Uranium’s Supply Crunch Opens Door for New Projects

• Uranium supply is constrained, with Russia providing a large share of global enrichment capacity. Building new capacity takes time.
• Uranium demand is increasing as more countries pursue nuclear power for energy security and decarbonization. But the number of new projects coming online is limited.
• Governments are recognizing the need to secure domestic uranium supply chains. This is spurring interest from generalist investors new to the sector.
• Higher uranium prices seem likely as demand outpaces new supply. But the extent of increases depends on factors like timing of new production and utility contracting behavior.

Introduction

A global uranium supply crunch is spurring a scramble to secure new sources of the nuclear fuel. With demand rising but few new projects in the pipeline, uranium prices have embarked on a steady climb. This improving backdrop presents opportunities for investors, but realizing those gains requires a nuanced understanding of the complex uranium market.

Interview with CEO of Latitude Uranium, John Jentz

Demand Growth Outpacing New Supply

In recent years, more countries have turned to nuclear power to provide energy security and advance decarbonization goals. China plans to greatly expand its reactor fleet. The EU and US are keeping existing plants running longer while exploring next-gen technologies like small modular reactors (SMRs). But finding adequate uranium supply is an increasing challenge.

Traditional supply centers like Canada and Australia are depleting reserves. Meanwhile, geopolitics constrains supply from top producer Kazakhstan and Russia, which controls roughly 40% of global enrichment capacity. With demand projected to outstrip primary supply within a decade, prices must rise to incentivize new production. But the long lead times of new mines limit how quickly the market can respond.

Governments Recognizing Need for Supply Security

Faced with potential uranium shortages, governments are prioritizing domestic supply chains. The White House recently requested $2.2 billion to expand US enrichment capabilities. Other countries are taking similar steps to avoid over-reliance on imported uranium. This focus on energy security is drawing interest from generalist investors new to the uranium sector.

But developing new uranium capacity requires more than just money. Technical and permitting hurdles mean projects take years to build. And locations in geopolitically stable areas like Canada are preferred. So developers able to get production online quickly in secure jurisdictions have inherent advantages in the current environment.

Higher Prices Needed to Spur New Production

With demand rapidly expanding but supply inelastic, conditions are ripe for continued uranium price appreciation. However, the extent of further increases depends on several hard-to-predict factors. These include:

• Pace of new mine development - Lead times for new mines to begin production range from 2-10 years. Delays would maintain a supply deficit.
• Utilities contracting behavior - Utilities anxious about tight supplies may lock in contracts sooner at lower prices. This could dampen volatility.
• Impact of SMR adoption - Small modular reactor (SMR) adoption could significantly boost demand. But the pace of SMR commercialization remains uncertain.
• Secondary supplies - Inventory drawdowns and recycled nuclear warheads provide secondary supply. But this buffer is diminishing.
• Kazakh / Russian supply risks - Supply disruptions from these crucial producers could spike prices rapidly. But the probability timing of such shocks is unclear.

While higher prices seem inevitable, uranium has idiosyncrasies that make forecasting tricky. Patience and an adaptable investment approach may be required.

Developers Positioned to Benefit from Rising Prices

As investors contemplate how best to capitalize on the unfolding uranium bull thesis, miners able to get new production online quickly warrant special attention. With few projects shovel ready, those crossing the finish line first may disproportionately benefit from supply shortfalls.

While broader macro trends bode well for uranium prices, investing in miners always entails risks around execution and capital needs. As with any commodity, there will be cyclical ups and downs. But investors able to hold through the oscillations may be rewarded for their patience. By targeting companies set to produce before the imbalance peaks, that payoff becomes more likely.