The Uranium Bull Still Has Room to Run

By Steve Schoffstall, Director, ETF Product Management, Sprott Asset Management

We believe we’re in the midst of a new uranium bull market. The energy transition and the willingness of global governments to support the nuclear energy industry are contributing factors to expected long-term supply shortfalls of uranium. As once dormant mines begin to start producing again, disruptions are becoming the trend rather than the exception, making it difficult to close the widening supply/demand gap. Rising uranium prices are leading to renewed investment in the industry, and uranium miners may be uniquely positioned to benefit from the growth in this sector.

Consumption of Fossil Fuels to Peak by 2030

In our view, fossil fuels will have a role to play in achieving net-zero decarbonization goals for at least the next several decades. Producing energy from solar, wind, and hydro isn’t without limitations. These renewable energy sources are dependent on environmental factors, are subject to disruptions and are not suitable for all locations. Reliable baseload power sources are needed to keep the lights on when the sun isn’t shining and when the wind is blowing.

While fossil fuel consumption is expected to peak by 2030, technological advances in developed countries and increasing standards of living in developing countries are contributing to an expected 76% increase in demand for electricity, from 2021 to 2050. Other reliable energy sources will need to be developed to bridge the power gap, and countries are increasingly embracing nuclear as part of the solution. Today, there are 435 nuclear power reactors in operation, and there are another 170 new reactors under construction or planned for construction.

Market Conditions Are Supportive of Higher Uranium Prices

Fueled by short- and long-term market conditions, physical uranium returned more than 55%, year-to-date, and is one of the best-performing commodities in 2023. Uranium's march higher picked up steam over the summer as a coup d’état in Niger led to the overthrow of the nation's president. This led to fears that Niger, responsible for producing about 5% of the world's uranium, may limit exports of this critical mineral. In early September, Cameco, one of the world's largest producers of uranium, lowered its 2023 production guidance due to challenges at the Cigar Lake mine and Key Lake mill, contributing further to uranium price gains.

Physical uranium prices in late 2016 dipped below $20 per pound, and many mines stopped producing and went into care and maintenance. Today, the incentive price for mines to begin producing is around $75 to $80 per pound. With uranium prices currently around $74 per pound, we're approaching the point where it makes fiscal sense for mines to resume production. Although uranium prices are increasing, they remain well below the historical high of approximately $140 per pound in 2007. Even with rising prices, meeting the growing demand for uranium is no small task, as estimates show a cumulative supply gap of approximately 1.5 billion pounds of uranium through 2040.

Increasingly, global governments are recognizing nuclear power's vital role as a carbon-free energy source and are supporting growth in the industry. In the United States, $4.3 billion has been requested from the Department of Energy to transition away from Russian sources of uranium, while the infrastructure bill provides $6 billion to support at-risk nuclear power plants and $3.5 billion to develop advanced nuclear power plants, among other government initiatives. Japan has restarted 11 nuclear power plants, and another 10 are at various stages in the process of restart approval. South Korea made a full reversal of its nuclear phase-out policy and will expand its nuclear program. In Europe, the UK, Netherlands, Finland, Czech Republic, Sweden, Belgium, France and Poland have all taken steps supportive of nuclear energy. China has ambitious nuclear energy plans and accounts for a large percentage of the expected reactor growth.

Realizing the Investment Opportunity with Uranium Miners

The increasing demand for uranium is providing attractive investment opportunities in uranium miners. After decades of overproducing, uranium miners are no longer able to meet the demand of existing nuclear reactors, and the uranium production/demand imbalance may widen through the next decade. A perfect storm of sorts may be forming where government support and higher uranium prices meet increased demand and insufficient supply. Uranium miners may likely benefit in such a scenario and may be positioned to generate higher revenues and potential profits as mining races to catch up with demand.

This article is intended solely for the use of Sprott Asset Management USA Inc. for use with prospects, investors and interested parties. Investments, commentary and statements are unique and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this presentation are those of the presenter and may vary widely from the opinions of other Sprott-affiliated Portfolio Managers or investment professionals.

The intended use of this material is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances.

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