Uranium markets have been struggling for several years, and industry commentators have been saying for awhile now that the recovery is coming. But just how close is it?
From $US140 highs in 2007, prices shrunk due to the GFC and Japan’s Fukushima disaster and the industry struggled.
In 2019, there has been speculation the industry could be about to revive with nuclear power becoming favourable again because its emissions are lower than other energy sources.
On top of that, in July US President Donald Trump made a decision not to restrict the country’s uranium imports — which makes up 93 per cent of America’s uranium. Australian small caps welcomed the decision.
One CEO, Brandon Munro of Bannerman Resources (ASX:BMN), labelled the decision “a new dawn” in the uranium investment cycle.
But prices are still low
Unfortunately, the very reason why uranium had the decade from hell could still hold the industry back — spot prices. These spiked briefly but continued to head further south.
To see the impact of spot prices, look no further than the world’s biggest producer Canadian-listed Cameco, which supplies 17 per cent of the world’s output.
In the September quarter it made a net loss of $C13m ($14.3m) – a sharp turn from the same quarter last year where it made a $C28m profit.
CEO Tim Gitzel told shareholders Cameco was positioning for a market transition. But earlier in the year the company said it would not be restarting production at its mines until prices go upward.
But when will this happen? Some market experts have suggested it could be as soon as this Sunday.
November 10 is a big day
This coming Sunday, November 10, is the day in which recommendations are due to the Nuclear Fuel Working Group (NFWG).
President Trump established this in response to July’s uranium petition, launched by US uranium producers requesting a 25 per cent quota for domestic uranium in the US nuclear market.
He will not be required to take any action but uranium explorers, such as Western Uranium & Vanadium Corp, are anticipating action will be taken to re-establish the uranium supply chain.
Nevertheless, the aftermath may be overall negative because this could involve further tariffs which markets have not responded well to since the trade war began.
American research analyst Matthew Bohlsen said earlier this week,”if the US wants 100 per cent security of uranium supply then the best way is to support US uranium producers”.
“Any significant support for US uranium producers should hopefully end the bear market for US uranium miners.”
If Trump does nothing then what?
It is unlikely that uranium prices would rise from any decision – at least not quickly.
It is more likely that a recovery would occur over the longer term. West Australian broker Hartleys thinks this will not occur until the second half of the 2020s.
In a report on ASX-listed Deep Yellow (ASX:DYL), which has a project in Namibia, the broker stated uranium demand until 2025 could be largely met with existing supplies. This would leave little opportunity for new projects.
Post 2025 Hartleys expects more mines will be needed to meet demand as existing mines close. But the broker believes prices will have to double from what they are today to be economically viable.
“We believe only projects that are economically viable close to a US$50/lb long run price have a realistic chance of being developed,” it said.
Hartleys predicted 2023 as the time when this would be reached.