As investors in the junior resource space it always pays to keep an eye on sectors which have fallen out of favour. To that point, the long-suffering uranium sector could be reaching an inflection point.
Ever since Japan’s Fukushima Daiichi meltdown in 2011, uranium producers have been under major pressure. The spot price for uranium oxide started to fall in the wake of the 2008 subprime crisis. However, after Japan took all of its reactors offline, the world was left with a glut of uranium.
It costs most uranium miners between $20 to USD 30/lb to deliver uranium to the market. Following the Fukushima meltdown, the spot price of uranium continued its downward collapse to under USD 20/lb by late 2016. Miners like Areva (now called Orano) were losing money on every pound they sold.
Five Year Spot Price of Uranium
Uranium Sector Stabilizes as Producers Remove Supply
This situation was not sustainable. 2017 saw the uranium price rise to near USD 25/lb, and at the time of writing, it is hovering just above USD 20/lb.
Over the last year, some of world’s largest uranium producers have moved to take supply off the market. These actions could be the start of a big turnaround in the uranium price, especially because the market has been slow adopt a proactive attitude towards securing fuel supplies.
Lopsided Market
One could be forgiven for thinking there is a huge supply of uranium that needs to be worked through. Even with the falling price, there has been little attention paid to the ongoing development in nuclear energy across Eurasia.
In fact, there are numerous reactors that are currently under construction. China is the world leader in nuclear development, but India and many other nations are adding nuclear generation capacity to their energy mix. According to China’s National Energy Administration, it will “steadily promote” the development of nuclear power in 2018. Furthermore,
“The plan calls for five new nuclear power reactors to be brought online in 2018 and construction to be started on a further six to eight units.”
Note: Australia is the only country in the G20 that does not produce uranium energy.
Uranium Sector Supply Glut Not To Last
Many people are unaware how primary U3O8 supply can meet commercial demand year after year. The answer lies in selling government stockpiles into the market. Downblended uranium from atomic weapons also helped offset demand, but today, both sources are history.
It looks as though global powers may be on the edge of another nuclear arms race. Hence, further sales from government sources are extremely unlikely. If tensions continue to escalate, governments may need fresh supplies of fissile material for new batches of weapons.
Note: Fissile material is material capable of sustaining a nuclear fission chain reaction.
Uranium Sector | Development Dearth
If the last decade has been rough for the uranium majors, it has been a terror for junior uranium explorers. The vast majority of junior uranium hopefuls that sprung to life during the boom years before the subprime crash are long gone.
From an investor’s point of view this is great news, because today there are some potentially incredible deals to be had. The very few new uranium juniors which have been able to raise money, have done so with the goal of picking up world-class assets on the cheap. Some mid-tier miners have used this time to bargain hunt for distressed assets as well.
There is no way to know when the market is going to wake up to the fact that the days of high-grade uranium at giveaway prices are long gone. When investors start to realize the situation that is emerging in the uranium market, the prices on quality miners could move up quickly.
Check out a presentation produced by Cambridge House at the Vancouver Resource Investment Conference in January of 2018. The speaker evaluates the uranium sector and the chances of a recovery later this year.
