With demand on the rise, could uranium be the next lithium?
Nuclear utilities used to holding the whip hand in contract negotiations are sleepwalking into a similar situation to battery and EV makers who failed to see the signs of this year’s lithium boom, a leading uranium executive says.
Former Paladin (ASX:PDN) and now Deep Yellow (ASX:DYL) boss John Borshoff, who presented along with a number of industry players at today’s International Mining and Resources Conference in Sydney, told Stockhead the balance of power would begin to shift to miners as utilities short on material are forced to lift their contract prices to bring on new production.
Their unwillingness to ink deals at prices to incentivise new mines mirrors lithium, according to Borshoff, where converters and battery companies in China have seen prices climb 10 times over in two years because they failed to invest in new supply during the downturn.
His criticism echoes that levelled at carmakers by lithium producers, saying the utilities have become ‘complacent’.
“What’s happened in lithium to galvanise it the price went up 10 times what it was, and those bloody battery makers were saying at that time when it was US$500 ‘oh, if it goes to US$1,000 I’m not going to build any batteries’,” he said.
“The market controls it, not what the utility thinks or the battery maker thinks, and the supplier and the consumer as dictated to by a market that references supply-demand.
“That’s why I think that they can’t hold off much more. They’ve held off, they thought there’ll be some sort of relief happening, but it’s not.”
Uranium and nuclear power are increasingly being viewed as a major component of the response to the net zero problem.
Nuclear power is a low carbon power source, especially when compared to fossil fuel generators fired by coal and gas.
At the same time, they can provide steady state power at all times of the day, distinguishing nuclear reactors from solar and wind generators.
Borshoff said the top-down shift to prioritise sustaining and financing nuclear from nations like the US, UK, Europe and Korea would incentivise investment in uranium.
Prices on the lightly traded spot market have lifted from the low US$30s to the low US$50s per pound over the past year or so.
DYL has two advanced projects in Tumas in Namibia and the Mulga Rock project in Australia, the only uranium mine approved to be developed in WA and the main prize of its merger with fellow ASX-listed explorer Vimy Resources this year.
But Borshoff says companies contracting now are jumping the gun.
“Where the uranium market is, at the moment, it’s way below water for all the industry, for all projects,” he cautioned.
“It has to be in the 60s and above. Even (Cameco boss Tim) Gitzel says that.
“So I’m not going to burn reserves to keep utilities happy, that’s been happening for 20 years. So I think that there’ll be no sensible new developments and capital deployment into this really quite stressed supply sector that exists today until it’s US$60 at least, and probably higher.
“I don’t care, this business about it going from US$25 to US$50 and all of this, I don’t give a s..t.
“As I say to people, you still die drowning eight metres below the water and you do four metres below the water. And that’s what everybody’s jacking themselves off about.”
Borshoff is one of a number of uranium executives who have pointed out the dramatic role Russia’s war in Ukraine could play in spurring an uptick in demand for yellowcake from Western jurisdictions.
Russia is a major enricher of uranium, and was responsible for around 30% of supply of enriched uranium into the United States, the world’s largest market for nuclear electricity.
Within three years those taps need to be switched off.
“Since ’93 onwards, it’s been encouraged and utilities were encouraged to buy it to get that weapons material out of the market, which it has been very successful in doing so,” Alligator Energy (ASX:AGE) CEO Greg Hall said.
“But now all of a sudden, with the political turnaround and Ukraine situation, the US government has passed a law that says all nuclear utilities in the US have to phase out Russian supply over three years.
“So all of them are looking for a diversified supply. They’re interested in Canadian, in the US and Australian, in African supply.”
Supply out of Kazakhstan, one of the world’s largest producers, is also likely to be impacted because it has historically been transported through St Petersburg.
“Ultimately, that shift from Russian supply, 30% of the US market plus a range of other utilities who were buying to other markets, means we’re all in a buoyant situation, with utilities wanting to talk to new suppliers,” Hall said.
“So it’s the right time to be looking for new supply into the market, with contracting from 2025-26 onwards, which is what we’re trying to do.”
Alligator (and Deep Yellow for that matter), which is advancing the Samphire project in South Australia, is one of a number of ASX-listed yellowcake explorers which counts influential Canadian insto Sprott Asset Management on its register.
Within the past three years the historically called focused fund manager has pivoted strategy to nuclear energy, with almost half of the cash it has invested on the Aussie market in uranium equities.
Hall said major investors, some of whom either saw the uranium market as too weak or taboo to invest in previously, were increasingly pivoting to the sector.
It is a dramatic reversal of fortune for the commodity, which became a pariah after the Fukushima nuclear incident following Japan’s Tohoku Earthquake in 2011 and fell to decade lows of ~US$18/lb five years later.
“We raised $30 million in capital last year, $22 million on placements and those placements were predominantly to major funds in US, Asia and Australia,” he said.
“So we had quite a lot of Asian funds coming to us. And of course, we gave loyalty options to existing shareholders, which were taken up as well.
“So we’re seeing not only from the ETFs, like Sprott, but also the direct fund investment from institutions into uranium again.
“They know, as much as we do, about the nuclear market, the changes in sentiment in Europe, and changes in the US.
“Remember, from December 2020, for the very first time, you’ve got a Democrat administration in the US supporting nuclear. That’s never occurred before. It was always never bipartisan.”
“So those things are what’s really driven the sentiment and the investment funds know that they’re seeing the shortage of production and uranium, which is going to transfer into higher prices.”
While recession fears have plagued capital markets of late and brought uncertainty for commodity demand, new uranium IPOs continue to emerge.
Its MD Simon Mitchell says there is an optimism around uranium demand not seen in other commodities, sans lithium.
He thinks the 50% rise in spot prices since the middle of last year is “just the start”.
“People are gonna be shocked where this is gonna go, and it’s because there’s been a dearth of investment in true uranium exploration in the industry for decades… decades,” he said.
“In Australia since 1991 we’ve only made a handful of discoveries in uranium, you can count them on less than half a hand.
“We are literally benefiting from the effort of crusty geologists being in the desert 50 years ago.
“We need that phase again, right? We need to get the crusty geologists back out there to find the next generation of mines that are going to be needed in about 10 or 15 years time.”
Like the old adage in real estate, Mitchell says location is critical when it comes to uranium, where exploration and mining still faces restrictions even in mining friendly jurisdictions like WA and Queensland.
“We are deliberately focused on those jurisdictions where it’s today possible to commission new uranium mines,” he said.
Successful recent IPO Basin Energy (ASX:BSN) is also counting on exploring in a tried and tested jurisdiction to deliver for shareholders.
It is planning to drill in the Athabasca Basin, the region in Canada’s Saskatchewan Territory renowned for hosting some of the world’s largest and highest grade uranium mines such as Cameco’s McArthur River.
With the sensitivities around the commodity, uranium mines have far longer lead times to production than more conventional mining operations in gold and iron ore.
“You’re not talking about a couple of years, we’re talking about the 10-year timeframe,” Basin MD Pete Moorhouse said.
“So having that knowledge that you’re in a jurisdiction which has continued to support uranium development, you’ve got the certainty, you’ve got the framework in place and the transparency so you can justify continued expenditure and investment to build on the story.
“That is why we personally target those top couple of jurisdictions for exploration and development.”
Moorhouse said the company’s view of uranium demand is “very bullish”.
“We only see that increasing as governments around the world position themselves to meet carbon emission objectives,” he said.
“We believe that nuclear is increasingly being seen as a key component to that, (filling) that energy gap.”
At Stockhead, we tell it like it is. While Basin Energy is a Stockhead advertiser, it did not sponsor this article.