Nuclear Power Related Media Thread, page-4422

Nuclear power: why everyone wants uranium (copyright link)

Everyone seems to want uranium right now

Governmentsappear to have finally grasped that nuclear power is the only cheap andreliable low-carbon power available.

Merryn Somerset Webb

Jan 21, 2024 – 5.11pm

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A producthas just gone up in price by 90 per cent in 12 months. It now costs more thanit has in 16 years. Most people would think twice about diving into a marketlike that.

Not sothose who run a nuclear power plant and must have the product in question:uranium. Shutting the plant down will cost you a fortune, Nick Lawson ofadvisory firm Ocean Wall says. Think $US1 million a day. It could also make youextremely unpopular, with one in five households in the US reliant on nuclearenergy. Worse, if you do have to do it, you can’t flick a switch to turn itback on once your ore has arrived; restarting means new safety checks andregulatory approvals that can take months if not years.

Nuclear hasbeen out of favour for decades due to disasters in Fukushima and Chernobyl(pictured). DeSid

That, alongwith the fact that uranium is a small part of the overall cost, is why theenriched uranium market is one of the most price-inelastic in the world. If youneed it, you really need it. The problem – which I imagine is keeping utilitymanagers up most nights – is that an increasingly long list of other people dotoo.

Governments appear to have finally grasped that nuclear power isthe only cheap and reliable low-carbon power available – and therefore the only thing that gives them a hope of getting anywhere near their rash net-zero promises. They know they won’t get there with unreliable, expensive and politically divisive wind turbines and solar panels – and (finally) the greens do too.

So theFrench have given up on their (stupid) plan to reduce the share of electricitygenerated by nuclear. The UK is (also finally) seriously discussing expandingnuclear capacity and has delayed the closure of four reactors.

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It has alsoannounced plans to spend hundreds of millions of dollars on producing thehigh-assay low-enriched uranium (HALEU) we need for the small modular reactorsthat are to be our low-carbon saviours. And the Chinese, say Alpha PortfolioManagement, have 55 nuclear reactors, another 24 under construction and around150 planned over the next 15 years.

At COP28,22 countries committed to a trebling of nuclear capacity by 2050. The slightlyscary result? Globally uranium demand is expected to rise by 28 per cent by2030 and to double by 2040.

Back to thesleepless nights of our managers. They have not had to worry about uraniumsupplies for a long time. Nuclear has been out of favour for decades due todisasters in Fukushima and Chernobyl. There has also been a long-term supplyoverhang that, until very recently, has kept prices well below the cost ofproduction. In the last uranium bull market, that secondary market kicked in,and the price rise, while sharp, was very short. Anyone who wanted uraniumcould get it without much bother or expense. No more.

The era ofoverhang is “emphatically behind us”, according to industry research group UxC.There has also been little investment in new mines for a while (why invest withprices so low?). Inventories at the big producers are at record lows (Cameco’sfell more than 35 per cent last year), and those same producers are alsoreporting production problems.

This week,production giant Kazatomprom announced a shortage of sulphuric acid was causingproblems. Cameco warned last September that production levels were fallingrather than rising. Expect profit warnings.

The truth is, there just isn’t enough uranium to go around, particularly given a relatively new competitor in the form of funds that hold physical uranium for investors – effectively taking it out of the market. (Yellow Cake Plc and Sprott Physical Uranium Trust are the main culprits here.) The result, Lawson says, is the current demand for uranium is around 190 million pounds a year. The available supply is 140 million pounds. That’s about a 25 per cent supply deficit already. Most utilities will hold two to three years of inventories. Smart managers might be thinking four or five might help them sleep better. Expense and bother in spades.

Some of youwon’t be much bothered about this. You know that the cure for high prices ishigh prices, that demand begets supply and everything will be fine. But thereis a problem with this argument in this market.

First,expanding the supply of uranium will take a long time. Mines don’t open in aday; they take more like a decade. So companies need to be sure that prices arestaying high before they start even applying to start digging. They also needto hire. A long bear market has left them with a small and ageing group ofexperts.

Geopoliticalconflict clearly doesn’t help. Russia is a huge part of the uranium ecosystemand also owns stakes in some of the producers in Kazakhstan, which producesaround 45 per cent of the world’s uranium. Kazakhstan itself is at the centreof a uranium great game: recent visitors include Xi Jinping, Vladimir Putin andEmmanuel Macron. Meanwhile, Niger, which produces 5 per cent of the world’suranium, has just suffered a coup.

The secondkey point is that this is not just about the ore. You can’t shovel thatdirectly into your power plant and hope for the best. For that, you needenriched uranium. And the supply of this is even tighter and more politicallytricky. In 2021, 35 per cent of global enrichment was provided by Russia.

So thereyou have it. Hedge funds want uranium (they like stuff that is going up fast).ETFs want it. Governments want it. Utilities must have it. They can’t all havewhat they want at the price they would like. That’s why this price shift isstill “very much in its early stages,” according to Sean Wade, CEO of PowerMetal Resources.

What mightbring all this to an end? There might be another accident – although on currentnumbers, you are four times as likely to be eaten by a shark than injured in anuclear accident. The small modular reactor rollout could fail – but work onthem is far enough advanced to make that seem unlikely. We could figure out howto get uranium from water more effectively (it is currently possible but veryexpensive).

There couldalso be a breakthrough that overtakes nuclear. If you think fusion or perhapsthe direct beaming of solar energy from space is just around the corner,uranium is not for you.

Otherwise,it looks like you should assume it’s likely to stay expensive for some time –and the share price of equities in this still tiny and often volatile spacewill follow. (The total market cap of uranium-related equities is only around$60 billion.)

In the UK,the most obvious ways in are via Yellow Cake, a London-listed fund that holdsphysical uranium, and the Geiger Counter Fund, which holds uranium-relatedequities. The latter trades on a 16 per cent discount to its net asset value –it might be in a hot sector, but it’s listed on an unpopular market. Both havehad good runs already, but as long as utilities are fighting funds for ore,there may be more to come.