Last week saw further announcements on reductions in the supply of uranium and substantial share price increases in producers; possibly marking the beginning of a major pricing reversal after the commodity was decimated in the wake of the Japanese nuclear accident of 2011.
We believe there is considerable upside for uranium based on growing future demand and the commodity’s current unloved status. We’ve taken a substantial position in uranium producers after significant falls in the energy commodity from more than US$70 a pound to its current price below US$27.
Uranium is primarily used for electricity production and offers a cost competitive, clean, and reliable alternative to fossil fuels and renewables. It’s especially important as a consistent ‘base load’ power source.
Nuclear energy currently accounts for 20% of US electricity production, while China has 36 active reactors and plans for more than 100, with 29 currently under production. Globally, there are more than 430 reactors, with 71 under construction, 165 new reactors planned, and 315 proposed.
While Japan has plans to restart two-thirds of it’s reactors in the next four years, adding to the long-term consumption profile for the commodity.
Demand for economical, clean, and reliable energy is growing and nuclear could play a critical role. As uranium costs make up less than 5% of a reactor’s operating expenses, price sensitivity from utility companies is low.
Shedding its current unloved status as a dangerous energy source would support even greater adoption. Coal has killed and maligned many times the number affected by nuclear energy accidents, and modern nuclear energy facilities are far safer than plants designed in the 1960’s, where incidents have occurred.
Recent announcements signaling substantial reductions in supply are welcome news and bode well for future price increases. We are reticent to call a bottom in any market, but feel the prospects for uranium are aligning well and will produce heady returns for investors in the medium term. Future announcements on reopening of Japanese power plants would help support the price recovery.
Major news outlets have been quick to follow the story, including:
Uranium producers surge after Kazakhstan’s output cut
Reuters | Shares of uranium producers surged in early trading on Monday after Kazakhstan’s uranium output cut spurred expectations the move would help clear a glut that has roiled the global markets since the Fukushima meltdown in 2011.