US Will Fail to Secure Uranium When Developers Come Up Short
- The uranium market entering a new phase as utilities face supply constraints and need to contract new projects
- But new projects face challenges with permitting, regulations, and financing that could cause delays
- Inventory levels declining so utilities can't rely on the spot market for supply
- Market dynamics shifting as major suppliers like Russia and Kazakhstan commit output to state buyers
- This gives an advantage to sellers as utilities get anxious about securing future supply
Securing Uranium Supply in a Seller's Market
The uranium market is entering a pivotal new phase as utilities scramble to lock in future supply, according to seasoned industry expert Dustin Garrow. However, the shift in dynamics gives an advantage to sellers as anxious utilities compete for limited pounds from new projects facing hurdles.
Major suppliers like Russia and Kazakhstan are increasingly committing output to state nuclear companies. This leaves Western utilities looking to new mines and production centers that face tough economics, regulations and grassroots challenges that threaten delays. With global inventories declining, utilities can no longer rely on the spot market to plug supply deficits. The upshot is a sellers' market where uranium developers can capitalize on utilities’ procurement anxiety.
Uranium demand surge creates procurement challenge for utilities; new projects needed but face hurdles; market dynamics shifting to sellers' advantage.
New Projects Face Hurdles
A key theme from recent industry conferences is that restarts of existing mines will not be enough to meet rising demand over the next decade. Utilities need new projects coming online by the late 2020s to diversify supply. But miners in places like the U.S. face layers of red tape and permitting challenges that could stall production schedules. Grassroots ISR ventures lack the scale needed to make an impact on global supply without consolidating deposits. And with the exception of a few players like Global Atomic, not many juniors have yet announced long-term contracts needed to finance construction.
This poses a dilemma for utilities as they evaluate potential suppliers. Fuel buyers lack in-house expertise to conduct detailed due diligence into mining plans, deposits, and management capability. They need more clarity on financing plans and production schedules. The timeline makes it challenging. Utilities recognize they may need to overcommit to contracts and take on some supplier risk to avoid being caught short of inventory.
Shift from Buyers' to Sellers' Market
For much of the past decade, the uranium market was oversupplied and favoring buyers. With demand in the doldrums, Russian state exporter Rosatom flooded the spot market with cheap inventory. Utilities got used to buying discretionary pounds at ultra-low prices. But with Russia now cut off, that excess supply is gone. At the same time, reactor restarts in Japan and new build programs in India and China are accelerating demand growth. This has tightened the market, erased inventory cushions and shifted leverage to sellers.
In the past, producers like Cameco sought to keep prices affordable for utilities and avoid huge spikes. But today's environment is different. After years of low prices and recent supply chain issues, producers need wider margins to justify investing in new capacity. With uranium prices potentially heading above $70, they finally have pricing power. Juniors are also eager to capitalize after a long bear market. This is an unfamiliar situation for some utilities conditioned to a buyer's market. Fuel managers will need to adapt contracting strategies and inventory planning.
Buyers Compete for Limited Pounds
Increasingly, available pounds from projects in Africa or Canada are gaining appeal with U.S. and European utilities unable to source material from Russia or Kazakhstan. With demand booming, every pound counts. The sense of urgency was apparent at recent industry conferences like the NEA Symposium in Utah and the WNA Symposium in London. Fuel managers crammed meeting rooms to question development companies and plot procurement strategies. There is acceptance that higher prices will be needed to ensure supply.
Rather than fixating on costs, utilities are prioritizing availability and diversity. The psychology has shifted from "How much must I pay?" to "Can I even get it?" Utilities recognize they face competition from state entities in China, the Middle East and elsewhere looking to lock up material. This is spurring a stampede mentality as Asian and European buyers jockey for limited pounds. The competition puts sellers in the driver's seat to demand stronger contract terms.
Advanced Developers Gain Leverage
Junior miners with attractive deposits in safe jurisdictions are in a prime position to benefit from utilities’ anxiety. With demand climbing, they have pricing leverage for the first time in over a decade. Instead of locking in contracts at breakeven costs, they can hold out for deals that reward shareholders appropriately. This strategy does involve risks if the market shifts again. But for now, sellers have bargaining power.
Companies with production upside from restarting mines put on care & maintenance also have an advantage with utilities. Their deposits are proven, and in some cases, infrastructure is still in place. Financing could be easier, assuming they retained mineral rights during the downturn. However, some sites may face unexpected issues restarting after being idle for years. Technical snags and initial teething problems could impact their ability to fulfill contracts.
Still, advanced projects ticking the right boxes for utilities are rare. With long development timelines, there are not many potential new assets coming online before 2030. Utilities signing contracts now are looking 8-10 years out when demand forecasts are robust. This means they have little choice but to accept sellers’ terms to avoid future deficits. The advantage lies with companies that can convince utilities they can deliver.
Conclusion
After years where utilities called the shots, leverage in the uranium market is clearly pivoting back to sellers. With demand strengthening and supply tightening, we are entering a prolonged period where developers and producers should benefit. Investors in the sector need to identify companies positioned to capitalize. Jurisdiction, management and asset quality will separate winners from those who will inevitably struggle with execution. But for quality uranium companies with assets in the right stage of development and with a near-term production timeline, the environment for profitability is the most constructive in over a decade.
If you like the way the uranium thematic is playing out and understand the upside, here are some companies that we think are worth looking at on a fundamentals basis.
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.
Latitude Uranium is focused on advancing its flagship high-grade Angilak uranium project in Nunavut, which hosts a 43.3Mlb inferred resource open for expansion, as well asexploring its large land position in the uranium-prospective Central MineralBelt in Labrador. With a well-funded $12M exploration program planned in 2023, an experienced management team, and development potential at Angilak along with exploration upside at the CMB projects, Latitude Uranium is positioned as an emerging uranium exploration and development company in Canada.
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 earth project in Namibia, one of only a few heavy rare earth deposits outside China.
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 the 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 is 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
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