All Eyes on Uranium Part 1

Sunday, 29 January 2024 |  39 | 13:33

Podcast Transcript

Ed Coyne: Hello and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott Asset Management. I'm pleased to once again welcome back Per Jander, Director at WMC. Per, as always, thank you for joining Sprott Radio.

Per Jander: Hey, Ed, thanks for having me on again. It's great to be back.

Ed Coyne: Per, I feel like we talk about this every other month, but so much has been going on in the uranium market. Let's start by giving a snapshot or a recap of what happened in 2023.

Per Jander: If you look back in 2023, I think we started the year at about $50 a pound, and it was a slow march up to $60 in about August-September. There were a lot of utilities involved, not so many investors, and right around the big conference in London in early September, a lot of investors came in. They had five or six bids leapfrogging each other. The market moved rapidly from $60 to $70, even in the low $70s.

Then, right before Q4 started, Kazatomprom, the big Kazakh producer, announced that it would start a rapid expansion and increase its production. For the first time in the year, we saw a couple of dollars decline in the spot price because we thought, "Oh, here we go. The big giant has woken up, and it will start producing." Prices trickled down, but then what you saw was that utilities, producers, traders, and funds started thinking like, "Ah, it feels like it's pretty affordable," because it wasn't obvious where the relief was going to come from because these ramp-ups are still far out in time.

Then, when you watched a little bit later into Q4, we had the big COP 28 meeting in the United Arab Emirates, a very large event for the nuclear community. You had about 20 or 25 countries announce that they're going to triple their nuclear capacity by 2050, which, even in the most bullish scenarios up to date, hasn't even been near that. If that's about to happen, uranium demand may likely go through the roof in the next few decades.

That clearly helped the sentiment for the industry in the long term. However, there has been talking of U.S. sanctions on Russian-enriched uranium for quite some time, but nothing really happened. Suddenly, it springs into action and gets passed in the House of Representatives, and then it is just a matter of the Senate to approve it. Everybody was surprised, so the market reacted, but it got held up. It's a little unclear when it will happen, but we can touch on that when we talk about 2024.

Overall, the market went from low $70s up to about $90 a pound at the end of the year. Quite a rapid increase and a healthy mix of parties involved in the spot price activity. You saw utilities buying all the way up, you did see some producers come in there, and certainly, the regular traders and funds were active as well. It was quite an eventful year and set the stage quite nicely for this year.

Ed Coyne: To that point, let's talk about this year because I remember about a year and a half ago when it was sitting around $30 for what seemed like forever, and then it got over $50 for the first time. The question I remember asking was: "Have investors missed it?” We talked about that. Now we're over $100. What's going on now? How should investors be looking at this going forward? What should one be looking at or for in 2024? What are some of the things going on out there?

Per Jander: I think one of the main reasons why we're at $106 is that by far the largest producer, Kazatomprom, issued a press release with just a warning saying that, "We're probably not going to meet our targets for '24 and '25." There were no numbers involved. "Well, we're going to put more numbers on this, and we're going to put a more thorough update on our Q4 call on February 1."

When this announcement came out, it was a pretty wild day in equities, and even the spot price rapidly increased. I think a lot of people were maybe not certain that the Kazakhs could ramp up as quickly as they had said they would, but this was at least an indication that it is not going to happen. Clearly, the uraniam market is very reliant on the Kazakh flow of material. It will be interesting to see what's happening on the Kazakh front in a couple of weeks.

Then, shortly after, we got Cameco with some numbers as well. They had some production issues last year, albeit not very large. They say they've handled them, but seeing some proper numbers here in a few weeks will be good. Interesting times ahead for that, for sure. We're keeping an eye on utilities as well. They've been slogging along and are certainly in the market, issuing RFPs occasionally. 

To me, the biggest issue here, what to keep an eye out for is, if it feels like, "Oh, it's $100, we missed the train," is that it's not obvious where the relief will come from. We're very short in the market. There's clearly a structural deficit. Demand is outstripping supply, and it's unclear when that will stop. If you look at times ahead, where we are now at triple digits, which we haven't been since 2007, it's still not obvious when the supply is coming in to dampen the upward pressure.

In talking to price reporters and consultants over the last couple of weeks, it feels still that the downside is very limited. The higher you go, it sets the floor; it will be, say, $5 or so below wherever you are right now, and then the upside is still quite uncapped. I think it can go a lot higher. I'm not sure when and how much, but it's a very skewed risk profile with a lot more upside and downside.

Ed Coyne: When you've got two major players saying that they could have production issues, you can only imagine some of the other players out there and some of the mines that haven't been in production trying to go back into production. It won't be flipping a switch on and just moving forward. Given the backdrop we're seeing right now, and what you're saying, I suspect this type of volatility/opportunity will remain in the market for some time. I think there's a tremendous opportunity to think about this.

Let's go to something you said a second ago about utilities. When we talked a few years back, utilities weren't really front and center. Each time we talk, I hear you talk more about utilities. Where are they right now? What's going on in that world as it relates to uranium?

Per Jander: They've been much more active than in the previous decade. Last year, you got some published numbers on long-term contracting, the main market where utilities are active. They're not on the spot market buying a lot of material, even though you do see them quite a lot more than we're used to, but most of their contracting is happening on a bilateral basis with the primary suppliers of uranium or the other conversion and enrichment, all the other nuclear fuel services.

The contracting was almost at replacement rates for the first time in over a decade. You’re writing as many new contracts as the uranium you're burning in your reactors as an industry. This hasn't happened for a long time, meaning you've been running down your inventories all along. Clearly, there's been a lot of surplus materials sloshing around in the market, but overall, people haven't replenished their inventories for quite some time. At some point, you're going to have to start doing that. I think we're getting there now.

It's a pretty clunky way of counting, even just the number of tenders out there. They could be small,  a couple of years of small volumes, or enormous, like the Korean ones that are out for over 6.5 million pounds. We were counting them with some colleagues here the other day, and we think there'll be at least 10-12 of them in the coming 6-8 months. They're still coming out in the market, which is on a global level. It's not any specific region that is more active than another.

Europe was a little ahead of the curve compared to the other ones because of the proximity to Russia. It's much more of an everyday reminder of the conflict in Ukraine when you are in Europe, so they were ahead of the curve when getting to mitigate a bit of the risk that they saw if there were going to be any issues with Russian supplies, but that has certainly spread now. We see the North Americans and South Americans. Utilities across the globe are ramping up their activity overall.

Ed Coyne: Well, that's probably one of the more exciting things I think about as more investors look to enter this market. We've got more news in the coming weeks, but we'd love to have you back to hear what will happen. And what's been announced and so forth. Before we sign off, though, are there any last points you'd like to make on today's market or any highlights that I maybe didn't ask that you want to deliver?

Per Jander: You covered it well, but I will reiterate. I cannot overstate how important the two earnings calls in early February are. Kazatomprom, in particular, on February 1; pay attention to that. We've been discussing that, too. What is the market expecting the shortfall to be? Say 5%-10%, maybe that's probably what people think. Anything more than that could potentially have a very large impact on the market.

Of course, there are different ways that if you're a supplier and can't meet your targets, how do you address that? In the press release that came out a couple of weeks ago, they said, "We are going to make all our deliveries for 2024." That's a statement that I think they will live up to, but will they buy in the market to cover that? Sure, you can talk to your main customers and say that we're having some production issues. Do you mind taking your deliveries a little later?" Of course, it's up to the customers to agree to that if they will, but that's one way to ease the pain or lower the risk here. That particular call on February 1 will be extremely important.

Keep an eye on Cameco as well because Cameco also has assets in Kazakhstan so they will have an update on that there as well. We also want to see that their flagship MacArthur River and Cigar Lake productions are producing the way they should. I think they will. We'll have to hear it from Cameco, but it isn't easy.

Tim Gitzel, the CEO of Cameco, is the first to say that mining isn't easy. Sure, it isn't easy to build nuclear reactors, but you have a pretty good line of sight when the demand is coming on. There are some uncertainties in the supply, for sure. We have a lot of mines that haven't been operating for quite some time that are scheduled to come on this year. I think it'll be a very interesting year with most of the uncertainties on the supply side. I'll be happy to come back in a few weeks and see what happens after these announcements here in early February, and then we'll take it from there.

Ed Coyne: Awesome. Well, I can't wait to see how it all unfold. As always, Per, we appreciate you taking the time to talk to us once again. I always encourage you to go to their website for all the listeners who like to hear what Per and WMC have to say. They have some cool pieces on there, some research and thought pieces. You can go to wmcgroup.com and see what they're up to there. Until then, Per, we look forward to speaking to you towards the end of February. Once again, I'm your host, Ed Coyne, and thank you all for listening to Sprott Radio.

Per Jander: Thanks a lot, Ed.