The uranium market has enjoyed a recent resurgence of initial public stock offerings, amid prospects for significant growth in demand from emerging markets.
“In terms of an investment thesis today, there is perhaps no better commodity than uranium with its bull market finally under way on tightening fundamentals,” says Scott Melbye, executive vice president of uranium mining-and-exploration firm Uranium Energy Corp.
Year to date, weekly spot prices for uranium have climbed by nearly 23%, to $29.15 a pound, on Nov. 19, from $23.75 on Dec. 25, 2017, according to data from nuclear market analysis firm UxC. January uranium futures UXF9, settled at $29.05 a pound on Thursday.
One big driver: Emerging markets such as China and Saudi Arabia are expected to see stronger demand for uranium, a radioactive metal used to fuel nuclear reactors, as economic growth feeds the need to generate more electricity.
The world’s largest uranium producer, Kazakhstan-based Kazatomprom, launched an initial public offering on the London Stock Exchange on Nov. 13. Kazakh sovereign-wealth fund Samruk-Kazyna offered nearly 39 million shares, including global depositary receipts, representing 15% of Kazatomprom’s share capital, according to World Nuclear News.
That followed an IPO by Uranium Trading Corp. UTC, a uranium investment and trading company, earlier this month. The launch “speaks to the strong and growing investor interest in the uranium space,” says Melbye.
Within the past year, uranium investment companies like Yellow Cake YCA, which successfully launched a $200 million IPO in London in the summer, and Uranium Participation Corp. U, which trades on the Toronto Exchange, “have purchased a combined 10.5 million pounds [of uranium oxide], and sequestered that material away from the spot market,” Melbye says.
Meanwhile, the extended shutdown this year of the world’s biggest uranium mine, Cameco Corp.’s CCJ, McArthur River mine in Canada, as well as production cutbacks announced in late 2017 by Kazatomprom have tightened the world’s supplies of the commodity.
Since Cameco announced its indefinite suspension of the McArthur River mine and Key Lake mill in Saskatchewan, the company has been “active as a spot purchaser” of uranium, says Jonathan Hinze, president of UxC. “Financial players, including traders, banks, and hedge funds, have also been purchasing larger volumes of the material. All of this is creating a strong support for spot prices, which have seen week-over-week increases since [the] end of September,” he says.
As long as major producers “hold back production and remain active buyers in the spot market to complete customer deliveries, the market will see additional upward price pressure,” says Hinze.
This year alone, supply cuts and “sequestering of available uranium supplies by investment funds have removed 60 million pounds of uranium from the market,” says Melbye. Global production of uranium is likely to fall below 135 million pounds in 2018 from a peak output level of 162 million pounds in 2016, he says.
China, the largest market for uranium in the world, and India will be “key to stimulating long-term price increases” for uranium, says Rohan Reddy, senior research associate at Global X Funds, a provider of exchange-traded funds such as Global X Uranium URA.
Late last year, Saudi Arabia launched a request for proposals for the construction of the country’s first two nuclear power reactors, according to the International Atomic Energy Agency. “The government has long had a goal of building up to 16 reactors, but this first deal will be for just two, with the option of two more thereafter,” says Hinze.
All of the stepped-up activity contrasts with a world-wide move away from nuclear power in the wake of the nuclear disaster at the Fukushima Daiichi power plant in Japan that followed the massive earthquake on March 11, 2011.
“The industry has finally clawed its way back from the post-Fukushima downturn,” says Melbye, noting that this year, the world is finally generating more nuclear electricity than it was in the months shortly before the Fukushima disaster.