Finally, industry and climate activist Greta Thunberg agree on something.
Commenting on the role of nuclear plants in alleviating Europe’s energy crisis, Thunberg said this month: “If we have them already running, I feel that it’s a mistake to close them down in order to focus on coal.”
That’s exactly what developed economies such as Germany are weighing. Belgium plans to extend the lives of its two newest reactors rather than exiting nuclear, and in the UK France’s state-owned electricity utility EDF is exploring the life extension of two nuclear plants beyond 2024.
In the US, meanwhile, certain “at-risk” nuclear plants have been handed financial support with production tax credit provided by the Inflation Reduction Act of 2022, and $6bn in dedicated support in the Infrastructure Investment & Jobs Act.
Spot prices for uranium are 15% up this year as investors recognise stable Western reactor demand and nuclear capacity growth in China amount to genuine net growth
As the US and Europe comprise half of global nuclear reactor activity, these shifting attitudes are having a predictably positive effect on uranium. Spot prices for the mineral are 15% up this year as investors recognise stable Western reactor demand and nuclear capacity growth in China amount to genuine net growth. Previously, the expectation was that uranium demand was shifting from west to east.
The improvement in the uranium market is no great surprise; in fact, it’s been a long time coming. This year represents the eighth in a row that European utilities have drawn down inventories of the mineral. Recognising a shift was afoot, Canadian investor Sprott Asset Management launched a physical uranium trust in 2019 which today holds an estimated $3bn worth of the radioactive material. The trust has done well: the uranium oxide price is 94% higher since 2020, easily outgunning the S&P index (up 16% while also acknowledging the summer sell-off), whereas gold is up 9.45% over that period.
Sprott’s fund is one way to access the uranium market, as is Global X Uranium ETF. Local equity exposure to uranium is admittedly hard to find. BHP is one: its Olympic Dam mine in Australia — primarily developed for copper — is one of the largest uranium producers in the world. It produced 2.4 million pounds of the material in its 2022 financial year ended June. But BHP’s earnings — as expected of a diversified miner — are flattened by its portfolio approach. Iron ore, copper and coal production have the greatest bearing on the performance of its shares.
Unfortunately, SA’s uranium industry has disappeared as gold production has shrunk. Uranium is not now a primary industry. A year ago, in an investor market guidance presentation, Sibanye-Stillwater raised the prospect of building a uranium-dedicated mine at Beatrix once its gold reserves were depleted. Since then it has shifted its gaze to possible mergers and acquisitions. “We’re looking more broadly at uranium,” says Sibanye-Stillwater CEO Neal Froneman. “We think it’s one of those metals that we need to have more exposure to.”
But Froneman is negative on SA investment. In addition to Beatrix, the company has ample uranium contained in tailings west of Joburg at its mothballed Cooke shafts. Processing the tailings is hazardous for reasons other than environmental. Illegal mining in the region is rife and has made the task of approving investment difficult.
Froneman might also be a tad cautious of overestimating the uranium market. Before Sibanye-Stillwater, he tangled with uranium with SXR Uranium One, a company he brought to the JSE on an M&A ticket that backfired spectacularly. The uranium market first took off and then crashed, in short order. It nearly finished Froneman’s career: he spent several years licking his wounds in junior gold mining before Sibanye Gold was founded.
But there are signs that this time might be different (yes, really) for uranium.
While sanctions on Russian uranium supply have not yet been applied, self-sanctioning is beginning to shut off this important source of secondary supply
Russia is only the world’s sixth-largest uranium producer, but it plays a larger role in uranium enrichment. The country controls about 40% of global enrichment capacity and about 31% of European and 27% of US delivered uranium supply. This is potentially important, because excess enrichment capacity is a secondary form of uranium supply in its own right. While sanctions on Russian uranium supply have not yet been applied, self-sanctioning is beginning to shut off this important source of secondary supply.
Supply is beginning to respond. Namibia’s Paladin Energy is due to bring its Langer Heinrich mine into production next year, contributing to an expected 18% increase in the mineral’s production. Nonetheless, continued Russian sanctions and another year of utility drawdowns of inventories are likely to see a further pulse in uranium prices, according to Morgan Stanley.
“We forecast an average spot price of $58/lb in 2023 and $65/lb by the fourth quarter of 2023,” it said in a recent report. The window may be brief, however. Responding supply could cap prices in the medium term. It thinks uranium may average $45/lb by 2025. While this is not the stratospheric $11/lb to $140/lb gains of the early 2000s, uranium’s more measured price gains could help put the glow back into SA production.
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