The spot uranium price has punched through $35/lb for first time in six years.
The spark for this price rise is the Sprott Physical Uranium Trust (SPUT), which started buying up and storing physical uranium a few weeks back.
A gigawatt-class reactor uses around 450,000 pounds per year, so this is no small amount. SPUT is removing it from market circulation for the long term, and they aren’t the only ones.
Two other companies have already declared their intent to build ATM offering programs and “I doubt they will be the last to do so”, says 808s Online, a blog run by a US nuclear professional.
Uranium bulls are convinced continued tightness in the market and the emergence of these new yellowcake buying public trusts will see prices for the nuclear fuel finally take off.
That’s Kevin Bambrough, former boss at Sprott and a guy who probably knows uranium more than most.
What’s it going to take to get new mines up and running?
A generally accepted ~$US60/lb incentive price, which we are still well short of.
It’s also important to know that the spot market is just an indicator of the term contract market, where most of the action happens between uranium miners and the utilities.
This is where the interesting stuff is happening right now, says Boss Energy’s Duncan Craib.
“What we are focused on is the term contracts, and recently they have been entered into at about $US40/lb,” he told Stockhead.
“Utility fuel buyers have been busy extending and modifying existing contracts [with incumbent producers] to satisfy some near-term demand at advantageous terms.
“In return, they are granting these existing suppliers higher prices in the longer term.”
That is normally a precursor to more general contracting with the next crop of producers — like Boss (ASX:BOE), Paladin (ASX:PDN), Vimy (ASX:VMY), and Bannerman (ASX:BMN) (just to name a few) – who are basically waiting for contracts (offtake agreements) at higher prices to pull the trigger on development.
BOE, PDN, VMY, BMN share price charts
When fuel buyers come out to do more general contracting, they will need to incentivise these new mines to come online, Craib says.
“I think what will happen is a realisation in the industry that there just isn’t that available supply, and that new mines need to be developed,” he says.
“That’s when the price will really start to move.
“That’s where our [fully permitted] Honeymoon project in South Australia is in such a good position. It is a restart project, and the current spot price is above our breakeven price.”
Price rises to +$US60/lb (and maybe beyond) are unavoidable, Craib says.
“Demand is increasing, primary supply has dropped off significantly, and inventory levels are being drawn down,” he says.
“It’s inevitable that new mines will have to come online – and they will need to be supported by a rise in contract prices.”