Summary
- Spot uranium price rebounding strong over the past few weeks, rallying
more than $3 per lb or more than 10% in a short timespan.
- End users such as the nuclear utilities with deep pockets need safe and
secure long term supplies from stabile jurisdictions.
- Recent sanctions with Russia could already be putting pressure on uranium
supply. Europe and the U.S. relied on cheap uranium from Russia for decades.
- What happens when the cheap uranium runs out? Look for off take agreements,
M&A and strategic equity investments in junior uranium miners.
- Sanctions on Russia and Putin could be putting pressure on the supply side
of uranium.
A few months ago, I believed uranium
would bounce off lows and make a powerful move higher. The spot uranium (OTCPK:URPTF)
price is beginning a rebound rallying more than $3 per lb over the past few
weeks.
I alerted my readers to the reality that end users of uranium are concerned
about geopolitical stability and are actively looking for safe and long term
secure supplies of U3O8. Any hiccup in production could significantly impact
global supply.
Although there is abundant amounts of uranium in North America and Australia
most of the production comes from unstable areas such as Kazakhstan, Niger
and Russia. The recent sanctions with Russia could have a major impact on pricing.
Russia through Rosatom operates Kazakhstan production which is the largest
supplier of uranium to the world. Europe and the US are some of the largest
consumers of nuclear and have relied on cheap Russian uranium for decades.
What happens when the cheap uranium runs out especially at a time when demand
is growing? A price
spike with triples and quadruples in the uranium miners (NYSEARCA:URA).
China is leading the nuclear renaissance where they may build hundreds of
reactors over the coming generation. Despite Japan and Germany's knee-jerk
reaction to abandon nuclear temporarily after Fukushima, demand for uranium
is rising.
Now only a few years later, Japan may turn back on their nuclear reactors
and Germany may have to look at turning back on its nuclear reactors this winter
especially if Russia turns off the natural gas taps. The anti-nuke crowd may
grow increasingly out of favor when the German population is freezing and in
the dark.
End users may have to move quickly to secure supply from the junior uranium
miners rather than rely on Russia. The major uranium producers such as Areva
(OTCPK:ARVCF), Cameco (NYSE:CCJ) and Rio Tinto (NYSE:RIO) have already been
shutting down high cost marginal mines due to the low uranium spot price. Don't
underestimate black swans with Cameco which is dealing with labor challenges
and technical obstacles in the Athabasca Basin.
In conclusion, expect the uranium price rebound to continue as end users buy
in the spot market and look to secure deals with emerging producers. Don't
be surprised to see more off take agreements and strategic equity investments
in junior uranium miners.
Disclosure: I do not own any stocks mentioned in article.
