Commodities, Features, Uranium

Uranium to regain its glow

Uranium

There is strong incentive that the uranium price is on the verge of bouncing back as contracts and supply begin to run thin across the globe, paving the way for new sources in Australia to come online.

It is well documented that the Fukushima disaster significantly impacted uranium prices in 2011, forcing many mines into care and maintenance.

However, both the industry and analysts alike have predicted a resurgence in the spot price of yellowcake.

Uranium, which powers nuclear reactors as a zero-emission energy source, remains a key part in the world’s clean energy transition in regions such as Europe.

“With uranium, you use 300 times less space than a wind farm to produce the same amount of energy, while also requiring less materials when constructing a nuclear plant compared to solar or wind farm,” L2 Capital managing partner and senior portfolio manager Marcelo Lopez tells Australian Resources and Investment.

Despite its benefits, the uranium price has remained low for around 10 years as miners and investors wait for the next nuclear fuel cycle.

This cycle can be broken up into four stages, including uranium mining, conversion, enrichment and fuel fabrication.

Lopez says power utility companies are working backwards from fabrication to uranium, which led to dwindling commodity demand.

“There was a big bottleneck in the conversation market and a lot of uncertainty in the enrichment market,” he says. “No one wanted to buy uranium, because there was no conversion or enrichment.”

With the bottleneck fading, utilities companies are now starting to return to the market seeking long-term contracts as their carry trade purchases dry up.

In July, global asset manager Sprott finalised its deal with Uranium Participation Corporation to form the Sprott Physical Uranium Trust, which has become the world’s largest publicly listed physical uranium fund. It went live in mid-August.

The company, which has predominately dealt with precious metals, has experience in launching a gold fund and superfund over the past decade.

Lopez believes this is the single most important change in the uranium market in the second half of this year.

“Sprott has a lot of experience in commodities with over 200,000 clients worldwide,” he says.

“The most important thing is that they are doing ATMs (At The Market) which is a way for Sprott to sell shares to the market and use the money to buy physical uranium.”

Within four days of Sprott launching the uranium trust, 900,000 pounds of uranium were purchased with the spot price rising by 11 per cent to $US32.25 ($43.77) per pound within four days of operation.

According to Canaccord Genuity Capital Markets, Sprott is shifting the momentum of uranium through its ATMs.

“In our view, this is an early indication of just how tight the market is,” the firm states.

“And with (Sprott) now a very active physical buyer, we expect upward pressure on prices to continue, which in turn is likely to put pressure on utilities to revisit long-term contracting — a key catalyst for higher prices.”

Uranium analysts believe nuclear energy
has a place in a decarbonised world.

The strengthening conditions for uranium are reason for excitement for local uranium companies in Australia.

Boss Energy chief executive officer Duncan Craib, speaking at the Diggers & Dealers Mining Forum in August, says his company is also gearing up for a new uranium cycle.

The company owns the Honeymoon uranium mine in South Australia, which went into care and maintenance after Fukushima due to the lower uranium price.

As the market picks up, Craib is confident that Honeymoon will be Australia’s next uranium mine, with Boss working towards a final investment decision for the project.

“Our intention, as we realised in the last cycles, is that we want to be there at the beginning and (layer) in contracts as the price starts to move,” he says.

“Those contracts will deliver different pricing mechanisms … different durations, such that we can protect against the downside but take advantage of that market upturn.”

There are currently two uranium mines currently producing in Australia – BHP’s Olympic Dam operation and Heathgate Resources Beverly mine, both in South Australia.

For Craib, Honeymoon will tap into growing uranium demand as Australia remains an attractive place to source the radioactive metal.

“What COVID has effectively taught the industry, is that reliance on a small number of jurisdictions and a limited number of producers is a really unwise strategy,” Craib says.

“Australia offers a geopolitically stable environment with which fuel buyers around the world can purchase uranium and that’s gaining greater and greater attraction.”

Boss’ strategy involves capitalising on the increasing uranium spot price, with Craib stating that nuclear energy is once again being identified for its ability to reduce carbon emissions.

To meet growing demand, Honeymoon is permitted to produce and export up to 3.3 million pounds of uranium.

Off-market activities such as the renegotiation of uranium contracts are also paving the way for more activity in the uranium market.

“There is a hell of a lot of activity going on right now and buyers are now renegotiating contracts as suppliers are asking them to make concessions such is that they can win the new contracts,” Craib says.

“We certainly expect to see more visible contracting as we go towards the end of the year or if possibly earlier if pricing starts to rise and looks sustainable.

“We believe that prices will rise to the mid $US30s to the high $US30s on a spot price level on a calendar year end and with that – a real uplift in the actual term contract, which is when we will start getting excited.”

The Northern Territory once had several of Australia’s operating uranium mines. As part of its plan to become a $40 billion economy by 2030, the Territory has again signalled its support for the commodity.

This commitment has the potential to open an opportunity for Alligator Energy, a junior developer that is advancing uranium projects in both the Northern Territory and South Australia.

Its assets include the Tin Camp Creek project, Beatrice joint venture with Cameco and its Nabarlek North tenements in the Alligator Rivers Province in the Northern Territory.

Alligator managing director and chief executive officer Greg Hall says the company is prepared to sink its teeth into further exploration efforts within its portfolio.

“The opportunity that our Alligator Rivers projects represent is that they are all in the same rocks and similar settings that Jabiluka and Ranger uranium projects lie in,” Hall says.

“If you find a similar deposit to even half of the Ranger uranium mine, you’ve got yourself a 25-year uranium mine at an economic grade to be reasonably mined.”

Alligator Energy has uranium assets in the Northern Territory and South Australia.

Alligator’s recently approved Narbalek North agreement also gives it another exciting opportunity in the Territory.

On the boundary of Narbalek is a prospect that was once drilled by Cameco, containing over six metres at 7.2 per cent uranium. Alligator plans to commence geophysics and drilling of the extension of this prospect this year.

Alligator also has a significant presence in South Australia with the Samphire and Big Lake uranium projects.

Samphire, which was acquired last year, contains a mineral resource estimate of 64.5 million tonnes at a grade of 230 parts per million uranium, but with a high-grade core within the deposit.

Alligator is undertaking resource enhancement work and a scoping study to determine the best way to tackle the project.

“We had a lot of support last year from shareholders and because we moved from an explorer to an early-stage developer with that acquisition,” Hall says.

With market and exploration activity increasing, the uranium industry is steadfast that lid for the next cycle will open, with Australia remaining well placed to be a key supplier.

This article appeared in the October issue of Australian Resources & Investment.

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