Tribeca’s Guy Keller revisits the uranium thesis and provides a good summary of recent market dynamics. Some of my notes are below (any mistakes in transcription are my own).

They got to the nuclear theme by looking at decarbonisation. Started looking at that as a thematic that hit the world as well as the resource sector, we have seen that play through in critical minerals, in lithium, the push to renewable energy, etc. What they realized was that if you are decarbonizing via electrification, you also need to decarbonize the grid and that’s how they got on to nuclear as a thematic. When they looked at the universe in terms of where we sit, in terms of supply/demand fundamentals, future demand coming through the sector, current state of the market – across all these different metrics, uranium ranks very highly.

As well as decarbonization, since the war in Ukraine, the world has moved on to a theme of energy security. We have seen a bunch of commercial decisions taken out of the hands of global utilities, with governments taking direction on that. Basically, there are 33 countries using nuclear power, almost all those governments have made a decision to keep their existing reactors running, to extend the life of those reactors and then also build new capacity. There is also a lot of investment in the future technology of SMRs. The great thing about modelling uranium demand is you have the WNA that does it for you every 2 years, fairly easy to model vs. other commodities because you have very long-term decisions happening. Tomorrow for a nuclear fuel buyer is 2-3 years time, because it takes 18-24 months for uranium to get from mine mouth to reactor core. So they are looking through cycles. First goal for fuel buyers is not to run out of fuel. The price of the uranium is not that relevant.

In terms of the supply side – anyone who has spent anytime in commodities knows that keeping existing supply on is really hard, bringing back idle capacity is hard, developing mines on time and on budget is difficult and planned / prospective mines are nice to have but often don’t come when you want them at the price you want them. So there’s a lot of things that have to go right here just to meet the WNA’s lower demand scenario. The WNA terms the gap between their reference and upper demand scenarios “unspecified supply” – but there is a lot of exploration drilling and capital required to advance exploration plays into development-ready projects. There is already a primary mine supply deficit before we even look at future demand, and we have had that deficit for a decade. We have relied on secondary supply and inventory to bridge that deficit, but those sources are dwindling. At the same time, we are now in the largest reactor build program in decades with 61 reactors under construction and the WNA predicting 93 new reactors in operation by 2030.

The other aspect is geopolitical risk – Kazakhstan is almost half of the world’s supply of uranium. The main route to bring uranium to market is via the port of St. Petersburg and, because of what is happening with Russia/Ukraine, that is out of action for most of the world. Some utilities are already attempting to self-sanction, while Russia has also threatened to voluntarily restrict exports. Kazakhstan is now looking at a Trans-Caspian route, they have moved some material through and looking to move more, but that is not an easy route, you have got to cross several countries, some of which are involved in civil conflicts. There is also pricing pressure through the nuclear fuel cycle with conversion and enrichment prices at multi-year highs in response to geopolitical issues affecting supply (Russia is ~27% of the global conversion market and ~39% of the global enrichment market). This is not financial market speculation, there is real business going on in the market.

Spot prices – the spot market is very inefficient, few players and the price can often move a few dollars up or down on no trading. SPUT brought a lot of excitement to the market, when shares are trading at a premium to NAV, they can issue shares and use the capital to acquire pounds. In the beginning, there was a lot of buying activity by SPUT, but more recently, the spot price has held up with SPUT being noticeably absent in terms of purchasing material. Shows the market is small and tight. The more important uranium market is for long-term contracting. The uranium sector trades like iron ore did in the early 2000s. 95-98% of the activity that happens in the market is long-term contracts, typically a utility contracting with a producer or development project. Most of the prices and terms of these contracts are confidential. Hard to get transparency on it, need to rely on insights from market insiders. The key point is that although YTD 2023 we are at close to 150m lbs of contracting (a decade high), utilities are still not at replacement rate levels.

Lithium vs. uranium markets – the lithium market started relatively in balance. The demand was mostly in the future and hadn’t been built. There will still be a future supply deficit, but lithium is affected by short-term economic cycles – is a global recession going to lower EV battery sales, which causes a gigafactory to think twice about whether they make an investment. By contrast, in uranium, we have gone into the current cycle from a decade of deficit, with the demand having already been built (as well as longer-term government decisions to increase that). And this doesn’t even include the potential incremental demand from SMRs. To date, uranium spot prices have only risen ~300% from 2017 lows vs. ~1800% in the last cycle (Lithium Spodumene China prices rallied ~1450% from the 2020 lows). He thinks the sector has further to go, the incentive price has probably moved up given inflationary cost pressures. And price is also not the only thing that has to be right for supply to come on – you have to consider permitting, community, first nations, the capability of the management team, supply chain issues and so on.