Uranium Supply Shortage Signals Buying Opportunity in Beaten-Down Mining Stocks

• Uranium demand is increasing while supply is constrained, creating a structural shortage in the market
• Uranium contracting and fuel requirements behave differently than other commodities due to the long timelines and regulations in the nuclear industry
• Many new nuclear technologies like small modular reactors and molten salt reactors are not accounted for in most uranium demand forecasts, potentially increasing future demand
• Bringing new uranium supply online takes considerable time due to permitting, feasibility studies, raising capital and actual mine construction
• Psychological factors may lead utilities to start contracting more uranium supply than they need due to fears of shortages

The Looming Uranium Supply Shortage and the Case for Investment

Reactor construction is continuing at a strong pace globally, with over 50 new plants presently under construction. Countries like China, India, and others are looking to rapidly expand their nuclear capacity to fuel economic growth and reduce greenhouse gas emissions from fossil fuel plants.

In parallel, regulatory approvals have been granted to extend the operating licenses for many existing reactors beyond their originally planned shutdown dates. Utilities in the United States, Canada, and select European countries continue gaining approval to invest in plant refurbishments and upgrades that will enable operations for several more decades. These life extensions are bringing reactors already in service well beyond the levels accounted for in most demand forecasts.

New Nuclear Technologies Not Factored into Demand Forecasts

Perhaps most significantly, most projections for future nuclear power demand growth do not adequately consider the adoption of new reactor technologies coming to market. Small modular reactors (SMRs) represent an area where forecasters have been taken by surprise in terms of deployment timetables.

SMRs and non-water cooled designs, like molten salt reactors, offer size, safety, and efficiency benefits relative to traditional light and heavy water reactors.  Adoption of SMR and related technologies is happening much faster than nuclear industry forecasters had anticipated even several years ago. China has already brought a high temperature gas cooled “pebble bed” reactor into service with more planned.

With mass manufacturing potential and considerably shorter construction timeframes, these new nuclear technologies have the potential to drastically elevate baseline projections for nuclear demand over the next 10 to 20 years. But this increasing demand remains almost completely unaccounted for in projections for future uranium requirements.

Obstacles to Boosting Uranium Production

While nuclear demand appears clearly on track for steady increases, matching growth in uranium supply faces substantial barriers that inhibit a rapid response from the mining industry. Simply put, bringing new uranium mining into full production has commonly faced 5-10 year time horizons.

Public uranium mining companies face capital intensity requiring significant investment to move projects forward. Exploration, feasibility studies, permitting, financing, development and construction must all occur before mines become operational. Equity dilution or debt loading at the wrong time in the market cycle can impair a company’s prospects. Respecting each firm’s capital needs and path to production is vital to see future supply come online.

In addition, environmental protection regulations require detailed mitigation plans while scrutiny over worker health and safety has intensified. Together these factors culminate in very methodical review processes by nuclear regulatory bodies like the CNSC (Canada) and NRC (United States). Their assessments help dictate the speed at which approvals and ultimate production occur.

Psychology of Impending Shortage

While certainly not a technical factor, basic human psychology around shortages could play a role in accelerating near-term uranium demand. As utilities witness supply becoming increasingly scarce relative to their reactor requirements, fears may take hold around ensuring they have the needed fuel. This could prompt procurement officers to lock up supplies exceeding actual short-term consumption needs.

If you're a fuel buyer and you think the fuel is going to be short in the next few years, what would be your reaction to it? You're going to say, I'm going to buy more than I need. This type of thinking will fast-track utility demand further than just replacement rate requirements.

Deep Value in Uranium Mining Stocks

For investors, the current dislocation between supply and demand fundamentals presents an opportunity. The uranium mining equity sector has been mired in a bear market stemming back over a decade now. Equity valuations reflect the difficult period rather than the positive outlook emerging today. This results in quality uranium mining companies holding substantial low-cost resources valued at just a fraction per pound versus the current spot incentive price.

As these firms successfully advance assets towards production during this bull cycle, their resources should re-rate significantly higher to better reflect intrinsic value. Investors placing shares in promising uranium miners stand ready to ride the wave as market conditions turn. But again, this overhaul back toward properly pricing future supply does not manifest instantaneously even if projected shortages continue growing. Which brings us to the patience required.

The Patience Required for Commodities Investing

Perhaps most frustrating to those strictly focused on trading profits, new uranium mines can not simply arise overnight to resolve demand deficits swiftly. The aforementioned obstacles around financing, permitting, and construction apply even in a bullish pricing environment. Bringing stranded uranium assets clearly into economic production remains a multi-year undertaking at best.

slow-movingUranium takes time...it’s not a fast process at all, it’s a very slow moving commodity. Hence even with higher prices incentivizing new supply, actually achieving that output rests on navigating those methodical, lengthy procedures rightly imposed to govern this specialized industry.

For investors then, the keys appear to be proper position sizing, limiting overexposure, and bracing for the ride higher by resisting reactive trading. Having patience through regulators, company managers, boards, and process owners methodically ushering supply growth along promises to be rewarded over time. Waiting and weathering the coil before the inevitable snap higher serves investors best.

The Investment Thesis for Uranium

• Structural supply shortage emerging against likely demand growth
• Mine permitting obstacles and long timelines limit supply reaction and production
• Utility fears of shortage leading to increased contracting now
• Deep value apparent in quality uranium mining equities
• Strong bull case but requires patience; sector can move slowly

In summary, increasing uranium demand running up against significant constraints hampering new supply presents a compelling opportunity for investors in the space. Taking positions in uranium mining companies with quality assets provides exposure to what appears to be a coiling spring. While pockets of value exist now, having patience through the upward repricing move will likely reward those with a long-term, thematic focus.‍

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Bannerman Energy

Bannerman Energy is an Australian uranium development company focused on advancing its flagship 3.5Mlb pa open pit uranium project in Namibia, a major global uranium producer. Bannerman is currently working on Front End Engineering and Design (FEED) and financing for the Namibia project. The company also holds a significant 41.8% stake in Namibia Critical Metals, developer of the large-scale Lofdal heavy rare earths project in Namibia, one of only a few heavy rare earth deposits outside China.

Ur-Energy

Ur-Energy is a U.S. uranium mining company well positioned to benefit from rising uranium prices driven by growing demand for nuclear power. Within-situ recovery operations in Wyoming, Ur-Energy has been producing from its Lost Creek facility since 2013 and can now effectively double licensed annual production capacity to 2 million pounds with its permitted Shirley Basin project. With over $70 million in cash, Ur-Energy is funded to ramp up low-cost production from its Wyoming hub as it restarts wellfield construction. The company utilizes mining methods with a light environmental footprint and advancing next-generation technologies to further reduce costs. If uranium prices continue strengthening, Ur-Energy offers leverage as an experienced producer with scalable, permitted projects in a rising uranium market.

Global Atomic

Global Atomic Corporation is a publicly traded company with two main divisions - a Uranium Division that is developing the large, high-grade Dasa uranium project in Niger, which is now fully permitted with excavation underway, and a Base Metals Division that holds a 49%stake in a zinc production joint venture in Turkey operated by Befesa. The joint venture recycles Electric Arc Furnace Dust to produce zinc oxide concentrate sold to zinc smelters globally. Global Atomic’s unique combination of uranium production and cash-flowing zinc operations positions it well for growth.

Energy Fuels

Energy Fuels is the largest uranium and advanced rare earth element producer in the United States. The company has significant uranium production capacity and long-term sales contracts with U.S. nuclear utilities that it expects to fulfil starting in 2023-2024. Energy Fuels is also quickly moving to establish a domestic rare earth element supply chain, with plans to produce high-value separated REE oxides by late 2023 or early 2024. The company additionally produces vanadium when conditions warrant, recycles materials to recover uranium, vanadium and medical isotopes, and is advancing capabilities for medical isotope production. Overall, Energy Fuels is a major U.S. producer of strategic minerals like uranium and rare earth elements that are critical for energy, technology, and medical applications.

American Lithium

American Lithium is developing large-scale lithium projects in Nevada and Peru as well as one of the world's biggest uranium projects, with the goal of playing a major role in the transition to sustainable energy. The company's assets are the advanced-stage TLC lithium project in Nevada and the Falchanilithium project in Peru, which have robust preliminary economic assessments. American Lithium also owns the Macusani uranium project in Peru, which has seen significant historical development. With assets at various stages of pre-feasibility and feasibility studies, American Lithium is positioned to be a major player in lithium and uranium mining.

Deep Yellow

Deep Yellow has systematically built a portfolio of high-quality uranium assets to establish a significant production platform and realize its vision of becoming a leading international uranium mining company. With its experienced leadership team at the helm, Deep Yellow has set its sights on diversified production of over 10 million pounds per year, capitalizing on forecast supply squeezes. Its flagship Tumas mine in Namibia already claims one of the world's largest undeveloped uranium deposits as Deep Yellow advances toward a 2024 construction decision. Meanwhile, its Mulga Rock project in Western Australia progresses through feasibility studies for targeted development. Beyond existing core assets, Deep Yellow has accumulated extensive exploration ground at two prime locations in Namibia and Australia's Northern Territory through strategic acquisitions. These prospects provide substantial opportunities for unlocking further discoveries to continually expand its project pipeline over time. As energy security needs escalate globally, Deep Yellow stands ready to deliver the reliable uranium production that transitioning electricity grids urgently demand. With its production timeline aligned with major forecast supply deficits, Deep Yellow aims to cement itself as the go-to uranium supplier of choice for nuclear utilities worldwide seeking security and diversity of supply. Backed by disciplined leadership, Deep Yellow represents an emerging industry force promising investors exposure to the full lifecycle of value creation across resource discovery, project development and multi-decade uranium production. By targeting low-cost mining jurisdictions, adopting proven processing technologies and securing key infrastructure advantages, Deep Yellow has systematically built itself to deliver sustainable investor windfalls as the uranium bull market unfolds.

Baselode Energy

Baselode Energy is a Canadian uranium exploration company focused on the Athabasca Basin area in northern Saskatchewan. The company controls over 264,000 hectares of land that is free of any option agreements or underlying royalties. In September 2021, Baselode discovered the near-surface ACKIO uranium prospect on its exploration properties. The ACKIO prospect measures over 375 meters long and over 150 meters wide, with at least 9 separate uranium mineralized zones. Mineralization starts as shallow as 28 meters and 32 meters beneath the surface, extending down approximately 300 meters depth, with most mineralization occurring in the top 120 meters. The ACKIO prospect remains open at depth and to the north, south and east for further expansion. Baselode's exploration strategy centers on discovering high-grade uranium deposits outside of the Athabasca Basin near the surface in basement rocks. The company uses innovative and established geophysical survey methods to identify prospective shallow drill targets for high-grade uranium mineralization related to underlying structural controls. This technique has led Baselode to the discovery of the ACKIO prospect.

Nucelar Fuels
Nuclear Fuels Inc. is a Canadian uranium exploration company focused on in-situ recovery (ISR) projects in Wyoming and other proven jurisdictions globally. The company's priority asset is the Kaycee project in the Powder River Basin of Wyoming. This project has historical uranium resources distributed along a 33-mile mineralized trend with over 110 miles of mapped roll fronts. The property has been drilled extensively with over 3,800 historical drill holes. Nuclear Fuels has consolidated control of the Kaycee district, acquiring multiple historical uranium deposits and exploration targets. This positions the company to potentially advance the project portfolio into production. Beyond Kaycee, Nuclear Fuels plans to leverage its technical expertise to explore additional uranium properties and opportunities in established mining districts globally. Through aggressive exploration and consolidation of historical resources, the company aims to develop a pipeline of projects, prioritizing those that can be fast-tracked to production using the in-situ recovery mining method.

ISOEnergy
IsoEnergy is a Canadian uranium exploration and development company with projects focused in the Athabasca Basin of Saskatchewan. The company's flagship property is the Larocque East project in the eastern Athabasca Basin. This project hosts the high-grade Hurricane uranium deposit, which has the highest grade Indicated uranium resource globally. In addition to its exploration projects, IsoEnergy owns several permitted, past-producing uranium and vanadium mines in Utah. These mines are currently on standby but can be rapidly restarted to position IsoEnergy as a near-term uranium producer. The company has a toll milling agreement in place with Energy Fuels Inc. to process ore from its US projects. Beyond its Canadian and US assets, IsoEnergy holds uranium projects in various stages of exploration and development in Australia and Argentina. This diversified portfolio provides leverage to rising uranium prices across different jurisdictions. The company is advancing its Athabasca Basin projects while continuing the exploration on its global assets to drive future production growth.

Atha Energy

ATHA Offers Leveraged Exposure to World-Class Uranium Districts Athabasca Uranium Inc. (ATHA) provides investors with targeted leverage to potentially significant uranium discoveries across some of the world’s most prolific regions for new supply. As a focused mineral exploration company, ATHA has methodically accumulated the single largest exploration package covering the renowned Athabasca Basin. Spanning over 6 million acres, their claims provide unrivalled exposure to this district which has historically produced high-grade uranium deposits. Additionally, ATHA holds extensive prospective ground in the similarly uranium-rich Thelon Basin. Between these two core holdings in prime Canadian uranium provinces, the company has positioned itself amongst acreage with a proven exploration upside. Importantly, a subset of ATHA’s Athabasca land package involves a 10% carried interest in claims operated by sector leaders NexGen Energy and IsoEnergy. With ATHA carried through key exploratory expenditures, this allows leveraged participation alongside seasoned management advancing projects in the basin. For investors, ATHA brings focused leverage to maximizing discovery potential across districts that have delivered huge economic uranium resources. As sentiment improves around uncovered uranium value still unearthed in these Canadian districts, ATHA offers a targeted way to ride the upside. Their vast claim packages in underexplored but prolific terrain form the springboard for potential mineral discovery and resource growth in the coming bull cycle.