Uranium Set to Power Higher as Supply Lags Accelerating Nuclear Demand

• 2024 was a watershed year for the nuclear industry, with increased electricity demand driving more reactors to stay online or be brought back online.
• Big tech companies like Microsoft, Amazon, META and Google are investing billions into small modular reactors (SMRs) and buying electricity directly.
• Challenges remain in ramping up uranium production to meet growing demand, including a lack of skilled workers, slow permitting, and supply chain issues.
• Spot uranium prices plateaued in late 2024 due to a battle between buyers and sellers, but are expected to see continued upward pressure in 2025.
• Ur-Energy CEO John Cash believes uranium prices will need to reach $90-100/lb long-term to properly incentivize new production to meet demand.

The nuclear energy industry experienced a pivotal year in 2024 as the world increasingly turned to nuclear as a critical solution for clean, reliable baseload power in the energy transition. Demand for electricity surged due to accelerating electrification and the adoption of new technologies, which drove strong fundamentals for nuclear energy and uranium. For investors looking to gain exposure to a high-growth sector with an important role in decarbonization, the uranium market presents a compelling opportunity.

Nuclear Renaissance Momentum

2024 marked a major inflection point for the perception and adoption of nuclear energy globally. Previously shut down reactors like Three Mile Island are being seriously considered for restart, while reactors slated for closure like Diablo Canyon will likely remain online, according to Ur-Energy CEO John Cash. This reversal in sentiment is being driven by the realization that intermittent renewables alone cannot fully replace fossil fuels - nuclear energy is needed to provide always-on, emission-free baseload power.

The renewed focus on energy security following Russia's invasion of Ukraine in 2022 also boosted the case for nuclear.

As Cash noted, "Throwing in geopolitics into a system that was already pretty fragile, then you throw in the invasion of Ukraine and the gas supply to Europe, electric supply, and it was a real wakeup call...for the Energy Transition commentators"

Environmental groups that were once opposed to nuclear are beginning to accept it as at least a necessary transitional energy source. The net result is strong, sustainable demand growth for nuclear.

Big Tech Bets Big on SMRs

An exciting new source of capital and demand for the nuclear industry is coming from an unlikely source - big tech. Companies like Microsoft, Amazon, META and Alphabet are investing billions of dollars, mostly into the development of small modular reactors (SMRs).

Cash explained, "You're seeing some significant financing coming from Microsoft, Amazon, Google, where they are putting some serious money, billion, many billions of dollars into the industry to build out."

Tech giants are interested in SMRs for two key reasons:

• Securing access to 24/7 clean energy to power their electricity-hungry data centers and operations
• SMRs' enhanced safety and flexibility compared to conventional reactors.

While SMRs are still several years away from deployment, developers must sign long-term uranium purchase agreements well ahead of reactor completion in order to ensure an adequate fuel supply, providing an additional source of contracting for miners.

Utilities Back in the Black

The improving outlook for nuclear energy has significantly boosted the financial strength of major utilities that operate reactors. Cash remarked looking at the profitability of nuclear utilities in the US:

"They're not behaving like utilities, they're far outpacing the traditional utilities. The share prices are way up, the profitability is way up. So if you had invested in utilities 2-3 years ago, you're doing really well right now."

Policy support like the Inflation Reduction Act, which provides tax credits for existing nuclear plants, has also enhanced the economics of reactors. The combination of greater revenue potential and favorable policies is providing utilities the financial capacity to extend the life of their reactor fleets and potentially build new units, which will increase their long-term uranium requirements.

Uranium Supply Needs to Step Up

While nuclear energy demand is poised for substantial growth in the coming years, a key uncertainty overhanging the market is whether uranium miners will be able to scale up production quickly enough to meet reactor requirements. Uranium prices remained volatile in 2024, with spot prices plateauing in the $80s/lb amid a tug-of-war between utilities and financial players.

However, Cash sees several factors that should place upward pressure on prices going forward. He noted that uranium mines globally are struggling to ramp up output as quickly as previously expected, stating "we've seen a number of announcements over the last few months of companies, including Ur-Energy, the ramp up is slower than we expected it to be, and we expect to see more of that globally going forward, and that's going to put more pressure on that supply-demand fundamental."

Reasons for the slower-than-anticipated production response include:

• A shortage of experienced workers: Many experts left the uranium industry or retired after the post-Fukushima downturn
• Long lead times for new mines: 7-10 years to bring a new discovery into production in the US due to permitting
• Minimal exploration since Fukushima: Depressed prices meant little money available for exploration to replenish project pipelines
• Stubborn mining cost inflation: Across labor, energy, reagents, equipment and more

As a result, the global uranium market is likely to experience a widening structural deficit as demand outpaces supply later this decade, placing upward pressure on contract and spot prices. While $80/lb incentivized some production increases and restarts, Cash believes prices still have further to run,

"Does $80 get us to where we need to be? I don't think so. I think it's going to need to be $90 - $100 a pound in the term market to really incentivize that production."

Higher prices will be required to bring sufficient long-cycle supply online to meet demand.

After a long period in the wilderness following the Fukushima disaster in 2011, the nuclear energy industry has entered an exciting new chapter, with growing appreciation of its role in the energy transition and improving fundamentals. 2024 demonstrated that the "nuclear renaissance" is well underway, creating opportunities for investors across the nuclear fuel cycle, from uranium miners to fuel processors, enrichers, and utilities.

Although uranium prices saw some consolidation in the back half of 2024, the market appears undersupplied over the medium-term as structural demand growth from new and existing reactors outpaces the slower-moving production response. With a rising deficit, uranium prices should continue to march higher in the coming years, generating substantial free cash flow for miners while stoking new exploration and development. For investors, having some exposure to uranium miners offers both a compelling growth opportunity and useful portfolio diversification given its low correlation to broader markets.

The Investment Thesis for Uranium

• Nuclear energy demand is inflecting higher after a decade of stagnation, driven by electrification and decarbonization
• Major tech companies investing in SMRs and signing long-term power purchase agreements adds a new layer of demand
• Uranium supply is slow to respond to higher prices due to a dearth of experienced labor, long lead times, and cost inflation
• Years of low investment in exploration and development have thinned project pipelines, limiting sources of future production
• Higher uranium prices in the $90-100/lb range are needed to spur sufficient new supply to meet projected demand later this decade
• Consider investing in a diversified basket of high-quality uranium miners and physical uranium holding companies for exposure

The Takeaway

The long-term fundamentals for nuclear energy and uranium continue to improve as the world increasingly accepts the necessity of nuclear in the energy mix to achieve decarbonization goals. With demand poised to accelerate due to new builds and reactor life extensions, the uranium industry needs to kick into a higher gear to keep pace. Although the spot uranium price took a breather in late 2024, prices will likely need to reach $90-100/lb to incentivize enough new production to meet projected demand. Investors can gain exposure to the uranium story via miners, holding companies, and even major nuclear utilities which are enjoying increased profitability.