WHILE there’s been a correction in metals over the past 12 months, one that’s kept its value is uranium. That’s because the metal is gaining acceptance in the drive towards decarbonisation. But its long-held strategic relevance is also coming into play amid a deterioration in geopolitical stability. Finally, there’s also a developing mismatch between supply and demand in the uranium oxide market.
Such is the diplomatic stress between the US and Russia and its allies that legislation to ban the importation of uranium is now grinding its way through the US Congress. What’s worrying is the sheer size of US reliance on Russian and Kazakh uranium to produce power.
“Around 20% of US electricity is generated by nuclear power stations,” says Scott Melbye, CEO of Uranium Royalty Corporation, based in Vancouver. “About 50% of the uranium fuelling US homes comes from Russia and Kazakhstan. We have a huge overreliance problem on Russian uranium.”
That’s no wonder. According to the World Nuclear Association’s (WNA’s) latest data, Kazakhstan produced 21,227 tons of uranium last year, constituting 43% of global output. Russia mined 2,508t of the metal.
But as the US’s stance on Russia hardens, and China remains ambivalent in its diplomatic dealings with Russia, the world’s largest economy will soon need to wean itself off both Russian and Kazakh uranium.
“Kazakhstan shares two big borders with Russia and China,” says Melbye. “In a worst-case scenario, if Kazakhstan had to choose between the West and Russia/China, it will likely fall into the latter’s sphere of influence.”
That will leave the US relying on other geographies for its uranium needs, including Canada (at 7,351t of production last year, the second-largest producer), Australia (4,087t) and possibly Namibia (5,613t).
It is, however, ambivalent how Namibia will turn as its 2,255t/year Rössing uranium mine belongs to the Chinese CNNC and its 3,358t/year Husab uranium mine belongs to China’s CNG.
Paladin Energy, based in Australia, is restarting the Langer Heinrich uranium mine in Namibia with an estimated output of six million pounds of the yellow metal at peak production. By June 26, the company told investors, the $118m restart project of Langer Heinrich is more than 50% complete with production expected to start in the first three months of 2024.
In addition to Langer Heinrich, Paladin is exploring for uranium in Canada due to its “strategic location for US utilities”, among other reasons.
Paladin isn’t the only miner looking to Canada’s untapped uranium resources. NexGen Energy is busy developing the rich Rook I deposit in Saskatchewan. Interestingly, the company said in May that it received “non-binding expressions of interest totalling over $1bn in available debt” for the project. Clearly, the market is hungry to fund uranium projects.
“Nuclear energy is one of the few issues that has bipartisan support in the US,” Melbye says. “Public opinion and acceptance of nuclear energy is changing due to the green debate.”
Overhang?
For decades the political left in the West has been opposed to expanding nuclear power generation. A change came about when the European Union included nuclear power in its taxonomy for sustainable activities last year.
Such was the change in attitude towards nuclear power – after a long-enduring hostile overhang following Japan’s earthquake-induced Fukushima nuclear accident in 2011 – that there are currently two new reactors being constructed in EU member states with a further six planned, according to WNA data.
In the US, which has 93 reactors with an installed capacity of more than 95,000MW of electricity, one reactor is being built, three are planned and 18 are proposed for construction. China, the world’s second-largest economy, has 55 reactors with an installed capacity of more than 53,000MW and has a further 23 reactors being constructed, 45 planned and 154 proposed.
This supports uranium demand. Melbye estimates demand for yellowcake will grow by around 3% annually. “Currently, mine production trails demand by between 50 million and 70 million pounds a year. I don’t know of any other commodity with this gap between supply and demand,” he says.
Then why hasn’t the price of uranium moved over the past year? It still has to do with the unwinding of the huge supply overhang from the years leading up to 2016.
“In 2016, prices crashed to around $17 a pound,” Melbye says. “Then ensued a production cutback across the world to fix the situation.”
Such was the production cutbacks that Canada’s uranium production in 2022 was still at around 52% of the 14,039t produced in 2016, according to WNA data. In Australia, 2022 production of 4,087t was equal to 65% of 2016’s output. Total world production last year, of 48,888t, was equal to 77% of 2016’s output.
In addition to cutbacks, large miners such as Canada’s Cameco bought physical uranium (in the drums) while it mothballed some of its operations. Deliberate attempts at unwinding futures contracts for the metal and forcing buyers onto the spot market supported the price of yellowcake, which more than tripled between 2016 and last year.
Currently, mine production trails demand by between 50 million and 70 million pounds a year. I don’t know of any other commodity with this gap between supply and demand – Scott Melbye, Uranium Royalty Corporation.
Another contributor to the price hike was the creation of the world’s first exchange-traded fund that holds physical uranium. This is similar to ETFs holding physical gold, palladium, rhodium or platinum.
The Sprott Physical Uranium Trust, listed on the Toronto Stock Exchange, held 61.6 million pounds of uranium at end-May with a net asset value of $3.15bn. That’s more uranium than the current supply-deficit in the world.
“There was a realisation that I could buy uranium in the drum for less than the production cost at the mine,” says Melbye. But this situation seems to be in the later stages of unwinding. “Now, we’ve moved from an oversupply-driven situation to a production-driven one.”
Price-driven
Going forward, Melbye says that the supply-demand deficit will only be balanced if more uranium mines are commissioned. For that to happen, the metal’s price needs to increase drastically. “Most new development projects need higher uranium prices,” he says, adding that even if the price of uranium doubles from its current level, the price of electricity derived from nuclear reactors won’t really affect power prices.
And huge strides are being made in nuclear reactor designs – especially after the EU’s designation of the technology as sustainable.
For one, Westinghouse is developing its AP-300 reactor with an installed capacity of 300MW. What make these reactors more alluring than your typical 900MW types is their ability to be constructed in a modular fashion. This will cut down on construction time and comes at a significantly lower cost of an estimated $2bn each. Compare that price tag to a $960m solar farm with an installed capacity of 150MW being built outside Kenhardt in the Northern Cape.
Apart from Westinghouse’s AP-300 prototype, “there are other ideas out there with new revolutionary designs” and “the market will determine which companies will prevail”, Melbye says.
Some of these designs include US-based NuScale Power’s VOYGR-12 small modular reactor plant with an installed capacity of 924MW, and Canadian-based Terrestrial Energy’s integral molten salt reactors, which combine molten salt and fission to generate power at high temperatures.
As many of the so-called fourth-generation nuclear reactor designs are modular in nature, Melbye sees their applicability for South Africa’s mining industry: “The big mines in South Africa are ideally placed to use smaller modular nuclear reactors,” he says.
