Uranium Price Pause Creates Opportunity for Investors to Make Quick Gains

• Uranium markets have seen growing institutional investor interest, with prices rising from $30 to over $100/lb in the past 18 months
• The market is experiencing a "corrective pause" after a sharp rise in late 2023, with prices consolidating in mid $90s despite production cuts announced by key producer Kazatomprom and mixed messages from Cameco.
• Utilities are stepping back from spot market purchases but remain active in securing long-term contracts; uncovered requirements of 1.5-2.3 billion lbs through 2040
• New uranium producers coming online as prices make previously shut mines economical again; skilled labor and long permitting timelines remain challenges
• Sprott Physical Uranium Trust has been unable to issue new shares to buy uranium recently, but sees interest trickling down to junior miners as uranium prices enable project advancement

Introduction

The uranium market has seen a resurgence of interest from investors in recent years, driven by the increasing recognition of nuclear power's role in the clean energy transition. Prices for the radioactive metal have climbed from a low of $30 per pound in 2019 to over $100 per pound in late 2023, sparking a wave of investment into uranium mining companies and related vehicles such as the Sprott Physical Uranium Trust. However, the market is currently experiencing what one expert calls a corrective pause.

Recent Market Moves

We are experiencing a corrective pause, and that's it," says John Ciampaglia, CEO of Sprott Asset Management, who recently spoke at the Bank of Montreal mining conference in Florida. Ciampaglia notes that prices rose sharply from $60 in September 2023 to a peak of $106 before retreating to the mid-$90s currently.

He expressed surprise that the pullback wasn't more severe, given the change in guidance from Kazatomprom, the world's largest uranium producer. The Kazakh state-owned company initially said it would increase production by 8 million pounds in 2024, but later reversed course and announced no extra production. "It's a bit mind-boggling to us that the price of uranium is basically where it was on December 31st having that key fact hit the market," says Ciampaglia.

Utilities Step Back, But Long-Term Demand Remains

Ciampaglia believes some utilities that were consistently buying in the spot market in 2023 have moved to the sidelines for now. "We definitely think that there is an element of a bit of a 'buyer strike' going on right now," he says. "At the end of the day, you're only kicking the can down the road. You still have uncovered requirements, whether the price is $90 a pound or $200 a pound.

Those uncovered requirements are substantial. Estimates range from 1.5 billion to 2.3 billion pounds that utilities need to purchase between now and 2040. In contrast, current annual uranium production is only around 150 million pounds. While utilities have been less active in the spot market recently, Ciampaglia says they remain engaged in the term market, pointing to a recent request for proposals (RFP) seeking 20 million pounds over a 15-year period.

New Production Coming Online

One positive development is that higher uranium prices are enabling new production to come online. "It's fair to say that just about every previously producing uranium mine has a chance to come back online if there's any reasonable reserves left," says Ciampaglia. He notes announcements of restarts at mines that have been closed for 15 years as evidence that current prices make many projects viable.

However, he cautions that greenfield projects face more uncertainty at current price levels. Key challenges include access to skilled labor and lengthy permitting processes.

"Time is a killer," says Ciampaglia. "The longer you stretch these processes out and drag out first production and cash flow. It's just a huge disincentive to invest, to get behind these projects."

The Role of Investment Vehicles

One vehicle that has played a significant role in the uranium market's resurgence is the Sprott Physical Uranium Trust. The trust, which holds physical uranium as an investment, has amassed over 63 million pounds since its launch. However, it has been unable to issue new shares to purchase more uranium recently due to trading at a discount to its net asset value

"We have not been in such a position for the past several weeks," says Ciampaglia. "Until that discount closes, unfortunately, we're kind of on the sidelines." He remains optimistic though, noting that historically it has only taken one piece of news to close the discount and enable the trust to resume buying.

Interest Trickling Down to Junior Miners

While the Sprott trust has seen a pause in inflows, Ciampaglia notes increasing interest in Sprott's junior uranium miners ETF. He attributes this to the "trickle down effect" as uranium prices reach levels that make project advancement more feasible for smaller companies."Why is interest trickling down to the smaller cap companies? Well, it's because the uranium price achieving these thresholds disproportionately benefits them," he explains. Higher prices improve the ability of junior miners to raise capital and engage with utilities on potential future supply contracts.

Remaining Uncertainties

Despite the positive long-term demand outlook, uncertainties remain in the uranium market. The potential ban on Russian uranium imports in the U.S. has advanced in fits and starts, contributing to market volatility. "It's I can't even track it anymore in terms of where is it," says Ciampaglia regarding the legislative process.

Ciampaglia sees these policy moves as psychologically important for the market, but not as impactful as underlying supply and demand fundamentals. "At the end of the day, whether you hire Urenco to do your enrichment or you hire Rosatom doesn't matter - you still need the pounds," he says.

The uranium market has come a long way from the doldrums of the late 2010s, with prices reaching levels that enable new production and attract increasing investor interest. While near-term volatility and uncertainty remain, the long-term outlook appears strong as utilities face substantial uncovered uranium requirements in the coming decades. As Ciampaglia puts it, "It looks like nothing's happening, but it's moving all the time. Just very slowly.

The Investment Thesis for Uranium

• Long-term supply-demand fundamentals remain very favorable, with 1.5-2.3 billion pounds of uncovered utility requirements through 2040 vs. current annual production of ~150 million pounds
• Uranium prices at $90+ per pound make many previously uneconomic mines viable, with several restarts of mines idle for 15+ years announced recently
• Higher prices also improve the outlook for junior miners to advance their projects and potentially sign future supply contracts with utilities
• Sprott Physical Uranium Trust and other investment vehicles provide opportunities for investors to gain exposure to physical uranium and mining companies
• Potential U.S. ban on Russian uranium imports could further tighten supply, though underlying fundamentals are seen as a more important driver

The uranium market appears to be in the early stages of a sustained upturn, driven by the long-term fundamentals of rising demand from utilities and constrained supply. While near-term volatility remains, experts see the current consolidation as a healthy pause within a larger bullish trend. Investors can gain exposure through vehicles such as the Sprott Physical Uranium Trust and mining equities, with higher prices disproportionately benefiting junior miners. Though uncertainties such as U.S. legislative actions on Russian imports bear monitoring, the bigger picture remains one of a market moving slowly but steadily toward an inflection point as uncovered utility requirements collide with limited production.