Key Takeaways
- The resurgence in uranium markets continued into January, with the U3O8 uranium spot price gaining 10.96%, climbing from US$91.09 to $101.08 per pound, marking a crucial milestone.
- Kazatomprom’s announcement that it would not meet 2024 production increases was the biggest catalyst for the upward trend. The company cut its guidance for 2024 production by as much as 14%.
- Uranium miners outperformed the underlying commodity, with junior miners emerging as top performers.
- Uncertainty remains on the supply side due to the situation in Niger and efforts to ban imports from Russia.
Performance as of January 2024: Average Annual Total Returns
| Asset | 1 MO* | 3 MO* | YTD* | 1 YR | 3 YR | 5 YR |
| U3O8 Uranium Spot Price 1 | 10.96% | 35.71% | 10.96% | 99.17% | 50.05% | 28.31% |
| Uranium Mining Equities (Northshore Global Uranium Mining Index) 2 | 12.86% | 23.28% | 12.86% | 55.84% | 43.80% | 32.55% |
| Uranium Junior Mining Equities (Nasdaq Sprott Junior Uranium Miners Index TR) 3 | 18.78% | 26.91% | 18.78% | 45.14% | 39.92% | 31.12% |
| Broad Commodities (BCOM Index) 4 | -0.09% | -5.79% | -0.09% | -11.84% | 7.16% | 4.07% |
| U.S. Equities (S&P 500 TR Index) 5 | 1.68% | 16.01% | 1.68% | 20.82% | 10.99% | 14.29% |
*Performance for periods under one year are not annualized.
Sources: Bloomberg and Sprott Asset Management LP. Data as of 1/31/2024. You cannot invest directly in an index. Included for illustrative purposes only. Past performance is no guarantee of future results.
Uranium Reaches Another Inflection Point in Bull Market
The resurgence in uranium markets continued into January, with the U3O8 uranium spot price experiencing a significant 10.96% increase, climbing from US$91.09 to $101.08 per pound.1 This rise marks a crucial milestone, surpassing the psychological barrier of $100 per pound, a level not seen since before the 2008 financial crisis. Price momentum has accelerated, particularly since September 2023. In January, the price briefly spiked to $106 before settling back to $101, only to rise again to $106.51 on February 1.
Several factors contributed to this upward trend, with one significant development being the primary catalyst. The world’s largest uranium producer, NAC Kazatomprom JSC (Kazatomprom), announced that it would not meet its previously announced production increases for 2024 and 2025. This sudden reversal after indicating in September 2023 that it would expand production, signaled to industry participants that the supply response to the fundamental deficit in the uranium market will take longer than anticipated.
Over the longer term, physical uranium and uranium mining equities have demonstrated significant outperformance against broad asset classes, particularly other commodities. For the five years ended January 31, 2024, the U3O8 spot price has risen a cumulative 245.75% compared to 22.09% for the broader commodities index (BCOM), as shown in Figure 1.
Figure 1. Physical Uranium & Uranium Stocks Have Outperformed Other Asset Classes Over the Past Five Years (01/31/2019-01/31/2024)
Source: Bloomberg and Sprott Asset Management. Data as of 01/31/2024. Uranium Miners are measured by the Northshore Global Uranium Mining Index (URNMX index); U.S. Equities are measured by the S&P 500 TR Index; the U308 Spot Price is from TradeTech; U.S. Bonds are measured by the Bloomberg Barclays US Aggregate Bond Index (LBUSTRUU); Commodities are measured by the Bloomberg Commodity Index (BCOM); and the U.S. Dollar is measured by DXY Curncy Index. Definitions of the indices are provided in the footnotes. You cannot invest directly in an index. Included for illustrative purposes only. Past performance is no guarantee of future results.
Kazatomprom’s Supply Constraints and Market Response
Kazatomprom signaled production issues on January 12 and gave an operational update on February 1; in response, the U3O8 spot price spiked 8.33% and 5.37%, respectively. The announcement noted that the company would reduce its 2024 and 2025 production guidance due to shortages of sulfuric acid and construction delays.6 This marked a U-turn from its previous positioning three months ago in September when Kazatomprom stated it would increase production in 2025 to a 100% level relative to its subsoil use agreements.7
In their operational update, Kazatomprom quantified its reduced 2024 production guidance to be nine million pounds of U3O8, or 14% lower than its previous guidance. Given that Kazatomprom is the largest and lowest-cost uranium miner in the world, this represents a 6% reduction in the global mine supply of uranium. Further, the company noted that it would unlikely meet its 2025 production targets.
Figure 2 shows Kazatomprom’s history of uranium production and forecasted production. Responding to the previous bull cycle in the 2000s, Kazatomprom was able to ramp up production with significantly lower costs. However, it became a world-leading uranium producer at an inopportune time as its increased supply coincided with the Fukushima accident in 2011, thereby oversupplying the uranium market. In 2017, due to years of suppressed uranium prices, Kazatomprom decided to reduce its production targets and has been operating below its licensed capacity ever since. In recent years, mine supply has been insufficient to meet world reactor requirements and countries have been forced to rely on secondary supplies, predominantly commercial inventories. By 2023, we believe that the available-for-sale inventories have been largely depleted and that the security of supply has become paramount, which will lead to the rebuilding of utility uranium inventories.
Kazatomprom’s increased planned uranium production (shown below) stood to relieve some pressure from inventories, though the market would have still been forecasted to be in a deficit. Further, it’s important to note that not all Kazatomprom’s production is solely their own. A considerable portion of the increase in supply may be allocated to Russia through joint ventures.
Kazatomprom’s new 2024 production guidance of 21,000 – 22,500 tU19 is relatively flat. Although we do not yet have a new target for 2025, it is likely to be significantly less than originally indicated. Therefore, the world’s largest uranium producer, which helped to end that last bull cycle with its production increases, is not able to increase production despite the U3O8 spot price increasing to over $100 per pound. This may provide a strong notice to the market and may likely accelerate long-term contracting and substantiate the need for sustained higher uranium incentive prices to spur mine production.
Source: Sprott Physical Uranium Trust