Talbot, et. al., report that the World Nuclear Association (WNA) Symposium held in London recently has a fairly strong nuclear power vibe, and the authors concluded that the uranium sector malaise disappeared somewhat as the conference wore on. This was due to the release of a very positive, bi-annual Nuclear Fuel Outlook ... the uranium supply-demand bible as per some media outlets. No one expected how challenging 2019 would be for uranium.
Prices are low and flat;
Section 232 was ignored by Trump; mine closures have led to massive layoffs and investors seem disinterested. Sometimes, we conclude that the uranium mining industry forgets why it is here. It provides fuel to the nuclear power industry. Thus it‘s the health of nuclear power i that we must keep our eye on, and its outlook is very strong. Global nuclear electricity generation has risen for 6 straight years. Old reactors perform as well as new reactors. Five reactors have just achieved the 50 years in operation milestone. Four new countries are building. And new builds are accelerating, especially in Asia, East Europe and Russia. Between 2016 and 2020, a total of 47 new reactors are expected, built in 11 countries, and they will add 50 GWe or 15% to global nuclear capacity.
WNA's Nuclear Fuel Report, for the first time since we started coverage in the early 2000s, looks very good. Wholesale changes in methodology helped. An idled mine category was added, secondary supplies were subdivided, future supply included unspecified supply (projects not yet identified), and restrictions have led to some projects being removed from supply. This year’s conclusions give us hope. We like a newfound emphasis on projects deserving to be in the supply chain; breakdown of secondary supplies (inventories are hard to predict); and most importantly, note that the rising uranium demand in all scenarios should be considered as a signal to the market that the worst is behind us.
• NP demand projections are up in all scenarios for the first time in eight years. Uranium projections are also up in all scenarios, including 49% base case growth, doubling in Upper scenario over the next 20 years. A total of 448 reactors have capacity of 398.2 GWe with 54 under construction for 55.4 GWe. Mine production and uranium requirements were 139.0 MM lbs and 174.8 MM lbs U3O8 in 2018. According to WNA, uranium production needs are due to grow to:
195.7 MM lbs U3O8 by 2025;
220.6 MM lbs U3O8 by 2030;
247.9 MM lbs U3O8 by 2035; and
260.0 MM lbs U3O8 by 2040 (2% CAGR).
• Uranium supply and demand are back in equilibrium due to idled uranium mine capacity and low capacity utilization, although the nuclear power industry is relying on inventory drawdown. The introduction of idled mine supply is important. It helps accurately account for mine capacity utilization. Secondly, idled mine (46.3 MM lbs U3O8) restarts are more difficult to achieve than planned mines. For those who are simply waiting for closed uranium mines to start back up again, you may wait a while, as it is not as easy as you think. McArthur Mines laid off 1,000 workers. When the market turns, it will take a while to replace that workforce, leading to a lot of re-training, time and headaches.
• Restarting idled mines and other unspecified sources are needed to fill supply-demand gap. Some projects deemed undevelopable were removed, perhaps a function of cost, although WNA can't specifically address costs or prices due to anti-trust issues. Part of the gap must be filled by mines that we haven't discovered or considered yet.
• Secondary supplies expected to gradually decrease from 15% to 4-9% by 2040. Inventory is being consumed by idled conversion capacity. Increased U3O8 demand will reduce underfeeding and tails re-enrichment (enrichment capacity has fallen over the past few years). Fuel fabrication will grow globally, but there will be regional imbalances.
• Uranium markets matter. While there are plenty of uranium resources in the ground, that doesn’t mean it is available given this market. Uranium prices still need to incentivize new exploration and production. Lack of investment in the uranium industry over the past 3-4 years has led to only a few new projects.
A rising tide will lift all boats. A positive nuclear and uranium outlook should lead to higher uranium prices and better uranium stock performance all around. Producers are already leading the way, up 6% last week (September, 2019).
The full report is available at: https://research.viiicapital.com/Report/Viewer?ReportId=UlAwMDAwNDgzNA==&ClientId=Q0wwMDAwMTk0MQ==
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