First silver, now uranium — fears of supply shortages drive up yellowcake share prices

Uranium supply shortage yellowcake share prices 2021 Bank of America BofA
Uranium stocks rally as Bank of America forecasts delays to planned nuclear plant closures in the US could increase demand.

While silver stocks on the ASX retreated after their exuberant buying spree on Monday, Tuesday was a day in the sun for their uranium counterparts.

The trigger for the yellowcake stocks was, unlike Reddit in the case of silver, a more established source – the Bank of America (BofA).

As the Australian market opened on Tuesday, the uranium stocks tore out of the barrier gates and retained their vigour well into afternoon trading with several registering double-digit gains.

BofA said the delays to planned nuclear plant closures in the United States could increase uranium demand projections by 26 million pounds a year — and this comes on top of existing concerns that uranium supply will be squeezed by 2023 as nuclear utilities are forced to replace existing supply contracts.

US utilities have been delaying such new contract negotiations.

BofA set the uranium share market ball rolling by suggesting in a note that nuclear plants due to be retired over the next 10 years may be pressed into service beyond that time scale.

There is speculation that President Joe Biden has included nuclear energy in his clean energy program (are you listening to this, Canberra?) and nuclear is getting bipartisan support in Congress.

Mr Biden looks like preserving Donald Trump’s own initiatives on uranium supply.

US government may underwrite nuclear plant retention

BofA analyst Lawson Winder has suggested that US nuclear plants which are due for closure could receive federal government help to stay open beyond their present expected lives.

The plants now slated for closure have a total generating capacity of more than 10,000 megawatts and consume around 4.5Mlbs of uranium per annum.

In the wider international picture, there are scores of nuclear reactors at present under construction — in China and India, which lead the numbers of new reactors, followed by South Korea, the United Arab Emirates, Russia, the United Kingdom, Turkey, Bangladesh, Ukraine, Pakistan and several other countries.

Cameco stock gains set pace for Australia

Cameco of Canada set the place in Monday trading, up 22% at one point.

When the ASX opened Tuesday, it was then off to the races for the uranium stocks, several showing double-digit gains in early trading.

One of the better performers was Peninsula Energy (ASX: PEN). That company has the advanced Lance project in Wyoming which, it claims, can be returned to production in just six months once a decision to mine has been made.

Lance is one of the biggest US uranium projects in size and scale, with a JORC resource of 53.6Mlbs (or 23,400 tonnes). The company is licensed to produce up to 3Mlbs per annum.

Other big movers in morning trade included Alligator Energy (ASX: AGE) with its Northern Territory and recently acquired South Australian projects, Bannerman Resources (ASX: BMN) with a project in Namibia, Paladin Energy (ASX: PDN)Vimy Resources (ASX: VMY) with its large resources at Mulga Rock in Western Australia, Lotus Resources (ASX: LOT) located in Malawi, Boss Energy (ASX: BOE) with its fully permitted Honeymoon project in South Australia, and Deep Yellow (ASX: DYL), another Namibia play.

Repeat of December stock rally

This is the second time around for uranium stocks in just over seven weeks.

In December, they went on a tear after the US Senate Committee on Environment and Public Works passed a bill that approved the establishment of a national uranium strategic reserve.

Then-President Trump had earlier in the year announced that the US would spend $US1.5 billion (A$1.97 billion) a year for 10 years to establish the reserve.

However, that sum was reduced to US$150 million (A$197 million) by the Senate committee but will be used through to next September to initiate the reserve program and fund work on advanced reactor planning.

Almost all of the 40-odd uranium stocks listed on the ASX rose strongly on that December morning trading.

Spot price still languishes

Uranium supply was in deficit in 2020, and delays in the launching of new mines — due entirely to the fact that the uranium price is still well short of making such mining economic — has just exacerbated the problem.

The uranium spot price remains below US$30 per pound (A$40/lb).

Something more like US$60/lb (A$79/lb) will be required to get companies to commit to project development.

Then, so far as Australia is concerned, there is the politics.

Queensland and Western Australia have both had periods where Labor governments have forbidden uranium mine development.

New South Wales allows exploration for uranium but bans mining — hardly a sign of rationale policy making.

US has dropped the ball on uranium

Meanwhile, power utilities are facing a crunch. Since 2012, they have been what is called “under buying” uranium, buying about 90Mlbs a year less than they have been using. In tonnage terms, that’s more than 40,800t.

Some supply contracts still in existence pre-date the Fukushima disaster in 2011 and many US and European utilities have largely run down their stockpiles in recent years rather than negotiate new contracts.

Asian utilities have higher stockpiles than their Western counterparts, but these were also decreasing in 2020.

Also in 2020, the US Department of Energy announced the working group report, The Strategy to Restore American Nuclear Energy, which included a series of sweeping recommendations for potential future action that span the nation’s executive, regulatory and legislative landscape.

The uranium reserve was seen as supporting strategic US fuel cycle capabilities and provide critical assurance of uranium availability in the event of a market disruption.

In 1980, US companies produced nearly 44Mlbs of uranium concentrate and provided most of the supplies purchased by nuclear power plants in that country.

By 2017, American miners produced 2.4Mlbs and supplied just 7% of the uranium bought by domestic plants. That has now dropped further.

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