Australia’s next uranium producer says the industry is “on the cusp of a new Renaissance” as nuclear utilities begin to engage with miners on the back of price spikes in the spot market.
Uranium miners have suffered from almost a decade of low spot prices that has seen investment leach from the sector.
Owners of nuclear reactors have been able to rely on low-priced material in the spot market to supplement their long-term contracts.
That option is quickly closing up as feverish uranium buying from the North American-listed Sprott Physical Uranium Trust, hedge funds and mining companies has put a rocket under uranium prices.
Dawdling in the low US$30s for each pound of yellowcake for most of the year, the price shot up to more than US$50/lb in quick time before hitting choppy waters a couple weeks ago.
After sliding below US$40/lb it was back up to US$46.50/lb yesterday, including a $7 price rise in a single night.
The reaction of investors to uranium equities has been wild.
Boss Energy (ASX:BOE) managing director Duncan Craib, whose company owns the development ready Honeymoon mine in South Australia, believes utilities are just about ready to get the market back to sign the long-term contracts needed to restart mothballed operations like Boss’.
Speaking at the Resources Rising Stars Boom in a Room Conference in Perth yesterday, Craib said that renaissance is ready to start.
Decarbonisation bringing investors and public sentiment back to nuclear
Nuclear power has been a long-term pariah because of a series of high profile incidents.
The latest is the Fukushima disaster in 2011, but attitudes towards nuclear power have been coloured for decades by the reaction to tragedies like the Three Mile Island and Chernobyl meltdowns.
Although it services up to 20% of global electricity demand, nuclear power is still under a moratorium in Australia.
In some quarters though, attitudes are thawing from policymakers who see nuclear power, which unlike burning coal, gas or diesel for power does not emit greenhouse gases, as a baseload power option to support the shift to renewable energy.
While nuclear energy has been held back by the capital intensity of new builds, Craib says a shift to smaller, cheaper modular reactors will help the sector grow, making uranium a sought-after green fuel.
“So that global increased recognition of (the role) nuclear power can play in decarbonising and mitigating climate change through reducing our carbon emissions, while addressing the energy crisis, is what’s really driving the price of the uranium that we see,” he said.
“And that gap between demand and supply that has always existed is further exacerbated by the fact that the Sprott Commodity Trust is now acquiring a lot of available inventory and removing that from the market.”
Perceptions changing
Craib believes perceptions around nuclear power and uranium mining have shifted significantly in the past six months, amid growing concerns about how the world will reach ambitious net zero by 2050 targets and soaring energy prices in the northern hemisphere.
But he said the fundamentals that have underpinned the market’s recent optimism have been brewing for several years.
“There’s a real transformational shift for the past six months … but the key element here is that the fundamentals existed long before this change in global perception towards the mitigating of climate change,” he said.
“It existed long before COVID. The fundamentals were simply industry was in the doldrums.
“This meant a lack of investment in new mines, there’s been no exploration taking place. The utilities have been reliant on existing inventory.
“The big change that’s occurred (with the) sharp increase in the spot price has been the emergence such as ourselves, junior producers acquiring physical inventory, we’re seeing the price rise, similarly as we can see with the Sprott Commodity Trust.”
“And since February, we’ve seen significant increase in investment into uranium equities of some $2 billion, which is really changing the market.”
It is generally accepted that new supply will be needed from 2024 to keep the world’s nuclear fleet running.
Utilities which have been drawing down on spot inventories and are now heading back to the table with current and prospective producers as security of supply becomes a concern.
“(The spot price is) forcing nuclear power plants to change their method and go back to long term contracting, which is where restart projects such as Honeymoon come into play,” Craib said.
“The only way that the industry is going to get off its knees, as it has been for the last 5-10 years, is to encourage higher prices.
“A new incentive price of up to US$60/lb is required to bring new projects back online.”
Boss Resources share price today:
Conditions for a restart nearing
Spot markets are relatively small and can be particularly volatile, but they provide an important index for long-term contracts, which are generally signed at a 20% premium to spot prices and give consumers and producers confidence that both utilities and mines can be sustainable.
A June feasibility study showed Honeymoon, a restart of an old uranium mine with approvals and an export permit for 3.3Mlb of uranium a year already in place, could be in production within 12 months of an investment decision at a cost of just US$80 million.
Because of that Craib says Honeymoon is a “proven project” with a clear pathway to production.
Honeymoon would be cash flow positive at current spot prices, but Craib says Boss is waiting for the evidence of a sustainable market that will underpin long term contracts.
“For us, we’re only looking to contract about 40% of our mine life,” Craib said.
“At these prices, we can do that and keep a lot of the spot material to get exposure to the upside.
“We’re on the cusp of this new Renaissance period.”