Uranium has been gaining ground as global institutions and governments make decisions on what a decarbonized future energy system is going to look like. So, I thought we should start this discussion today by looking at the current supply and demand scenario, how this is impacted by the pandemic, and where we are in terms of recovery.
Guy Keller: Quite simply, there’s a primary mine supply deficit. Other sources still do not fill that deficit, which means you have an inventory draw. We model that deficit out to at least 2025.
Even if there were no more nuclear reactors ever built, based on what’s currently consuming uranium, the deficit still exists. So, whilst we’ve seen a price appreciation on the spot market, that doesn’t necessarily mean that any of these other hopeful developers will come to market at this price, because there’s a whole bunch of other factors to consider.
Nikolaos Cacos: I think that deficit is reflected by what’s been projected, and there’re a lot of factors that could influence that projection. For example, what’s not factored in there is the restarting of Japanese reactors. France is rethinking its nuclear power plant terminations and extending the lifespan, the same happening in the U.S. These are all factors that would have a tremendous effect in exaggerating the deficit that we’re talking about.
George Ross: Earlier this week, we had the Chinese talking about building 150 new reactors over the next 15 years, which is just an extraordinary number of reactors. We’re getting to a tipping point in the uranium and nuclear industries in general. People are starting to look towards other sources of power beyond our dirtier supplies. Maybe this is the big uranium boom everyone’s been waiting for.
How do you see these deficits impacting pricing?
Nikolaos Cacos: I think we’re in the beginnings of a new uranium bull cycle. You’re hearing more frequently about nuclear electricity generated by nuclear power. I think there’s an acceptance that the new reactors being built are safer, and the world needs secure, reliable, and relatively carbon-free energy.
Guy Keller: The World Nuclear Association completes a report every two years, and while they increased their demand in the latest 2021 report, they ignored the technological advances of small modular reactors.
People often ask, “If it’s such an obvious trade, why is it not playing out with respect to the one buyer, being utilities, coming into the market?” This is not like an iron ore trade where there’re thousands of steel mills competing for iron ore cargoes. There’s a relatively small number of buyers. In the U.S. they’ve seen their power inputs triple in the last few months as we enter probably one of the biggest energy crises that we’ve seen since the 1970s.
Do any of our other panellists want to comment on where they see that role in the uranium space playing out?
George Ross: Small modular reactors are an amazing concept because you can pick up a small footprint power plant and install it in remote locations. They’re affordable to produce and require little maintenance. The Russians have a small nuclear reactor operating on a boat in the Arctic Sea.
The overall operating cost of nuclear energy is amazing. If you double the price of raw uranium from US$25 to US$50, it only adds on 10% of the operating cost. So, the energy and production industry can absorb a lot of that increase in uranium pricing much better than other industries, such as coal.
Niko, where do you see the investment coming from? How does regulatory support start to factor into the kind of growth in the industry or interest?
Nikolaos Cacos: For the first time in a long time we have seen institutional interest in investing in uranium. Many of the funds saw that the price of uranium was about to uptick and placed their bets early. Those are the first real indicators of there being a significant move. We also saw a whole swath of retail investors chasing it. Ten to 15 years ago, during the last uranium boom, on the Toronto Stock Exchange 5-600 companies were in the uranium business, now there’s fewer than 30. So, the number of investments that you can make has shrunk dramatically.
Guy, as an investor where are you seeing opportunities?
Guy Keller: You have a bunch of companies, and a market capitalization that fits inside of Fortescue or Freeport, and those companies are responsible for providing the raw material input that generates 10% of the world’s electricity. It’s just extraordinary how small and undervalued the sector is.
We’ve had a question come in for Guy: “When looking at investment opportunities, are you jurisdiction sensitive, given the issues around uranium and the politics that go with it?”
Guy Keller: As mining specialists, you need to make sure that what you’re looking at has the right signals to be exploited with respect to drilling or what have you. The jurisdiction is important for us in our global natural resources business. The uranium story means that you don’t always get the choice to avoid jurisdictions that you may have with other commodities.
George Ross: Ideally you want to be in a jurisdiction that has had previous uranium mining. Going into a greenfields jurisdiction of no uranium mining carries more risk.
Guy Keller: Australia is a perfect example. You look at Australia and go, “Great uranium resource”. However, you can’t mine or explore in Western Australia or Queensland because of policy.
George Ross: The other thing is looking at your capital intensity as far as an investment proposition. So, the life of mine, how much it’s going to cost to actually to run compared to the production that you’re getting per annum, and then ultimately the cost of production as well.
Nikolaos Cacos: We’re working on a new district in Argentina, which is a nuclear country with a fully operating nuclear environment. I think jurisdiction is an issue that could potentially exacerbate the uranium supply situation from a strategic point, from political angles, I think, in the future if this becomes really tight.
A question has been submitted for Niko: “There’s plenty of equity and trust in uranium, but on the debt side, are banks looking to finance uranium projects? Do they need something like a positive development on the EU green taxonomy before they’ll look to support the junior space?”
Nikolaos Cacos: Well, we’re at a junior space. We’re not quite at that point right now where we’re looking for bankable money.
Guy Keller: There has been banking expertise lost in uranium in the last 10 years. When it comes to the EU taxonomy, France is pushing very hard for that to be included for the simple fact that they’re wanting to approve their mega reactors. Under an EU green taxonomy, that brings down the cost of financing because it opens a whole bunch of avenues.
Most banks will want some sort of price security. As equity holders, we don’t want prospective producers with zero price protection. However, we don’t want them to give away all their upside. But I see as utilities get closer to contracting, bank discussions happen.
Regarding the energy transition and decarbonization, what do you see as nuclear’s role in the energy transition moving forward? Is it an ideal fuel source? What makes it so?
George Ross: Nuclear has very low carbon emission. Obviously, there is generally a large capital upfront cost to nuclear power plants. However, if you look at the levelized cost of generating the electricity over the life of these power plants, it’s actually very competitive with other options out there.
There is the conversation about waste and how we manage that. I think it’s important that well-developed countries take a lead. I know the Finns are currently building a significant waste disposal storage facility themselves. But I think the likes of Canada, the U.S., and Australia probably need to do a bit more in that space.
It’s important that well-developed countries take a lead
Guy Keller: I don’t view waste as problematic because the reality is that spent fuel rods still have a commercial and energy value. When you look at France, they reprocessed 70% of their spent fuel rods. And the only thing really holding it back is that there’s a cost to it.
When you look at the storage at the moment, there needs to be a solution. However, we’ve been storing successfully for 60 years without incident. The reason there’s not the big political push just to shove it all underground is because there’s still a value in it.
Nuclear energy is the only industry in the world where waste is dealt with financially prior to the reactor’s construction. I would love to see other industries that are heavy polluters, such as plastics, to take a similar approach.
Nikolaos Cacos: Over time, the waste’s radioactive nature will decay. But solar panels, for example, contain highly toxic rare earths and rare elements that will never decay when buried. That’s a part of the conversation we don’t often hear about.
Guy Keller: When you look at the capacity factor, everyone wants to talk about technology: “Technology’s going to catch up.” We’ve got a new technology in nuclear that’s proven it can be used commercially, with the small modular reactors.
In cars, there’s hundreds of millions of dollars going into R&D and into electric vehicle batteries. It’s a different type of battery for gridscale. Everyone’s assuming that we’ll just adapt the current technology to the batteries. No, and nobody’s putting that money in.
Nikolaos Cacos: I read a note not long ago that said if you take an oil barrel and fill it only halfway up with uranium, it represents all the energy that a single human needs to live for their entire life. So, it’s a very efficient way to generate electricity. Whereas the land footprints and the environment solar panels or windmills destroy are not often discussed. The big problem with nuclear is the stigma that came out of it in the ‘50s, and we’re still shedding that.
How do we get past that stigma? Who’s educating broader society about the benefits of nuclear?
George Ross: It’s going to have to be governments that take the lead to try explain that it’s a good solution. There is an innate fear that people have about the nuclear energy industry because they don’t understand radiation.
Nikolaos Cacos: The government played a role in generating this stigma for nuclear energy as a dangerous place in the ‘50s by spewing propaganda. What happened with Chernobyl was regulatory, and it was the Soviet government not managing safety procedures well.
I think having an agency independent of political manipulation which can talk about the safety issues, like the IAEA, might be a more effective way in terms of educating. I think the World Nuclear Association is doing a good job, but I think there’s still a lot of prejudice there.
Guy Keller: With all the surveys asking people if they are in favour of nuclear energy, it’s overwhelmingly the younger generations. There’s a lot more presence in social media from younger people taking a stance. There’s also been some anti-nuclear environmentalists who’ve done a whole 180. I think people see that and think “Wait, hang on. These people spent how many years campaigning against it and now are in support of it? What’s changed here?”
You’ve seen the U.S. Democratic administration become pro-nuclear. France is driving Europe to be nuclear tolerant at the least. Japan’s sentiment, South Korea’s sentiment, they’re all turning around. A part of that is also driven by the energy crisis happening right now. You’ve got these energy hungry countries looking at coal and gas prices that are through the roof saying, “What’s a solution?”
This has generated quite a few questions from the audience: “Should France be a bigger booster of nuclear since it consists of 70% of its energy, and they also have the credibility from the Paris Accord?”
Guy Keller: France was net negative demand four years ago. At the beginning of this year, they finally got the approval for the life extension of 32 of their reactors for another 10 years. So, there’s certainly net positive demand now.
Not too long ago, France wanted nuclear to be reduced to 50% of their electricity output. They’ve backflipped now and said, “No, no, it’s 70% and maybe more.”
Nikolaos Cacos: Germany switched off all their nuclear reactors and they started firing up all their lignite coal mines, which is absolutely the dirtiest type of coal burning. Their pollution has gone up around 20-30%. Now they’re considering turning the reactors back on.
What is the appetite for pure uranium exploration plays, given there’s been very few genuine new tier-one discoveries, certainly in Australia, even in the last uranium boom? Are we on the cusp of a uranium exploration boom, but with very few geologists that know how to find it?
George Ross: We are going to start seeing more uranium exploration in Australia. You just have to have a look at the number of IPOs going on, not just in the uranium space, but across the board on the ASX.
There’s appetite out there from investors. Uranium is a bit tricky to find but there’s various different kinds of uranium deposits.
Olympic Dam is a huge uranium deposit. It’s what’s called an IOCG, which is an iron oxide copper gold style. Whereas Beverley and Honeymoon are more channel posted. So, there’s plenty of opportunity in Australia for both those styles, and elsewhere in the world.
Nikolaos Cacos: In the last decade, when trying to ask people to invest in an exploration play in Argentina, it was very difficult. As a result, myself and management ended up owning a larger proportion of the company than we initially set out [to do]. But with more money, we are able to accelerate our programmes. There is a dearth of good uranium exploration geologists.
Somebody is asking if we can discuss the capital cost and operating cost when comparing nuclear versus coal versus green alternatives? A big question.
George Ross: Capital cost is high upfront compared to a lot of options out there, whether it’s coal or renewables. However, you must look beyond just the upfront costs. Yes, you look at the operating costs as well, and you look at the lifespan of the actual producing asset. That’s important, because the longer something is producing basically the lower capital intensity you have initially.
One of the really nice things about nuclear reactors is that you can recommission them, it’s those kind of situations that make nuclear very competitive on a full lifetime cost of electricity.
Nikolaos Cacos: We’re seeing that happening in the U.S. where the reactors initially were set up to have a 50-year lifespan. They’re being extended to 80, sometimes even up to 100 years, which is incredible if you think that we’re still using last century’s technology to generate electricity. And it goes through all the safety checks.
Even within the uranium space, not all deposits are the same. But on average, what’s missing is the environmental and the clean-up cost. That’s an important factor, because we’re all looking to begin paying through various kinds of taxes and other indirect costs.
I was just going to ask if anyone had final thoughts.
Guy Keller: This opportunity is unique. When we look top down at every commodity that we cover as part of our global natural resources business, this flags as by far the most dislocated on supply and demand fundamentals, both short and longer term.
As for where the price of uranium can go, it will surprise me if we don’t look at 2007 bull market levels. Does it stay up there? The answer is, I don’t know, but the reality is the contract price needs to be much higher to bring supply to the market that’s not necessarily going to be able to fulfil the supply deficit.
