Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Uranium prices have surged to over $80 per pound, marking the first time in over 15 years, driven by a resurgence in demand for nuclear power and supply disruptions.
Nymex futures tracking physical-market contracts for yellowcake hit $80.25 a pound on Monday.
“Utility contracting continues to pick up,” Colin Hamilton, managing director for commodities research at BMO, wrote in a note.
“There is very little uncommitted production available to meet uncovered utility requirements.”
Cameco reported on Sept. 4 that challenges at the Cigar Lake mine, Key Lake mill, and McArthur River mine are going to negatively impact its production forecast. Total production from operations is forecast to be 30.3 million lb. uranium concentrate (U3O8), down approximately 9% from the previous 33 million lb. (all numbers are on a 100% basis).
In addition, the recent coup in Niger, which produces about 5% of the world’s uranium, has caused disruptions in shipments to European nuclear plants.
Concerns have also arisen regarding the dependence on Russia’s Rosatom enrichment facilities since the onset of the war in Ukraine. The conflict has also prompted countries to diversify their power generation as the energy transition gains momentum. In response to the disruption of piped Russian gas, some utilities in Europe are prolonging the operational lives of their reactors.
Year-to-date, physical uranium is up about 55%, according to Sprott Asset Management.
“There is a really strong case for uranium and the future growth of the price as well as the sector going forward. If you were to look back at uranium prices about five or six years ago, they were somewhere around $20 a pound,” said Steven Schoffstall, director of ETF product management at Sprott.
According to Schoffstall, it is important to look at the incentive price of uranium. That is the price at which producers can produce uranium and still turn a profit.
“That’s currently around the $75 to $80 range. That would suggest that, at least in the short term, there is some additional room for the price of uranium to move,” he said.
“When you look over the longer term, there is a severe supply-demand imbalance that we see developing. If you go out to 2040 or so, you see about a cumulative 1.5-billion-pound shortfall in the supply of uranium. So, we think over the longer term, that’s going to be conducive to much higher prices in uranium.”
According to Sprott, higher uranium prices may eventually prompt producers to restart production. This month, Australian miner Boss Energy Ltd. announced the restart if a project that was mothballed more than a decade ago.
(With files from Bloomberg)
