November 22, 2023 | (26 mins 00 secs)
Per Jander and James Connor discuss the uranium market, highlighting the catalysts for sharp increases in uranium prices in 2023, including increased utility and producer activity, production shortfalls from major players like Cameco and Orano, and geopolitical uncertainties affecting supply. Per Jander expresses optimism for the uranium market, emphasizing strong demand, ongoing long-term contracting discussions and potential supply disruptions as factors that could contribute to further price increases in 2024.
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James Connor: Per, 2023 has been an incredible year for uranium, one of the best-performing commodities globally, up over 50% on the year. We have a lot to celebrate and a lot to discuss. Why don’t we start with what the catalyst was? It wasn’t too many months ago when the uranium price was languishing, and so were many stocks. Then, before you know it, it just took off. What was the catalyst that got it going?
Per Jander: That’s a great question. I would say you can almost split the year up into two halves. At the beginning of the year, we started at about $50. It was a fairly slow and steady increase to about $60 in September. I think primarily that a lot of utility and producer activity drove that. There were more traditional players in the market.
At some point, three, four, or five utilities were active in the spot market, which is rare. They were thinking, “These prices aren’t that high. We can get used to this.” They felt like this is what we’re seeing in the term market. We will pick up a little bit of material at these levels, and they’re also comfortable doing so. This was obviously before Cameco announced in early August that they had a bit of a production shortfall. They needed to pick up a little material there. I think Orano did the same. You can add the Niger coup issues to their portfolio as well, and we’ll touch on that later, I’m sure. Even the Kazakhs.
The traditional players were there. Maybe that’s the steady, nice increase to $60 and up to the WNA [World Nuclear Symposium 2023] in September. After that, something changed. I would say that’s when the traders, hedge funds and other financial actors took over, and they were the major reason we saw such a big movement. That was the drive from $60 to low $70s in only a few weeks.
After that, there was a burst of activity. Then the price has been bouncing around in the mid-$70s, maybe down to the high $60s, but utilities and producers came back in, we got low enough, and now we’re hovering in that region. The activity’s fallen off a bit, but it feels like this price level, around $70, will probably sit there for a bit, if not higher. As soon as you drop into the $60s again, I think the more regular traditional buyers will step in again. It feels like it’s probably not going to come down a lot. There’s not a lot of downside in the current market anyway.
James Connor: You may have mentioned that four to five utilities were involved in the spot market. You also said that’s very rare. Why were they involved?
Per Jander: I think that perhaps they didn’t have time to come out for a bigger RFP [request for proposal] because it’s a bit of a lengthy process. They looked at the spot market and said, “Actually, this is probably a decent price. I will take it on the balance sheet and just carry it,” because it’s not just price risk they’re looking at; there is, of course, the comfort of knowing that the uranium pounds are yours. They’re in the can at the facility where we need them. The security of supply is an increasingly important factor for a lot of utilities. It’s just more comfortable to have it. You have a title to it; it’s where you need it, and it just makes you sleep better at night.
James Connor: Let’s spend some more time on the spot market. Of course, that’s where you spend a large part of your day. But what are you seeing there? It looks like the market has found a level in the low $70s. Is there a lot for sale at $74 and $75?
Per Jander: I wouldn’t say there’s a lot. A few hundred thousand pounds, I’m sure, are there. We’re seeing some sellers that have material now, whether they are traders who have it on their own or sell it on someone’s behalf. There’s quite a lot of movement behind the scenes where it might not be a lot of physical pounds shifting hands, but there are, for example, ConverDyn has started up its conversion facility. There’s a lot of need for material there. Whereas there hasn’t been much difference in value between the locations, we’re suddenly seeing a 50 to 75 cents a pound value difference between ConverDyn and the other locations. The Russians are also allegedly short of physical material at the Russian border, so they are asking everyone, more or less, if they can get material at the border.
Now, most Western players will not transact with the Russians, but there are other ways they try to solve this, which also has repercussions among the Western locations. There’s a lot of that going on. But as far as a lot of material shifting hands and big transactions daily, the activity has slowed down a little bit.
The sellers aren’t that desperate to sell, and the buyers aren’t that desperate to pick up, so you have a fairly wide spread of about a dollar, which we normally don’t see. You see 50 cents, sometimes even 25 cents, but now, at about a dollar, you will not likely see transactions daily.
James Connor: What’s the nature of the sellers? Are they producers, or are they traders?
Per Jander: They are traders. I haven’t seen producers that much lately. Those traders, of course, can be acting on someone’s behalf. It’s hard to know. But there are certainly some of the traditional traders that are just selling some of the material.
James Connor: When we look on the buy side, what do you see there? How much is wanted?
Per Jander: There was quite a lot of activity, mainly at some point right after WNA, when you had that big run-up to the low $70s. One day, I think we had five or six bidders leapfrogging each other. Then you had the resulting price movement as well, of course.
Now that has calmed down quite a bit, and there are maybe a couple of bidders. They’re not chasing any offers at this point. They’re just sitting there; if it comes down, take it up, and they’re happy. If not, they’re not going to chase it. I think they wait for it to come down. But there are a couple of bidders there for sure.
James Connor: Are these other financial players, or are they hedge funds?
Per Jander: It could be some funds for sure. Some traditional traders could do that as well. They have utility contracts they need to place a little bit into, or they have a line of sight to the utility about to issue an RFP, and they want to stock up a little bit so they have something competitive to bid into. It’s a wide range, more of a daily change.
James Connor: You just mentioned RFP. Why don’t we go there now? What are you seeing in terms of RFPs?
Per Jander: There has been much more activity than we normally see. So far, it’s been mostly active Europeans. We’ve seen at least a handful of European utilities who have issued and concluded RFPs. Some of them are just about to their window closing, so you’ll send in your offers to them, and then they’ll take a couple of weeks to evaluate, so they’ll be awarded before Christmas.
I haven’t seen that much in North America just yet. I’m sure they will issue some before the end of the year. Also, in Q1, I think we’ll see quite a few in North America. Europe is not at the end of it, but many entities in Europe are concluding their contracting right now for the near term. I think next year you’re going to see a steady flow of RFPs come as well, but that immediate push that was after when you had. For example, the VVER [Russian pressurized water reactors] operators in Europe, the Russian-designed ones that need to move away from the traditional supply from Russia, basically mandated from the Euratom Supply Agency that you need to find supply elsewhere.
That initial steady flow of RFPs that came is starting to come to an end now, and it’s shifting a little bit more over to North America. But it’s a lot more activity than we normally see. There could be small ones. There’s the 100,000 pounds in the spot market, and there could be some really big ones, like a Korean one, over six million pounds over five years. They come in all sorts of shapes and forms. But overall, I would say there’s quite a bit of activity here.
James Connor: You mentioned that Korean RFP. Has that been awarded yet?
Per Jander: Not to my knowledge. I think they’re still evaluating.
James Connor: Why are the Europeans much more active than the Americans?
Per Jander: I think it’s the proximity to the conflict in Ukraine. It’s as simple as that. The one I referred to, the VVER operators were more or less forced to. But even so, other traditional European operators that have Western-designed reactors have been much more active than North America. I think it’s simply a factor that they’re closer to the conflict, so it’s more top of mind.
Last winter, you had the energy crisis, more or less, with gas prices shooting up, and Europe was hit harder by it. I think they felt more pressure to act sooner than they did. Also, we’ve had some very positive announcements. From Belgium, for example, they’re going to extend the life of their reactors, and TVO [Teollisuuden Voima Oyj] in Finland is doing the same thing. Of course, that means that once you make the decision, like now we know that our operating horizon is extended, you can start procuring fuel. You can’t do it until you’ve made that decision. It’s also a natural flow of these decisions.
We saw the same thing in the U.S. with Diablo Canyon, which was fantastic news. But Diablo could not go out and procure the material until they had decided that they would extend that reactor’s lifetime. I think we will see some more of that next year as well.
James Connor: I’m just curious about this Korean RFP. For six and a half million pounds, is that a good size?
Per Jander: I would say it’s healthy. It’s over a million pounds a year, so that’s significant. Is it enormous? No. But Korea does this almost every year. Same time every year, they come up with the same volume. They’re layering tranches every year. They’re very methodical in what they do. I think they’ll be quite successful at it. They have some good prices.
But it’s also interesting because it is fairly public. You see the terms they list and what they want to see. It’s more of a wish list. I don’t know if I think this year they had, “We want to see a $58 floor, and we want to see a $90 ceiling.” These were not escalated, but obviously, they become something very different if they were escalated. At the face value, they look quite high. But the interesting thing is if you look back a few years at those price levels, they are very different than what they are now. They ask for a lot of volume flexibility. I don’t think they’re going to get that. It’s a good tell on how the terms are shifting.
James Connor: Are there any other RFPs larger than the Korean one?
Per Jander: I don’t know if they’re larger, but they’re similar and add up. I don’t think it’s that common. You must be a pretty large utility to do anything bigger than that. You also take a pretty strong view on price. Okay, this is when we’re going to go out and buy a lot at one time, but it’s quite rare that they’re bigger than that size. A million pounds a year for five years is a pretty healthy amount.
James Connor: We have a number of new financial players involved in the spot market now, including hedge funds. Has this helped or hindered your ability to maneuver in the spot market?
Per Jander: As far as Sprott Physical Uranium Trust is concerned, we haven’t been that active this year. We bought a lot of material at the beginning of the year, but it’s been fairly light since then. But as WMC, we see they bring liquidity to the market now.
We’re quite welcoming for more traders or entities like that because the more the merrier in the market. You’re more likely to find someone willing to transact with you the more players you have. Some traditional traders might have reduced their activity slightly for various reasons that I won’t speculate on. We’re quite welcoming to see new financial traders that normally haven’t been in physical uranium; they have opened an account at the physical facilities and transact in the market. To me, that’s only a good development.
James Connor: How do you see the spot market evolving? Do we stay at these levels? Are there players within the spot market that want to keep it or maintain these levels?
Per Jander: This is a pretty good level. People are happy. You don’t see anyone trying to cram a bunch of material into the market. You don’t see anyone desperate to buy anything, either. I think most people are closing out their books. It’s impossible to predict anything, but I think between $70 and $75 is a healthy level. Can it go higher? Absolutely. Can it go lower? I don’t think it’s going to go much lower than $70. I don’t see that happening. But again, I don’t want to eat my words, but I feel there’s more upside and downside.
James Connor: I was hoping you were going to say $80.
Per Jander: It’s not impossible, but I dare to bet that we will see $80 next year, and they might well stay above those too. But again, at the end of the year, it’s starting to wind down. I don’t think we’ll see too much activity, but predicting any of this is impossible.
James Connor: That’s a good overview of what’s happening within the spot market. Let’s talk about the long-term contracting market now. What are you seeing there?
Per Jander: I mentioned that we’re expecting to see quite a few active tenders. Then, outside the tenders, you also have the bilateral discussions between mostly the big players. We’ve also seen that recently, with Kazatomprom and Cameco publicly announcing that they contracted with the Chinese. Of course, we don’t see the terms of that. But clearly, there are ongoing discussions between these entities, not just the Chinese.
It’s hard to tell exactly the terms, of course, but I think that ceiling prices are increasing and increasing all along. For the first time talking to utilities and some suppliers, there might be situations where offers won’t have ceilings. It is clearly quite a long time since we have seen that. There will be a floor but not a ceiling at all. That’s just a sign of the times, too, and clearly, that’s a dream scenario for any supplier where you don’t have to cap your upside.
Most of the time, you say, “If you want a floor in there, there’s going to be a ceiling,” and vice versa. But considering the market is so much of a seller’s market at this point, we’ll start seeing offers that don’t have ceilings. I haven’t seen that since maybe the last run-up in 2007 when I was very new at Cameco, so it’s quite an interesting development.
The Chinese are not sitting on their hands. They’re very busy. Their program is growing faster than any other program. They’re going to be the biggest nation when it comes to nuclear power in the world before the end of this decade. I don’t think there is any chance that you have the Kazakhs and Cameco announcing transactions with the Chinese and then a couple of weeks later, [President] Macron travels to Kazakhstan and Uzbekistan. Because if you look at France, I think they’re in a healthy situation if you look at the EDF [Électricité de France S.A.] because they’ve had some production issues with their nuclear fleet. Now, those are behind them, and they’re operating quite well. That’s good news for France going into a winter that’s hopefully not too cold, but at least they need all the production assets to work as they should. But we have an ongoing situation in Niger where France relies on a lot of that uranium for their fleet. We don’t know how long that coup is going to go on. We don’t know how long that production asset will be down. It was a good move from France and Macron for him to go over there.
You look at the announcements from Kazatomprom that it’s going to increase the production by quite a bit. Now, that’s not all Kazatomprom’s share. Much of it belongs to the Russians because they have shares in the biggest asset they will ramp up, Budenovskoye-6 and -7. A lot of that belongs to the Russians already. But even so, that total increase of 30 million, a lot of these pounds are spoken for. They’re going to Russia, they’re going to China, and no one knows how much is going to be available for the West. I think it’s probably part of the reason why Macron went over there. It’s just speculation, but it is the right thing to do anyway.
James Connor: One of the overarching themes of the past year or two is the security of supply. It doesn’t matter if you’re talking about uranium or battery metals. It’s become a very important matter.
Per Jander: Absolutely. One hundred percent, I agree.
James Connor: Because we’re talking about the long-term contracting price, it’s currently around $63 a pound. Where do you see it going in 2024? Are we going to hit $70, $80 a pound?
Per Jander: That’s a good question. I don’t know if it needs to go that high. It’s obviously up to the main suppliers where they want to show their offers. But again, it’s important to remember that in terms of the long-term price, there are so many other factors than the price itself. If you show a long-term offer to someone for five years, like the Korean example, you’re not going to say, “Oh, 100% of the volume is going to be at $63 escalated.” Now, a portion of it will be. I think it has to be at least 15% for it to qualify as a price point for the price reporters. But there are so many other factors in this that, first of all, the escalation is not capped. If you have a 5% escalation, even if you’re at $63, this day, it starts to escalate from day one, more or less when you sign it. The first delivery is not three years from now. You’re well into the $70s before you deliver any of those pounds.
Also, the fixed price portion or that base escalated portion of a price contract is only one thing. The other one is market-related, where the terms have changed. Where you had a $60 ceiling before, now we could have a situation where there is no ceiling. If you’re a producer, just like, “Okay, I can get a significant share of this contract market-related without the ceiling,” I’ll offer you $60 escalated. I don’t even care what that price is. All I care about is that I’m going to make the market-related portion as big as possible, and I’m going to make that ceiling as high as possible or not even have it at all. I would easily trade off, take away the ceiling, and drop the long-term price, $5. Of course, that’s a no-brainer. Any producer would do that.
There are many factors, and it’s hard because the market is so opaque. Of course, we’re starving for information. We want to know where the market is, but you don’t know. That’s why it’s dangerous to stare yourself blind at the one little price point available, but there are so many factors around it that you don’t know. That’s where talking to utilities; if they share anything or WMC does, our company will throw in an offer and see what happens. If utilities engage with us, then we know. It’s like, “Oh, we’re not that far off. We weren’t expecting to do that.” But it’s a slow process of finding these things out. But it’s how our market works, and you must live by it.
James Connor: You speak with fuel buyers across North America and Europe. What are they saying about this current environment?
Per Jander: They’re very intelligent people. They know that in the years following Fukushima, that clearly wasn’t sustainable; those were low prices. Of course, it was great for their margins. But again, the fuel cost is not that big of a factor in their operating [economy] overall anyway. They know that this is a healthier market.
There is a response to the contracting levels, not just the spot price, but the contracting levels in general. You see Kazatomprom, and you see Cameco, you see Paladin, you see Boss Energy, these miners are ramping up their production assets. That’s exactly what you want to see if you’re a utility. They knew it was not going to happen at $30, it’s not going to happen at $40, but at this price level, it is happening. I think it’s a sign of a healthy market. While you might have a little bit of sticker shock to begin with when you see $70, they still understand it. Again, you’re not going to shut down your power station because a portion of your portfolio of uranium will be bought at $70 a pound. You’ll be just fine.
James Connor: Per, we started this conversation discussing how good 2023 was. What can we expect in 2024?
Per Jander: That’s more than a $10,000 question. It’s probably a lot more than that. The way I see it is we’re starting at a pretty high level, $70, $75, wherever we’re going to be with, as I mentioned before, with very limited downside. The way I see it, too, is that it’s very hard to predict what will happen. But if you look at the demand side, you have a pretty good line of sight to what’s being done there.
Utilities don’t have to come out. They’re not forced to buy right away. They can wait six months, nine months, maybe even 12 months, but they will buy eventually. And if your utility is like, “I don’t like the prices right now. Will I wait six months and hope they’ll be lower?” That’s a pretty gutsy call to make. I haven’t heard of any utilities completely pausing their procurement activities to wait for better price terms because I think most people realize there is more upside than downside in this environment. The demand side is certainly there, and there’s little uncertainty around it.
Now, you look at the supply side, and there is a lot of uncertainty. If everything works the way it should, the $70 to $80 dollar level, it’s a healthy level to be at. Anything could happen like Russian sanctions, and no one knows what will happen there; sanctions imposed on Russia or Russia imposing them on the West.
There could be any production issues. The Kazakhs did a very good job ramping up this year, but will they succeed next year? They need a lot of sulfuric acid; they need a lot of piping. It’s not easy. Same thing with Cameco. It looks like they had to adjust their production slightly this year. Will they succeed next year? They’re as good as any at it, so I’m sure they’ll do well. But still, mining is not easy. Then you have the other mines that haven’t produced it for quite some time, Paladin and Boss. They will come into production, too, and it’s not that easy. There’s some risk going on that side of things.
Then add to that, even if you get the ore out of the ground, you need to get it to where it needs to be, and that’s where the logistics side comes in. That hasn’t been a cakewalk this year, either. Every time something happens with potentially Russian EUP [enriched uranium product] shipments out of St. Petersburg, a few people probably choke on their coffee in the morning, and they’re quite having a bit of a bad day until things blow over. It’s a very fragile system, and any disturbance there could significantly impact prices.
I’m not saying anyone expects something to happen and expects surprise shock, but I also don’t think anyone will be very surprised if it does happen. You have these scenarios; everything works the way it should. Yeah, we’ll probably sit around these levels. Not a lot of downside. If something does happen, triple digits are probably a very likely scenario.
It’ll be quite exciting to see. Of course, I want every actor to get the fuel they need. Quite honestly, for next year, they have all the fuel they need, too. Even if there is a small disruption, they’ll be just fine. Prices might spike a little bit, but we’ll see what happens. But overall, considering how demand is growing, not just for the next couple of years with life extension and everything else you’re having, it feels like an SMR [small modular reactor] project is being announced every day. Then you also have the really big ramp-ups, big fleets being built. France is going to build theirs. The UK is going to build theirs. The Chinese are full steam ahead. Even here in the beautiful province of Ontario. You’re one of the brightest shining stars in the nuclear universe now. It’s very good news overall.
As far as 2024 goes, I hope there will be more good news, and the price situation will be very interesting. But I still see a lot of upside anyway.
James Connor: That was very well said, Per. Once again, thank you for spending time with us today and sharing your thoughts on what’s happening within the uranium market. I look forward to our next discussion.
Per Jander: Thank you very much. As always, I’m happy to be here.
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