Uranium stocks soar as stockpiles dwindle
Australian uranium stocks soared on Tuesday as Canada’s Cameco mothballed a major mine indefinitely.
Australian uranium stocks soared on Tuesday as Canada’s Cameco mothballed a major mine indefinitely, opening up a window of hope that the beleaguered sector may finally be on the cusp of a genuine market recovery.
And while the latest coronavirus mining shutdowns may only be temporary, they highlight the growing shortfall in global supply of uranium oxide that may spur investment in the sector after a decade of misery, hopefuls say.
Australia’s junior uranium companies have been on a tear since the end of March, when Cameco announced the temporary closure of its Cigar Lake mine, citing the need to protect nearby indigenous communities from the impact of the coronavirus.
The initial announcement of a four-week hiatus helped a host of beaten-down hopefuls tick up, a trend exacerbated when Kazakhstan’s Kazatomprom, the world’s biggest uranium producer, announced a three-month slowdown at its own operations. Kazatomprom’s decision alone pulled 10.4 million pounds of annualised uranium oxide production from the market, or about 8 per cent of global supply, with Cigar Lake worth another 18 million pounds a year — from total annual global production of about 140 million pounds.
Coronavirus-related production disruptions have also hit the giant Husab and Rossing uranium mines in Africa. That has been enough to push uranium spot prices up to around the $US30 a pound mark, from about $US24 a few weeks ago, and kick off a resurgence in the share prices of junior uranium developers.
Even long-term uranium bulls such as Bannerman Resources boss Brandon Munro say there is still some way to go before mines such his Etango project in Namibia have a clear path to funding.
But Mr Munro says the sector may finally be on the cusp of a proper rebound, as the US runs down its stockpiled inventory of uranium oxide and the long-term lack of investment in new mines comes into play.
The world’s nuclear plants use about 180 million pounds of uranium oxide a year.
About 140 million pounds of that comes from mines, he says, with another 20 million pounds coming from secondary sources such as the reprocessing of tailings material.
The rest comes from inventories built up by utilities as uranium prices plunged.
The supply shortfall will be extended in 2021 when ERA’s Ranger uranium mine finally closes, pulling another 4 million pounds of annual production from the market.
The supply gap is closing on critical levels, Mr Munro says.
“Demand is recovering from the Fukushima bear market of nine years,” he said. “There are about 20 reactors that will be turned on within the next 12 months. We’ve had supply disruption over the last three years — supply disruption caused by economic fundamentals, as opposed to the immediate supply disruptions caused by COVID-19-related matters — that removed about 20 per cent of the world’s supply.
“And finally, we’re closer to a combination of secondary supply decreasing, inventories being drawn down to historically normal levels, and production reducing over the next decade as mines close or lose production capacity.”
In May, US regulators will release an annual survey of the stockpiles held by nuclear plants. If, as expected, it shows inventory levels have fallen to about 100 million pounds — or about two years’ supply for US utilities — power providers will again need to start signing long-term contracts to lock in future supply.
Vimy Resources chairman Mike Young says his company, which has won all of the major approvals needed to kick off its Mulga Rocks project in WA, is already seeing an uptick in interest from potential customers.
“We see that in the increase in request for proposals being issued by US utilities in the American market. What we’re looking at is a very strong increase in the US utilities getting back into the contract market,” Mr Young said.
“The speculators and the spot price are reacting to the COVID-19 mine shutdown, but in the background there’s the slow burn of US utilities starting to write more contracts to fill the hole in their contracting in 2023 to 2025.”
Despite the spot price surge, the uranium price is still a long way from the $US50-$US65 levels needed to underpin the development of most new mines.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout