Uranium Week: Multiple Tailwinds For Uranium

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While the uranium spot price continues to move in a tight range, Cameco remains positive about long-term fundamentals for the uranium market.

-Demand for uranium is rising just as supply becomes uncertain
-The US returns to uranium conversion industry after five–year hiatus
-Uranium spot price falls marginally

By Mark Woodruff

Speaking at the company’s year-end results presentation, President and CEO of Cameco, Tim Gitzel, remained positive about the long-term fundamentals in the uranium market.

He noted momentum is building towards non-traditional nuclear, such as small modular reactors and advanced reactors as well as recognition of nuclear energy's role in the production of low-carbon energy for the production of hydrogen and desalination.

This is occurring as countries and companies around the world are making net-zero commitments. This includes the US, where the new administration has expressed support for maintaining the existing domestic nuclear power fleet and the construction of advanced reactors, as well as recommitting to the Paris Agreement.

Also, "demand for uranium is rising at precisely the same time that supply is becoming less certain. We know that utilities have not been replacing what they consume annually under long-term contracts," Gitzel said. "This has led to a growing wedge of uncovered uranium requirements."

Citing data from market research company UXC, he said “the base case projects an annual shortfall of almost 100m lbs by 2035. That means the world needs to discover, develop and commission about six McArthur Rivers or Cigar Lakes in the next 15 years. Given the timelines it takes, we should be investing now.”

Regarding Cameco’s operational performance, Gitzel explained production at Cigar Lake mine remains suspended with “lots of question marks” regarding the timeframe for recommencement. The suspension is due to uncertainties about access to qualified operational personnel caused by the pandemic and a commitment to protecting the health and safety of workers, their families and the broader community. 

Gitzel insisted that they don’t want to “yoyo” production at Cigar Lake by risking a premature recommencement of operations. He noted they were waiting for the vaccine rollout whilst maintaining close contact with the public health authorities and indigenous community leaders. 

Due to precautionary production suspensions at its operations, Cameco produced only a 5mlbs in 2020. Gitzel noted that it was too early to say if there would be an impact on 2022 production guidance at Cigar Lake. Should the Canadian vaccine be a pre-requisite for restarting Cigar Lake, recommencement may be delayed well into 2021.

Company News

Honeywell said this week it would begin preparing to reopen its uranium hexafluoride (UF6) conversion plant, the Metropolis Works Facility (MTW), in Metropolis, Illinois.

Restart work will begin this year and production will restart in early 2023, which will mark the US's return to the uranium conversion industry after a five-year hiatus. In January 2017, the company laid off some of its employees in Metropolis due to significant challenges of the nuclear industry globally and the oversupply of UF6, explains industry consultant TradeTech.

This decision is expected to be positive for the uranium sector, as utilities can now clarify their forward conversion contracts before procuring the uranium to be delivered to the converters.

Australian-listed Bannerman Resources ((BMN)) last week announced the raising of $12m via a placement of shares at 10.5 cents. The funds are to be used to complete a pre-feasibilty study at the th company's Etango-8 uranium project in Namibia, with sufficient funding to then undertake and complete a definitive feasibility study. Additionally, funds will be deployed for general working capital and corporate purposes, including financing and off-take initiatives.

Among the investors taking part in the placement was a specialist uranium investor in Tribecca Investment Partners, which provided cornerstone support. FNArena understands the raising was very heavily oversubscribed by both institutional investors and private clients.

As the raising was the first to be undertaken by an Australian uranium company in 2021, it provides a useful insight into uranium investor sentiment.

Uranium Pricing

TradeTech's Weekly Spot Price Indicator is US$29.35/lb, down -US$0.20 from last week’s Indicator.

The weekly spot uranium price has declined nearly -4% in 2021 while spot price volatility continues to decline on limited market activity. The average weekly uranium spot price in 2021 is US$29.92/lb, US$0.21/lb above the 2020 average.

The spot uranium market remains slow with a total of 500,000lbs U3O8 recorded in transactions for the week.

Market participants continue to wait for spot demand to increase, especially from the utility sector. There has been some limited increase in buying interest from the utility sector since the beginning of the year, explains TradeTech.

However, non-utility buying continues to outstrip end-users in the spot market with demand overall below sellers' hopes for mid-February. As a result, offer prices fell across all delivery locations as sellers attempt to motivate buying interest with lower prices.

TradeTech's term price indicators are US$33.75/lb (mid) and US$36.00/lb (long). 

As noted by Cameco in its February 11 quarterly earnings call, the company is seeing off-market interest growing, which has long been an indicator of future long-term buying interest from utilities.

While sellers are encouraged by the uptick in off-market interest, these informal discussions must translate into firm buying commitments to provide real support to the uranium production sector.

On the supply side, sellers continue to caution that uranium production is in a tenuous position. Along with recent production shutdowns and curtailments, producers warn that the market must monitor the capability of producers to respond as needed on a timely basis and at a reasonable cost should there be any additional disruptions or curtailments to existing production.

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