supply versus projected demand through 2040
• Utilities are shifting from spot market purchases to long-term contracting, driving prices higher
• Russian uranium ban and challenges of bringing new uranium mines online quickly
• Uranium market structure creates an asymmetric investment opportunity due to information disconnects

Case for Investing in Uranium: Supply Shortfalls & Rising Demand

The global uranium market is entering a pivotal period, with growing nuclear energy demand colliding with constrained uranium supply. This creates a compelling case for investors considering exposure to the uranium sector who should pay close attention to significant supply deficits emerging, utilities shifting to long-term contracting, and uranium prices likely to increase substantially in the coming years.

Supply-Demand Imbalance Driving Long-Term Contracting

One of the key themes is the growing imbalance between uranium supply and demand. By 2040, there will be a need for over two billion pounds of uranium supply that is not yet contracted for. This represents a massive deficit that must be addressed through increased production and long-term contracts.

Historically, about 75-80% of uranium trades through long-term contracts between producers and utilities. In recent years, contracting volumes have been well below replacement rates. From 2013 to 2023, long-term contracting averaged only about 82 million pounds per year, compared to 190-192 million pounds during the previous contracting cycle from 2005 to 2012. However, there are signs that a new contracting cycle is beginning. In 2023, excluding a hefty 60 million pound deal with Ukraine, about 100 million pounds were contracted long-term. While 2024 contracting volumes have been lighter so far at around 30-31 million pounds year-to-date, volumes will increase substantially.

This shift towards increased long-term contracting is a crucial driver for higher uranium prices and improved economics for producers. Utilities are recognizing the need to secure future supply given the projected deficits.

Term Pricing Diverging from Spot

An important dynamic to highlight is the divergence between uranium spot prices and long-term contract prices. While the spot price is down about 20% year-to-date to around $84/lb, the long-term contract price has risen 16% to $79/lb. The long-term price is far more relevant for valuing uranium companies and projects.

However, that's not where the value is created for developers and producers. That will all be driven by what people are willing to pay for contracts because when they develop a mine, the financiers will want to see contracts. Those contracts will come from the term market, and that term market is heading higher. Current long-term contracts are structured as market-related rather than fixed base-escalated pricing. This gives producers more upside exposure to rising prices. For example, recent contracts may have price floors in the $70s-80s but ceilings in the $110-120 range.

Challenges Bringing New Supply Online

A critical factor supporting higher uranium prices is the difficulty and time required to produce new mines. Potentially, 25% of the uranium supply needed to meet 2030 demand has not yet been permitted, financed, or built, creating a very tight supply outlook. Every mining project faces delays and cost overruns. Many proposed mines face significant logistical and technical challenges. For example, developing new mines in Canada's Athabasca Basin requires overcoming harsh conditions in remote locations. Geopolitical risks also complicate new mine development globally.

This supply situation contrasts with the previous bull market cycle in the 2000s. Back then, there was assured supply from the Megatons to Megawatts program, which converted Russian nuclear warheads into reactor fuel. Kazakhstan was also rapidly expanding production. Today, there are no comparable sources of new near-term supply.

Market Structure Creates Asymmetric Opportunity

The structure of the uranium market creates an unusually asymmetric investment opportunity. A significant disconnect exists between readily available information and the underlying supply-demand fundamentals. There has rarely been a market where the asymmetry exists as it does in uranium. Utilities lack strong financial incentives to secure the lowest possible uranium price. Their primary concern is ensuring adequate supply. This can lead to utilities being slow to recognize emerging shortages and failing to contract proactively.

Issues with uranium price reporting can obscure true market conditions. Long-term contract prices are reported based on the lowest offered price rather than actual transaction prices. Market-related contract structures with price floors and ceilings are not captured well in reported prices. These factors combine to create a situation where the true tightness in the uranium market is not fully appreciated by many market participants. This inefficiency provides an opportunity for investors who dig deeper into the fundamentals.

Historical Parallels to Previous Bull Market

While urging caution about direct comparisons, some interesting parallels exist to the previous uranium bull market in the mid-2000s. In late 2000, the uranium price was just $7/lb. By late 2004, it had risen to $21/lb; by late 2005, it had reached $36/lb. The year 2005 saw long-term contracting volumes surge from 80-90 million pounds annually to 250 million pounds. This kicked off a dramatic price increase, with spot prices eventually peaking at $136/lb in mid-2007.

Notably, industry forecasts at the time were still projecting significant supply surpluses even as prices skyrocketed. A similar dynamic could play out in the current cycle, with prices potentially overshooting to the upside even before consensus forecasts flip to showing large deficits.

Outlook for Uranium Equities

For investors considering uranium mining equities, valuation multiples expanded dramatically during the previous bull market. Last time we saw companies trading at over two times nav, we saw trading at 40 times cash flow. However, it's challenging to predict exactly how high valuations could go in another bull market scenario. However, there is substantial upside potential as uranium prices rise and producers secure higher-priced long-term contracts.

Technology-driven stories around small modular reactors (SMRs) or other speculative developments are unnecessary to justify an investment in the uranium sector, although they are welcome. The fundamental supply-demand imbalance for traditional reactors are sufficient to drive prices higher. The uranium market appears poised for a sustained period of higher prices driven by growing nuclear energy demand and challenges in quickly bringing sufficient new mine supply online. While volatility should be expected, the long-term contracting cycle now underway supports uranium producers and developers.

Investors can position themselves ahead of utilities, fully recognizing the scale of future uranium shortfalls. However, thorough due diligence on individual companies is essential, given the technical and execution risks involved in uranium mining. A disciplined, long-term approach focused on producers and developers with high-quality assets seems prudent.

The Investment Thesis for Uranium

• Severe projected supply deficits of over 2 billion pounds through 2040
• New long-term contracting cycle beginning, shifting pricing power to producers
• 20-25% of 2030 required supply not yet permitted or financed
• Term uranium prices diverging from spot, indicating tightening fundamentals
• Market structure creates information inefficiencies and potential mispricing
• Historical parallels to 2000s bull market suggest significant upside potential
• Consider exposure to established producers and near-term developers
• Focus on companies with high-quality, low-cost assets in stable jurisdictions
• Prepare for volatility but maintain long-term perspective
• Monitor long-term contract volumes and pricing as key indicators

The uranium market is entering a pivotal period, with demand growth outpacing supply. A new long-term contracting cycle is emerging, driving term prices higher despite recent spot price weakness. Bringing new mines online fast enough to meet demand will be challenging, supporting a bullish outlook. While volatility should be expected, the uranium sector offers an asymmetric investment opportunity for those who understand the unique market dynamics and fundamental supply-demand imbalance developing. Investors should focus on quality assets and producers while maintaining a long-term perspective.

Uranium Equities Poised for Growth as Nuclear Demand Rises

Energy Fuels Inc. (NYSE American: UUUU, TSX: EFR) presents a unique investment opportunity in the critical minerals sector. As the leading uranium producer in the United States, the company operates the White Mesa Mill in Utah, the nation's only conventional uranium mill, and owns the Nichols Ranch ISR Project in Wyoming. Energy Fuels has recently diversified its portfolio, expanding into rare earth elements (REEs) production with commercial separation beginning in 2024. This strategic move positions the company to capitalize on the growing demand for both nuclear energy fuels and high-tech materials.

The company's asset base extends beyond uranium and REEs, including vanadium production capabilities and exploration of radionuclides for cancer treatments. Energy Fuels has also made strategic acquisitions, including the Bahia Project in Brazil and a joint venture in the Donald Project in Australia, both with significant potential for titanium, zirconium, and REE minerals. With a focus on domestic production and a robust portfolio of development-stage projects, Energy Fuels aligns well with U.S. critical mineral security initiatives. .

For investors seeking exposure to the critical minerals sector, Energy Fuels offers a compelling mix of established uranium operations and growth potential in emerging markets like REEs.

IsoEnergy Ltd. (TSXV: ISO; OTCQX: ISENF) offers investors a globally diversified uranium portfolio across premier mining jurisdictions in Canada, the U.S., Australia, and Argentina. The company's flagship Larocque East Project in Canada's Athabasca Basin hosts the Hurricane deposit, boasting the world's highest-grade Indicated uranium Mineral Resource. This asset provides significant leverage to rising uranium prices and near-term development potential. Additionally, IsoEnergy holds a portfolio of permitted, past-producing conventional uranium and vanadium mines in Utah, strategically positioned for rapid restart under favorable market conditions. A toll milling arrangement with Energy Fuels further enhances the company's near-term production capabilities. With assets at various development stages, IsoEnergy provides investors exposure to near, medium, and long-term uranium market dynamics. This balanced approach allows the company to capitalize on current opportunities while maintaining a pipeline for future growth, making it an attractive option for investors seeking comprehensive exposure to the uranium sector.

Premier American Uranium Inc. (TSXV:PUR, OTCQB: AFFCF, FWB: K14, WKN: A3DQFB) presents a compelling investment opportunity in the U.S. uranium sector. The company is strategically focused on consolidating, exploring, and developing uranium projects across three of America's most prolific uranium-producing regions: the Grants Mineral Belt of New Mexico, the Great Divide Basin of Wyoming, and the Uravan Mineral Belt of Colorado. This diverse portfolio of extensive land holdings, boasting a rich history of past production and historic uranium mineral resources, positions Premier at the forefront of the domestic uranium revival.

Premier American Uranium's strength lies not only in its asset base but also in its robust backing from industry leaders and financial institutions. Supported by Sachem Cove Partners, IsoEnergy, Mega Uranium, and other corporate and institutional investors, the company benefits from a wealth of expertise and financial resources. Furthermore, Premier's management team brings unparalleled experience in U.S. uranium operations, enhancing the company's ability to navigate the complex landscape of uranium exploration and development. With uranium fundamentals currently at their strongest in over a decade, the Company's market positioning is particularly timely. The company's ongoing work programs aim to advance its portfolio, potentially unlocking significant value for investors. As the U.S. seeks to secure domestic uranium supply chains, Premier American Uranium's focus on American projects could prove increasingly valuable, offering investors exposure to the growing narrative of energy independence and clean power generation.

ATHA Energy (TSXV:SASK, OTCQB:SASKF) presents a compelling investment opportunity in the uranium sector, strategically positioned to capitalize on the growing demand for clean energy resources. The company's portfolio is anchored by three wholly-owned, post-discovery uranium projects with significant potential: the Angilak Project in Nunavut and CMB Discoveries in Labrador, together hosting historical resource estimates of 57.8 million lbs U3O8, and the newly discovered high-grade GMZ uranium zone in the Athabasca Basin. This diverse asset base provides investors with exposure to both established resources and exciting exploration upside.

ATHA's competitive advantage extends beyond its current projects. The company holds an impressive 8.4 million acres of prospective exploration land across two of the world's most prolific uranium basins, positioning it for potential future discoveries. Additionally, ATHA maintains a 10% carried interest in key Athabasca Basin exploration projects operated by industry leaders NexGen Energy and IsoEnergy, further diversifying its portfolio and potential for value creation. As the global focus on clean energy intensifies, ATHA's strategic focus on uranium exploration and development aligns well with long-term market trends. The company's extensive land package, coupled with its mix of resource-stage and exploration projects, offers investors a balanced exposure to the uranium sector's growth potential. With a clear focus on driving value through exploration and development, ATHA Energy represents an attractive option for investors seeking to participate in the clean energy transition.

enCore Energy Corp (NASDAQ: EU, TSXV: EU) stands out as a compelling investment opportunity in the U.S. uranium sector, positioning itself as "America's Clean Energy Company." As the only U.S. uranium producer with multiple operational facilities, enCore is strategically placed to meet the growing demand for clean, reliable, and affordable nuclear fuel. The company's competitive edge lies in its leadership team, comprised of industry experts with extensive knowledge in In-Situ Recovery (ISR) uranium operations and the nuclear fuel cycle.

enCore's success is anchored in its South Texas production facilities, with a robust pipeline for future growth. Key projects include the Dewey-Burdock project in South Dakota and the Gas Hills project in Wyoming, both poised to expand the company's production capacity. Additionally, enCore holds significant resources in New Mexico, along with non-core assets and proprietary databases, providing diverse avenues for value creation. The company's exclusive use of ISR technology, co-developed by its leadership, offers a proven and environmentally friendly method of uranium extraction. This approach aligns with enCore's commitment to sustainable practices and positive community impact, including engagement with local and indigenous communities.

For investors, enCore Energy Corp. presents an opportunity to participate in the clean energy transition through an established U.S. uranium producer with a clear growth trajectory. The company's operational success, expansion pipeline, and commitment to responsible development position it favorably in the evolving nuclear energy landscape.

Global Atomic Corporation (TSX: GLO; Frankfurt: G12; OTCQX: GLATF) offers investors a unique opportunity to gain exposure to both the uranium mining sector and the zinc industry. The company's Uranium Division is focused on developing the fully permitted Dasa Deposit in Niger, a large, high-grade uranium project discovered by Global Atomic's own geologists in 2010. With the "First Blast Ceremony" completed in November 2022 and plant commissioning scheduled for Q1 2026, the Dasa project is on track to become a significant uranium producer. Additionally, the company has identified three other uranium deposits in Niger, providing potential for future growth.

Complementing its uranium assets, Global Atomic's Base Metals Division holds a 49% stake in the Befesa Silvermet Turkey (BST) Joint Venture. This modern zinc recycling plant in Iskenderun, Türkiye, produces high-grade zinc oxide concentrate from Electric Arc Furnace Dust (EAFD), which is sold to zinc smelters globally. The joint venture partner, Befesa Zinc S.A.U., a market leader in EAFD recycling with a 50% share of the European market, operates the facility and holds the remaining 51% interest.

This diversified portfolio allows investors to benefit from both the growing demand for clean nuclear energy through uranium production and the sustainable metals recycling sector. Global Atomic's strategic positioning in these markets, combined with its progress in developing the Dasa Deposit and its established cash-flowing zinc operations, presents a compelling investment case in the resources sector.