Uranium supply ‘fragile and precarious’ with shortages inevitable from 2023

Deep Yellow (ASX: DYL) managing director John Borshoff has issued a stark warning about future uranium supply shortages saying the mining sector is “totally unprepared” to meet the challenges of the looming yellowcake shortage.

Mr Borshoff, who is also Deep Yellow’s chief executive officer, has a long history in the uranium business.

He worked for German uranium miner Uranerz and then in 1993 founded Paladin Energy (ASX: PDN), building the company from a penny stock to a market cap in the billions and commissioning the Langer Heinrich mine in Namibia.

While his latest comments are part of a new presentation to promote Deep Yellow and its Namibian projects, his case is in line with other recent analyses of the uranium market.

Mr Borshoff believes that uranium supply is in a “fragile and precarious” situation with most of the players ill-prepared to face the future challenges.

From US$138 to US$20 per pound — the collapsing uranium price

There has been a massive attrition of players since the 9.0-point earthquake (the fourth largest in recorded history) struck eastern Japan on 11 March 2011, triggering a tsunami that massively damaged the Fukushima nuclear power plant.

It also sent uranium prices reeling as Japan closed its reactors and several countries abandoned plans to build nuclear plants.

Uranium spot has been a rollercoaster: in 2000 the price stood at US$7/lb.

In 2007, the uranium frenzy took hold of markets as the spot price hit US$138/lb.

On the Australian and Canadian stock exchanges, new uranium players listed and many already listed explorers shelved their less-fashionable commodities and switched into uranium (one analyst counting more than 220 juniors on the ASX that included some uranium play in their portfolios at the height of the frenzy).

The price of uranium after Fukushima fell as low as just above US$20/lb.

Shrinking numbers of uranium miners and explorers

The figures Mr Borshoff presents are sobering.

In 2011, there were about 420 companies around the world exploring for or mining uranium.

Today that number is 62: of those, 10 are government associated or multi-national uranium producers; seven are listed producers.

There are 18 potential developers, although 30% of those have diversified into battery metals to survive and some having threatened projects due to geopolitical or technical reasons.

Then there are 27 explorers with what Mr Borshoff describes as “limited to non-existent resources” and most of which are looking to diversify or move out of uranium entirely.

Pre-Fukushima, in 2011, the prevailing uranium price was US$73/lb.

In April 2020 it was US$32.50/lb.

Reactors growing, miners mothballing

Also, as of April, there were 441 reactors in operation globally, 54 under construction, 111 planned, and 328 proposed.

The Deep Yellow presentation stated, at present, major suppliers are mothballing mines or exiting the sector with production cut back by 40 million pounds (Mlb) on an annualised basis.

Deep Yellow expects the COVID-19 crisis will see another 20Mlb of production cut back.

Meanwhile, the nuclear utilities do not fully appreciate the challenges of developing new mines — and there will be no significant new mining development until the price hits a minimum US$60/lb.

Mr Borshoff said the industry will realise the supply problem in late 2021 or into 2022.

But the mining sector is “totally unprepared” to build and operate large production capacity operations to fill what will then be looming shortages.

“Supply shortage is inevitable post-2023,” he concluded.