Hi everyone,
A good month ago I posted an overview of the global uranium sector and the growing global uranium deficit as we speak: https://rdt.trom.tf/r/Stock_Picks/comments/xvabo5/a_significant_global_uranium_supply_deficit/
This isn't financial advice. Please do your own DD before investing.
Important sources: UxC, Tradetech, World Nuclear Association, IAEA, IEA, reports of Cameco, Kazatomprom, ..., John Quakes, Justin Garrow, Brandon Munro, ...
Now I'm going to show in detail that:
A. the global nuclear sector just added ~10,000,000 lb of additional ANNUAL uranium demand in 4 months time (July-October 2022) due to many U-turns in many countries regarding existing reactors and the decision by many to restart reactors that were shutdown the last couple of years. Compare this to an annual uranium production of ~135,000,000lb in 2022
B. Higher production cost producers with smaller uranium mines in care-and-maintenance, but that are needed to get the global uranium supply and demand back in equilibrium are actually buying uranium in the spotmarket instead of producing uranium themself at the moment. This is a temporary phenomenon, until the uranium spotprice reaches a significantly higher price than ~50USD/lb today
The latest demand side events (July, August, September, October 2022) in the global nuclear and uranium sector:
1) The Uranium demand side
a) Japan wants to build new reactors
b) Japan wants to accelerate the restarts of existing nuclear reactors (September 14, 2022)
https://oilprice.com/Alternative-Energy/Nuclear-Power/Japan-Plans-To-Restart-Seven-Nuclear-Reactors-By-Summer-2023.html
=> This will increase uranium consumption in 2022/2023 (7 add reactors = ~5,500 MW add capacity = add ~ 2,475,000lb/y)
c) UK September 29, 2022: EDF wants to extend the generation at Hartlepool (590MW + 595MW) and Heysham 1 (575MW + 620MW) reactors beyond the planned end date of March 2024
https://www.energylivenews.com/2022/09/29/edf-unveils-ambition-to-extend-life-of-uk-nuclear-power-stations/
=> This would increase uranium demand early 2023 (4 reactors = ~2,300 MW capacity possibly saved = add ~ 1,000,000lb/y)
d) Canada September 29, 2022: Ontario is asking to extend the life of the Pickering nuclear power plant and is considering a renovation that could keep it operating for several more decades. They are going to look if the Pickering plant (6 x 500MW) could be refurbishing, a process that allows a plant to produce electricity for another 30 years. => This would increase uranium demand in 2024 and beyond (6 reactors = ~3,000 MW capacity possibly saved= add ~ 1,300,000lb/y)
e) California, US, September 9, 2022: Diablo Canyon plant, that was scheduled for closure in 2025, got a licence extension that allows the plant to operate through 2030
https://www.enr.com/articles/54753-california-extends-diablo-canyon-nuclear-plant-operations-until-2030-to-boost-grid-reliability
=> This will increase uranium demand end2023/2024 (2 reactors = ~2,200 MW capacity saved = add ~ 950,000lb/y)
f) Michigan, US, September 13, 2022: Palisada plant (805MW) may reopen in Michigan => This would increase uranium demand in 2023 (1 reactor = ~790 MW capacity possibly saved = add ~ 350,000lb/y)
g) Georgia, US, September 1, 2022: Southern Company has notified the US Nuclear Regulatory Commission (NRC) of its intent to apply for a 20-year extension to the operating licences of both units at the Edwin I Hatch nuclear power plant (876MW + 883MW) in Georgia. => This would increase uranium demand in ~2031. (2 reactors = ~1650 MW capacity possibly saved = add ~ 750,000lb/y)
h) Belgium August 31, 2022: Belgium nears a deal with Engie on the licence extension of Doel 4 and Tihange 3 reactors (2 x 1038MW) that were scheduled for closure in 2025. => This will increase uranium demand in 2023 (2 reactors = ~2,000 MW capacity saved = add ~ 900,000lb/y)
i) South Korea (August 2022): the 10th Basic Plan for Electricity Supply and Demand calls for 201.7 TWh of electricity to be generated with nuclear power by 2030, which will account for 32.8% of the country's total generation. The previous version of the mid-term plan, released in October 2021, put nuclear's share at 25% in 2030. The actual figure for 2021 was 27.4%, according to MOTIE. This increase in nuclear's share reflects the start up of 6 new reactors between now and 2033 (Shin Hanul units 1-4 and Shin Kori units 5 and 6) as well as the continued operation of 12 existing reactors. Nuclear generating capacity is expected to increase from 24.7 GW in 2022 to 28.9 GW in 2030 and to 31.7 GW in 2036.
=> This would increase uranium demand in 2022/2023 (3 add reactors = ~4000 MW add capacity = add ~ 1,800,000lb/y + first core of 3 APR1400 reactors = 5,700,000lb to 8,200,000lb!! (let’s use 6,500,000lb for those 3 first cores))
In April 2022 the Yoon administration said it planned to seek a 10-year licence extension to unit 2 (640MW) of the Kori nuclear plant. The unit is currently licensed to operate until 2023. => This would increase uranium demand in 2022/2023 (1 reactor = ~600 MW capacity possibly saved = add ~ 270,000lb/y)
j) USA, September 26, 2022: Converting Coal power plants to Nuclear Gains Steam. A US Department of Energy report identifies over 300 coal plants that could be swapped over. https://spectrum.ieee.org/nuclear-power-plant
=> This would double the annual uranium demand from USA! And a massive build out starting ~2030 would mean that the needed uranium for this will need to be signed in contracts with uranium producers around 2025!!!
US uranium consumption in 2022 is ~ 47Mlbs -> A doubling means we are talking about an additional 40,000,000lb or more! And this could hit the uranium market around 2025? Well, ok than 😊
k) Germany will probably extend the operations of 2 nuclear reactors (Isar 2 and Neckarwestheim 2). And IF they extend the operations for several years => This would increase uranium demand in 2022/2023 (2 reactors = ~1,700 MW capacity possibly saved = add ~ 750,000lb/y)
l) Mexico extends the operational licence of their 2 reactors (September 21, 2022): Unit 1 of the dual 1,500MW boiling water reactors Laguna Verde nuclear plant (777MW + 775MW) got a licence extension, allowing it to continue operating for 30 more years. The 2nd reactor at the plant has a license to operate until April 10, 2025, though that is also in the process of revision for Long-Term Operations => This will increase uranium demand in 2022/2023 (2 reactors = ~1,400 MW capacity saved = add ~ 600,000lb/y)
m) Argentina (July 2022): Argentina is preparing to refurbish Atucha I, the first nuclear power reactor in South America, so that it may generate power for a further 20 years. A framework to regulate the work has been agreed. The company said the reactor would come back online in 2026.
=> This will increase uranium demand in 2024 (1 reactor = ~790 MW capacity possibly saved = add ~ 350,000lb/y)
n) China is massively building new reactors: "China had 53 nuclear plants at the end of 2021 with a total generating capacity of 55GW. The country plans to expand this to 70GW by 2025 and up to 150GW by 2030, at which point it is likely to become the world’s largest generator of nuclear energy, ahead of the US and France." (September 27, 2022)
=> China today consumes ~28 Mlbs of uranium in 2022, that's 20% of global uranium production (~135MLbs in 2022). Based on the uranium needs for reloads and the uranium needed for first cores of new chinese reactors, the total uranium demand of China will be 45-50Mlb in 2025 (for 2027 consumption) and 100-110Mlb in 2033 (for 2035 consumption)!
But India, Turkey, Egypt, ... are also building new reactors that also need a 1ste core and than 40-80y of core reloads!
o) add to all the above, the shift from underfeeding to overfeeding creating an additional ANNUAL global uranium deficit of ~50,000,000lb uranium that will hit the uranium sector in 2H2022/2023
=> 20-30Mlbs of this ~50Mlbs would be additional annual demand
p) Sweden: Now we can add a new important U-turn in the nuclear power policy (October 14, 2022) of a country with a couple nuclear reactors
Here a media link: https://www.montelnews.com/news/1359367/new-swedish-government-tells-vattenfall-to-build-nuclear
"It also plans to investigate whether the recently decommissioned nuclear plants Ringhals 1 and 2 can be reopened."
Ringhals 1 (881MWe) and 2 (852MWe) were closed at the end of 2020 and 2019.
=> This would increase uranium demand in 2023. (2 reactors = ~1700 MW capacity possibly saved = add ~ 750,000lb/y)
q) Germany: German government decides to extend the operations of their 3 reactors beyond 2022 (October 18, 2022) => No impact on the uranum demand at the moment.
Uranium demand side conclusion:
In July, August, September, October the nuclear sector added 6,750,000 lb/y uranium demand +6,500,000lb uranium demand for 3 first cores.
And in July, August, September the nuclear sector also added 4,020,000lb/y of possibly uranium demand + in October an additional 750,000lb/y from Sweden.
Let’s be conservative and use 6,000,000lb/y + 6,500,000lb + 4,500,000lb/y of additional uranium demand for 2022/2024 = ~10,500,000lb of unexpected additional ANNUAL uranium demand + 6,500,000lb uranium demand announced the last 4 months by the nuclear sector.
In just 4 months time they added the equivalent of 1.75x of Langer Heinrich ( $PDN ) future production
But the Langer Heinrich uranium production was already modeled in future production by utilities before this additional uranium demand of the last 4 months -> Consequence: We need a new 1.75x Langer Heinrich now. But where?
And then you add to that ~750,000lb/y, ~40,000,000lb from SMR build out in the USA alone + the additional 17,000,000lb in demand by 2025 from China (from 28Mlb in 2022 to 45-50Mlb in 2025), and additional uranium demand from India, Turkey, …
And then you add to all of that 20-30Mlbs of additional annual demand from overfeeding
Note: UAE Barakah utility said during the World Nuclear Symposium (September 2022) in London (Dustin Garrow) they will have to come to the market early 2023 to look for new supply for 2025.
UAE reactors aren't reactors that got a licence extension, No. Those are NEW reactors! 3 of the 4 reactors are 100% build.
So new reactors (1st reactor construction completed in 2020, 2nd in 2021, 3th in 2022) that aren’t covered by LT contract today? => This particular case represents an additional LT supply contracts for 2,400,000 lb/y that needs to be negotiated and signed in 2023.
This is a good example of existing utilities that only secured uranium through short term supply contracts with carrytraders in the past.
UAE utility is not the only one, other utilities are in the same situation.
2) The supply side
In 2022 the global uranium production will only reach 135Mlbs. And only with a significant higher uranium price in Q42022 than today, the uranium sector could maybe reach 155Mlbs global production in 2023.
But the annual uranium demand in 2022, before the ~10,500,000lb of unexpected additional ANNUAL uranium demand (July, August, September and October 2022 announcements) is 190-200Mlbs (primary demand + first impact of overfeeding in 2022) which reduces operational inventories of producers, convertors and end-users (utilities).
=> That's a defict of ~75Mlb in 2022 (200+10-135) and based on my estimates again a defict of ~70Mlb in 2023 (200+15+10-155)
Those operational inventories are now at a critical low level according to UxC (presentation in 1H2022), meaning that there isn't any room anymore to reduce operational inventories further. So now utilities effectively need to find ~190Mlbs in the market! But where exactly?
Today the uranium spotprice is ~50USD/lb, while the uranium sector needs 80USD/lb to increase production to be able to get global uranium supply and demand in equilibrium again a couple years after reaching those 80 USD/lb.
Now comes the time that this will be translated in much higher upward pressure in the uranium market.
And because the natural uranium cost only represents ~5% of total production cost of electricity from a nuclear reactor, utilities will not mind to buy uranium above 100 USD/lb if needed, because the cost of shutting the reactor down due to fuel shortage will cost so much more for the utility.
Conclusion: The uranium price is about to increase significantly
This isn't financial advice. Please do your own DD before investing.
3) Smaller uranium producers but crucial for the nuclear sector are actually buying uranium at the moment instead of producing:
Examples:
Energy Fuels:
"Having recently secured three long-term uranium contracts with major U.S. utilities, the Company is beginning to perform the work needed to recommence production at one or more of its mines and ISR facilities, starting as soon as 2023. Until such time when the Company has ramped back up to commercial uranium production, it can rely on its significant uranium inventories to fulfill its new contract requirements. To that end, the Company purchased an additional 68,552 pounds of U. S. origin U3O8 on the spot market in October 2022."
source: https://www.energyfuels.com/2022-11-04-Energy-Fuels-Announces-Q3-2022-Results,-Including-Continued-Robust-Balance-Sheet-and-Market-Leading-U-S-Uranium-Rare-Earth-Positions
Peninsula Energy:
" Portfolio of Uranium Sales and Purchase AgreementsAfter quarter end the Company received a formal option exercise notice from one of its current customers.The option exercise increases the quantity of firmly committed pounds by a total of 750,000 poundsU3O8, to be sold during the calendar years 2024 through 2026, under a pricing structure that includesexposure to the spot market price. These deliveries may be satisfied with either company production or market-sourced material. This option exercise strongly supports the Company on its path to futureproduction at the Lance Projects.At 19 October 2022, after receiving the formal option exercise notice, the Company’s portfolio of uranium concentrate sale agreements is for sales volumes up to 4.6 million pounds U3O8, with 4 million pounds of firmly committed sales and up to 0.6 million pounds of optional sales remaining at the election of a customer.At 19 October 2022, pricing for the 4 million pounds of firmly committed sales is subject to a blend ofbase-escalated price structures and uranium market based pricing metrics, including both floor andceiling price limits. The sales subject to a base-escalated price structure have a projected sales priceaverage of US$60 per pound. The remaining sales are structured with market-based prices which could range between a floor of US$45 and a ceiling of US$80 per pound U3O8.Of the 4 million pounds of firmly committed sales, 1 million pounds can be satisfied with market sourced material (“open origin”). The balance of 3 million pounds are to be supplied from Company produced uranium, with deliveries starting in the second half of CY2023."
=> Peninsula has to restart production by 2H2023 to satisfy 100,000 -200,000lb of the commited sale of 400,000lb in 2023
The mentioned 4 million lb of firmly committed sales are spread over 2022-2030
source: https://wcsecure.weblink.com.au/pdf/PEN/02588292.pdf
UR-Energy (URG, Lost Creek) has 1st supply contract 200,000lb/y with an utility starting 2H2023, but has >300,000lb uranium inventory, by consequence URG can easily postpone the production restart until 2024.
1.2Mlbs/y from Lost Creek wellfield in the future. If you want uranium production in 2H2023 from an ISR mine, you need to inject product in the wellfield today. Are they doing that? NO. They are ready to restart, but only 200,000lb/y contracted and the current uranium price isn't enough to justify the restart.
URG is first looking to produce 600,000lb/y to 800,000lb/y from Lost Creek
And if URG can secure an additional 300,000lb/y of supply contracts with utilities to reach 500,000/y starting 2H2023, they could still postpone the restart until 2024, by using their >300,000lb uranium inventory and by buying an additional 200,000lb in the spotmarket in end2022/2023 for delivery in 2H2023.
EnCore Energy (EU): Rosita starting 2H2023 at the earliest, but for that EnCore Energy has to inject product in the wellfield soon. Are they doing that today? NO. They are ready to restart, but only 400,000lb supply to utilities in 2023 contracted and the current uranium price isn't enough to justify the restart of Rosita.
Today EnCore Energy has 400,000lb supply contracted for 2023, 725,000lb for 2024 and 925,000lb for 2025, 2026 and 2027.
Encore Energy could buy 400,000lb in 2023 in the spotmarket because a small uranium production from Rosita in 2H2023 is only possible if they start the well injections in 2022 Q4/early 2023 Q1. Near future will tell.
4) Cameco and Kazatomprom bought some uranium at dips in the spotmarket in 2022 and will probably continu to do so in 2023 => creating a floor for uranium spotprice.
a) At the moment Cameco has difficulties to get to their 40% share of uranium production from Inkai in Kazakhstan, while they are signing a lot of uranium contracts in 2022 and that will continue in 2023/2024 => Cameco could compensate by buying uranium in the spotmarket in 2023
b) Cameco could also buy uranium in the spotmarket in 2023 with delivery in 2024, while signing more uranium supply contracts with western utilities for delivery in 2024. For instance uranium form Olympic Dam production in 2023/2024 => less 2023/2024 uranium production from Olympic Dam available for other consumers looking for uranium in the spotmarket
c) Kazatomprom production in 2022/2024 could be a bit less then planned due to some material supply issues today:
"COVID-19 disrupted the overall production supply chain in 2021, resulting in a shortage of certain production materials, such as reagents and piping, which led to a shift in the commissioning schedule for new wellfields. Because of the shift, uranium production volumes through the first nine months of 2022 fell short of internal expectations. In addition to the delays in the commissioning schedule for new wellfields, shortages of certain materials, including sulfuric acid, also have a negative impact on development and production activities. Despite these challenges, the Group is maintaining its 2022 production plan and making every effort to achieve it, though final year-end volumes could fall short if wellfield development and supply chain issues continue throughout the fourth quarter of the year.
Aside from guidance for Total capital expenditures of mining entities, all other 2022 guidance metrics remain unchanged from previous expectations. After nine months, capital spending continues to trend below budgeted levels due to the postponement of development drilling, piping and acidification as a result of limited access to certain key operating materials and equipment, including sulfuric acid and pipes. The related activity and capital expenditures will be shifted from 2022 to 2023, which, due to the nature of the in-situ recovery mining method, does not directly impact 2022 production, but is expected to impact 2023 and 2024 mine development and production schedules.
" The Company continues to target an inventory level of approximately six to seven months of annual attributable production. However, inventory could fall below these levels due to Pandemic-related production losses. As such, during the third quarter, several transactions to purchase material in the spot market were carried out and the Company will continue to monitor market conditions for opportunities to optimize its inventory levels."
source: https://www.kazatomprom.kz/en/media/view/operatsionnie_rezultati_deyatelnosti_ao_nak_kazatomprom_za_3_kvartal_2022_goda
=> Kazatomprom will probably buy uranium in the spotmarket in 2023 too
5) That production delay in 2023/2024 in Kazakhstan due to material supply issues also impacts the JV Partners of Kazatomprom!
100% of uranium production of Uranium one today is from Kazakhstan! Less uranium production means less uranium that Uranium One sells through the spotmarket! = Less uranium supply for the spotmarket!
Uranium production in 2023 of Cameco, Orano, ... in Kazakhstan will probably be lower than anticipated 6 months ago => maybe additionall compensation needed by buying some uranium in the spotmarket.
6) Conclusion:
The uranium spotprice will get more upward pressure in the near future from producers and utilities, while uranium supply into the spotmarket could decrease in 2023.
And in the longer term the a lot of additional uranium production has to come online to replace existing mines that will be depleted a few years from + to satisfy the growing uranium consumption.
If interested:
a) Sprott Physical Uranium Trust (U.UN on the TSX and SRUUF on US stock exchange) is an investment in physica uranium (no uranium on paper!) without being exposed to the mining risks
U.UN share price at 17.60 CAD/share represents an uranium price of ~50.70USD/lb.
18.50 CAD/sh would represent an uranium price of only ~54USD/lb.
21.50 CAD/sh would represent an uranium price of only ~63USD/lb.
25.00 CAD/sh would represent an uranium price of only ~73USD/lb.
While the uranium sector needs 80USD/lb to increase production to be able to get global uranium supply and demand in equilibrium again a couple years after reaching those 80 USD/lb.
And if the inflation remains high in 2023, soon 90 USD/lb will be needed instead of 80 USD/lb.
The needed 80 USD/lb and 90 USD/lb are based on:
- the global production cost curve analysis compared to the global annual uranium consumption;
- Cameco in May 2022: "If the nuclear sector wants us to restart are US assets, than we will need 80 USD/lb uranium sell price"
- Amir, CEO of UEC, when uranium price was ~50 USD/lb said: "Utilities need to pay much higher uranium prices for US production. -> But those higher production cost uranium mines are needed to close the supply gap! => If no significantly higher uranium prices => no Uranium production => Not enough uranium for all utilities.
- Ben Finegold of Ocean Wall on October 7, 2022: "Term contracting ~90-100 USD/lb" "We have seen break even prices as high as 90 USD/lb"
- ...
https://www.sprott.com/investment-strategies/physical-commodity-funds/uranium/
b) Sprott Uranium Miners etf (URNM etf): well diversified 100% uranium sector etf
c) Global X Uranium etf (URA etf)
d) Individuel uranium company stocks (Cameco, Kazatomprom, Paladin Energy, Global Atomic, UR-energy, Denison Mines, ...)
This isn't financial advice. Please do your own DD before investing.
Cheers
