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Uranium: A bull market is under way

The growing uranium supply deficit, currently being accelerated by COVID-19 pandemic related production cuts, has seen the price for uranium skyrocket – making it the world’s best-performing major commodity right now.

With the suspension of operations at four notable uranium mines in March and April, the spot price has surged to US$33/lb in May from $24/lb at the start of the year on the back of this tightening global supply.

This situation is unlikely to change in the near future, which could drive the price higher as long-term demand is set to continue, says Toronto-based Red Cloud Securities. Chantelle Kotze reports.

The four uranium mines in question include the Cigar Lake mine in Canada, suspended on 23 March, the Rössing and Husab mines in Namibia suspended on 28 March and Kazakhstan-based Kazatomprom’s suspension of operations on 7 April.

Red Cloud Securities (formerly Red Cloud Klondike Strike), a modern day, next generation brokerage firm focused on providing unique and innovative financing alternatives, growth opportunities and market exposure for mining companies, recently hosted a webinar to explore the drivers behind the uranium bull market further.

According to Red Cloud Securities VP, equity research analyst Derek Macpherson, while the spot market already began to tighten before the COVID-19 related mine suspensions, the lockdown regulations prohibiting mining have really been the catalyst in driving the tightening of supply, with about 6 – 7% of total global production coming offline.

While the uranium market has not been in the favour of producers for quite some time, the shorter-term fundamentals of a tighter market is starting to favour producers, which may bode well for the uranium price over the medium to long-term. A higher uranium price will enable companies with development assets to raise the necessary funding to build their mines.

While Red Cloud Securities forecasted a future deficit in the uranium market of 31 million pounds by 2022, as several mines reach end of life starting in 2021, it did not predict an almost 13 million pound (and growing) deficit as soon as 2020.

Additional mine closures, such as the 9 million pound Olympic Dam mine in South Australia, and longer mine suspensions due to COVID-19 could push the spot price higher, closer toward the long-term price, says Macpherson.

Moreover, Macpherson notes that starting in 2022, 37% of U.S uranium requirements are uncovered (which equates to 17 million pounds or 9% of global demand), with typical delivery on long-term contracts being – usually two years. This trend suggests that

nuclear energy utilities need to be aggressive with new long-term contracts, particularly in light of the expected supply deficit of 31 million pounds in 2022.

For an industry that has remained relatively depressed since the 2011 Fukushima nuclear disaster in Japan, which sent prices plummeting by as much as 75%, the uptick in price amid the closures, has led to a re-emergence of the sector.

 

Africa’s uranium first mover

In Africa, TSXV-listed uranium junior GoviEx Uranium is looking to take advantage of changing market fundamentals and use its first mover advantage in Africa.

The company remained steadfast in the development of its mine-permitted Madaoela uranium project in Niger despite uranium’s fall from favour. Company CEO Daniel Major’s unwavering commitment to the asset, which the company acquired back in 2007, is most evident in his strategic use of time during the uranium downturn to re-evaluate and improve Madaouela’s project economics – preparation that will make it fund-raising and construction-ready as soon as prices shift.

Speaking during the webinar, Major said that “even during the quiet times, we worked hard at proving up the mineral resource, permitting, de-risking the project towards development and reducing our debt.

“We also acquired additional assets, including the Mutanga uranium project in Zambia and the Falea uranium, silver, and copper project in Mali,” he says.Major says that if the uranium price continues to increase the way it has, GoviEx can quickly respond to this with the construction of Madaouela.

GoviEx would ideally like to see the uranium price settle around US$55/lb, to make its project financially viable.

The company is currently underway with an updated prefeasibility study (PFS) at Madaouela, aimed to increase the project’s reserve life and lower its operating costs. This will likely make the project very economic around US$50/lb uranium.

The completion of this PFS is expected to precede a full bankable feasibility study and should also allow potential acquirers to better understand the potential of this project.

 

Uranium demand from nuclear energy utilities

The World Nuclear Association‘s (WNA) Fuel Report issued in September 2019, highlights improving market dynamics. Demand expectations have also improved in an environment of supply constraint and drawdown of nuclear utility inventories.

The WNA 2019 Fuel Report forecasts an improvement in nuclear energy demand of 2% compound annual growth rate in the reference case from the demand forecast in its previous report in 2017.

The WNA’s projections for nuclear generating capacity growth have also been revised upwards – this is the first time in eight years and follows the introduction of more favourable policies in a number of countries.

This improved forecast is supported by the reported 55 new reactors currently under construction and government policy changes resulting in extended reactor lives in the United States and France.

The supply constraint shouldered by the major uranium producers has resulted in the supply of uranium being in a deficit in all of the forecast scenarios in the WNA 2019 Fuel Report.

Projected increased demand and supply constraints have already been noted in the long-term with rising prices, which is currently being extend through to uranium prices this year.

 

African uranium developers pick up the pace

The changing uranium market fundamentals have led to a resurgence in uranium activity in Africa.

Dual-listed uranium developer Bannerman Resources reignited testwork at its Etango project in Namibia, as part of an updated definitive feasibility study.

ASX-listed explorer Lotus Resourceshas defined near mine and Brownfield exploration targets at the Kayelekera uranium project in Malawi, which it acquired from Paladin Energy in early March 2020, while ASX-listed Marenica Energy is expanding its land package in Namibia and also adding to its uranium portfolio.

Paladin Energy’s sale of Kayelekera has allowed it to prioritise its efforts and resources on maximising the value of the Langer Heinrich uranium operation in Namibia, where it continues to focus on reducing cash expenditure and maximising the value of the strategically significant asset. In October 2019. Paladin concluded a pre-feasibility study to optimise the restart of the operation.

 

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