• Demand for uranium is strong due to the need for carbon-free baseload electricity, even with economic uncertainty. Uranium demand looks through cycles.
• Supply is not meeting demand currently and many new mines may not come online as forecasted. This could drive prices much higher.
• China's nuclear demand is ramping up hugely and will require 3x the current US demand. They are locking up supply.
• Africa, especially Namibia, will play a key role in future uranium supply but geopolitics around this are complex.
• Uranium equities remain attractive but investors must be selective as many new entrants may be lower quality. Consolidation likely.

Uranium Fund Manager Sees Strong Demand Driving Major Supply Shortages

Uranium prices have the potential to spike much higher in the years ahead due to fundamental supply and demand imbalances, according to expert investor Guy Keller of Tribeca Investment Partners. Keller manages the ASX-listed Global Uranium Fund and sees uranium demand remaining robust even amidst global economic uncertainty.

"There's a high-risk macro environment at the moment and an even seemingly higher risk geopolitical environment," Keller said. "Markets across all asset classes are experiencing volatility and some upheaval." However, he pointed out that uranium stocks were actually one of the few bright spots last quarter, with his fund returning 31% net of fees.

Uranium Demand Outlook Robust

Keller explained that uranium has a key advantage over other resources like lithium in that the demand looks through cycles. "Nuclear fuel buyers are not thinking about tomorrow, they're thinking about three years time at a minimum," he said. The utilities think about how much uranium they will need to run their reactors at current levels for the next 30-40 years.

This means temporary economic weakness is unlikely to dent long-term uranium demand. "I don't see very much economically that derails nuclear demand because the ultimate goal is to replace coal for baseload electricity," Keller stated. "The 33 countries producing nuclear power have all worked out that keeping reactors running is the best way to do that."

"There's a high-risk macro environment at the moment and an even seemingly higher risk geopolitical environment."

In fact, Keller sees uranium demand actually strengthened by two major trends - decarbonization and energy security. Many nations have extended the lives of reactors rather than shutting them down as previously planned. The war in Ukraine has also made energy security a priority, with nuclear seen as a stable domestic electricity source.

More new reactors are being built as well, especially in China. Keller dismissed concerns that uranium prices getting "too high" would hurt utilities. "They were contracting at $110/lb last cycle," he pointed out, saying that while high gas prices impact US utilities, governments can assist them if needed. He concluded: "I don't see demand going down."

Mine Supply Lagging

On the supply side, Keller was blunt in his assessment. "We're not mining enough for current demand," he said, noting that the market has been in deficit since 2011 as utilities drew down inventories. Many mines slated to help close the gap may not actually reach production or nameplate capacity.

"I hope Kazatomprom and Cameco get to nameplate capacity because the market needs it," Keller said. "All of those companies announcing restarts - the market needs it." However, he explained there are permitting, financing, and technical risks that could slow many projects. Past cycles had a "wall of supply" coming, which is not the case today.

China the Game Changer

One country that Keller sees radically altering the uranium landscape is China. He explained that China currently consumes around 20 million lbs of uranium per year but has plans to grow its nuclear reactor fleet from around 50 today to 150 in the coming years, and even has aspirations for 300 eventually.

"That's 150 million pounds of uranium per year that country is going to require," Keller emphasized. "Three times what the US is doing currently." He said this demand would hit even if Western nations stall their reactor growth, meaning a wider supply/demand imbalance globally. Much of China's increased uranium is being locked up, even well beyond their short-term needs.

'China needs three times what the US is doing currently. And 15 times what they are currently consuming'

Africa Key to New Supply

With demand surging but established mining jurisdictions like Canada and Australia facing hurdles, Keller said Africa represents the best opportunity to bring large new uranium supply online. Namibia in particular has friendly geology and policies. However, he cautioned that geopolitics on the continent remain complex.

"Does the country of Namibia want Chinese in every project? Probably not. They have indicated they want some diversification," Keller commented. He noted that Niger is important but has some political instability currently that bears watching. The US and China are jostling for influence in Africa, which overlays the uranium supply picture. But Keller still sees Africa as a "strategically important place to do business."

Uranium Equities Need Selectivity

Despite the positive long-term fundamentals, Keller cautioned that investors in uranium equities need to be selective at the moment. "It's going to be more difficult than the last cycle," he warned. "There's been chronic underinvestment for a decade." He does foresee more speculative junior miners coming into the uranium space, just like what happened with lithium. Most will fail.

"Will we get to 500 or 800 juniors like last cycle? Maybe." Keller said. "But do you have to take them all seriously? Probably not." He explained that the capital is not readily available for explorers like it was in the past boom. For investors new to the sector, he advised focusing on experienced teams and quality projects with good economics. Some consolidation is likely as well in the industry.

Major Price Spike Possible

Keller declined to give a specific uranium price target, joking his previous suggestion of $175/lb was "a bit tongue in cheek." However, he reiterated that the supply and demand fundamentals suggest the potential for a major spike similar to the 2005-2007 boom that saw uranium surge to $140/lb.

"Nobody was blinking when some lithium stocks were up 10,000-12,000% ," Keller reasoned. "We see a 300% rally in uranium and people say whoa, it's gone too far." He emphasized that the last cycle's rally happened without the key demand drivers of decarbonization and energy security that exist today.

"I don't see uranium demand going down."

In summary, Keller believes that long-term uranium contracts could potentially rise to prices not seen since the last bull market. But he cautioned that investors should pick their companies carefully to avoid being burned by overhyped promotions. For uranium developers that can deliver into the growing supply deficits Keller foresees, the next few years could offer potentially spectacular returns.