URNM - Uranium Outlook 2020: Prices to Rise as Demand Grows and Supply Falls
The uranium spot price started the year just above US$29 a pound with the promise that the price could move higher once a Section 232 decision was passed down. However, US President Donald Trump’s lack of any actionable items in his ruling and the delay for utilities to come to the market drove the price lower.
By the end of May, the price had sunk to its half year low of US$23.67. In mid-July, bolstered by the release of the Trump administration’s Section 232 ruling, which established an exploratory committee to examine the domestic nuclear fuel cycle, the price was able to rally from the US$24 range to US$26.31.
That price momentum was short-lived. When the deadline for the Nuclear Fuel Working Group (NFWG) report was extended in mid-October, the price sank to its lowest point for 2019 at US$23.51.
Despite the uranium spot price stagnating for much of 2019, analysts and sector participants remain certain the energy fuel will make bold gains once the price starts to move.
Uranium outlook 2020: Section 232 looms large, stalls price
“The most challenging aspect of 2019 has been the lack of price direction despite the positive market fundamentals,” said Daniel Major, CEO of GoviEx (TSXV:GXU,OTCQB:GVXXF), a uranium explorer focused on Africa.
“Despite declining inventories, shortening of uncovered contracts and a supply deficit, the uranium price showed no spark of interest for the majority of the year. However, things are starting to look up in Q4,” he added.
The main catalyst for the price growth will be a reduction in production and inventory.
Earlier this year, Kazatomprom, the national uranium producer of Kazakhstan, reported a Q1 production decline, and Cameco (TSX:CCO,NYSE:CCJ), the largest uranium producer, has dramatically reduced its stockpiles following the temporary closure of its flagship mine, McArthur River, in Saskatchewan.
Major, like many in the sector, had hoped the uranium strength displayed early in the year would carry through.
“We had been expecting uranium to get to at least US$30 by the end of 2019,” he said. “However, the impact of Section 232 and the follow-up NFWG had a wider impact on utility buying than we would have predicted. This issue was further highlighted as the price failed to respond to the very positive World Nuclear Association nuclear fuel report.”
For Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU), a US producer and one of the companies that helped get the Section 232 investigation into foreign uranium launched, the opaqueness the investigation brought into the sector was something the company had not accounted for.
“The Section 232 and subsequent US Nuclear Fuel Working Group created a ton of uncertainty in the uranium market,” said Curtis Moore, vice president of marketing and corporate development.
The lack of clarity was further compounded in mid-November when the Trump administration rescinded waivers allowing Iran to work with Russia to advance the former’s nuclear fuel sector. Moore pointed out that the decision, which went into effect on December 15, could impact the country’s ability to import much needed uranium and nuclear fuel from Russia.
“It has been difficult for us and our shareholders, of course,” said Moore. “But, it must be extremely challenging for nuclear utilities, which have multibillion dollar investments to fuel. It is becoming increasingly clear that US utilities have taken on too much geopolitical risk with their uranium and nuclear fuel supplies.”
While Moore is sympathetic to the needs of domestic utility companies, he does note that they need to be cognizant of the role they played in adding risk to the cycle.
“So, when suppliers from geopolitical foes like Russia, Kazakhstan, China and elsewhere approach US utilities with cheap, subsidized nuclear material, we can see why it is alluring to sign up,” he said. “They have largely themselves to blame for creating exposure to these risks by not supporting a healthy domestic nuclear fuel cycle.”
In mid-December, news spread that the NFWG had passed its non-public report on to the president and recommended some sort of domestic quota.
Uranium outlook 2020: More ways to access the market
While the industry spent the vast majority of 2019 in a state of limbo, there was growth in the uranium exchange traded fund (ETF) sector.
In May, Canada’s first uranium ETF was launched by Horizons ETFs Management under the ticker symbol HURA. The HURA ETF aims to capitalize on the growing need for clean, carbon-free energy.
While Mercenary Geologist Mickey Fulp doesn’t participate in the ETF market, he does appreciate the exposure the products offer the uranium industry.
“I’d rather play specific equities, instead of playing a basket that is dependent on a higher uranium price,” said Fulp in a November 24 interview.
ETFs may not be Fulp’s cup of tea, but he did note that royalty companies may be a good investment in the future.
“There is Uranium Royalty; it’s going to go public at some point,” he said.
Fulp was correct, and the royalty company launched its initial public offering on December 12, under the ticker TSXV:URC.
In early December, the North Shore global uranium mining index ETF was launched, under the ticker ARCA:URNM.
Uranium outlook 2020: SMRs lighting the future
As the number of ETFs that give investors exposure to the sector grows, the market itself is expected to expand as small modular reactors (SMRs) become less of a concept and more of a tangible, deployable product.
SMRs are designed to be compact and efficient, producing enough energy to power a small town or a mining operation. They can also be scaled up to meet growing demand and produce no carbon emissions.
In the opinion of Fission Uranium’s (TSX:FCU,OTCQX:FCUUF) Jeffrey Mushaluk, SMRs can help change the narrative around nuclear energy, one that is often fraught with fear and tension.
“The nuclear power industry does a terrible job marketing itself and has such a bad stigma and part of that is deserved from the reactor build outs that happened before and came in way over budget, and took too much time,” Mushaluk said at the New Orleans Investment Conference in November.
“What government is going to want to commit that type of capital right now for something like that, that could have political push back? So, we really welcome new technologies like SMRs to come in and it could change the entire industry.”
In early December, premiers from Ontario, New Brunswick and Saskatchewan met to discuss the integration of SMRs technology into the respective provincial power grids.
“Ontario, Saskatchewan and New Brunswick agreed today to work together to explore new, cutting-edge technology in nuclear power generation to provide carbon-free, affordable, reliable, and safe energy, while helping us unlock economic potential across Canada, including rural and remote regions,” reads a statement about the meeting.
The three leaders signed a memorandum of understanding pledging to work jointly on the innovation, development and deployment of SMRs in their provinces.
The decision for Canada’s most populous province (Ontario) and two other major economic hubs to commit to advancing the SMR agenda is the first of its kind in the world and a potential catalyst for other countries.
“I would hope that Canada would take the lead on this; they certainly have based on what they have done over the last 10 years. They have a leg up on small modular reactors, compared to most other entities,” said Fulp.
Still, the Mercenary Geologist remains on the fence about how quickly any deployment will occur in the Great White North. “But I’m always skeptical about these sorts of things in Canada, because what I see happening with mining projects, and with pipelines.”
Regardless, the discussion itself helps raise the profile for SMRs and nuclear energy as a whole.
Uranium outlook 2020: The year ahead
Despite 2019 being less fruitful in terms of price growth, many of the analysts and companies we spoke to over the year remain confident the uranium market will make gains in 2020 and beyond.
“We understand that the major producers have been running inventories to very low levels, which has kept a lid on prices,” said Craig Parry, CEO, president and director of IsoEnergy (TSXV:ISO,OTCQX:ISENF), a junior focused on advancing its Athabasca Basin project. “With this selling now largely out of the way the market is in serious undersupply.”
“Prices have started to rise once again in the later months of 2019 and are well set for a serious rally during 2020. 2020 could be the year for uranium,” noted Parry, who also highlighted a return of investor interest helping to bolster the market.
US-based producer Energy Fuels is also optimistic about the year ahead and the final decisions around Section 232.
“We think there will be increased market activity, as utilities try to mitigate their exposure to the Iran sanctions,” said Moore.
He noted there are already some indicators pointing to a stronger market in the months ahead.
“We’ve also seen conversion and enrichment prices rise, which could be leading indicators signaling higher U3O8 prices. And of course, the underlying market fundamentals appear to be strong.”
According to Western Uranium & Vanadium (CSE:WUC,OTCQX:WSTRF), a near term producer developing projects in Colorado and Utah, the market will move regardless of a decision.
“Absent an industry positive trade outcome, we still expect a strong 2020 owing to cumulative producer supply cuts, increasing global demand, recognition of the future supply gap and the increased contracting needed to fulfill record levels of uncontracted nuclear fuel requirements,” said CFO Robert Klein.
“The bottom line is that the era of uranium sale prices being set by price insensitive state-owned enterprises will likely come to an end in 2020; higher prices are required to re-initiate long-term contracting that incentivizes the new production needed to meet future nuclear reactor requirements,” he added.
In July, at the Sprott Natural Resource Symposium, Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) told the Investing News Network that he foresees 2020 being a positive year for the energy fuel.
“But the truth is that when uranium markets move, the impacts on uranium stocks are more dramatic than any other stocks in the resource sector … When the uranium price does move, the anticipation that you’ll see from investors crowding into the few remaining uranium stocks on the planet, I think, will be very dramatic,” said Rule.
His sentiment was echoed in November by Lobo Tiggre, CEO of Louis James LLC, at the New Orleans Investment Conference.
“The price of uranium could literally double at that time (of contract signing) because the incentive price that you and I talked about is more than twice and sometimes three times the current spot price,” he said. “I can’t say when, but when it does happen we are going to see a very sudden and dramatic rise in uranium prices and that is going to be extremely bullish for the uranium companies.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Energy Fuels, IsoEnergy and Western Uranium & Vanadium are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.