Uranium: Global Energy Source
Global demand for electricity is set to grow 76% by 2030 and nuclear energy will play an integral role in meeting this demand. The WNA reports that there are 452 nuclear reactors operable in over 30 countries. These reactors can generate approx. 400 gigawatts of electricity and supply approx. 11% of the world's electrical requirements. There are 56 nuclear reactors under construction in 14 countries with the principal drivers of this expansion being China (17 reactors under construction), Russia (9) and India (7). Furthermore, the WNA reports there are a total of 481 reactors that are either order, planned or proposed.
According to UxC, global nuclear power capacities are projected to increase from 379.4 gigawatts in 2015 to over 483 gigawatts by 2030. UxC also estimates that annual uranium demand could grow nearly 60% to more than 300 million pounds U3O8 by 2030 from 190 million pounds U3O8. Primary mine supply for 2018 is projected to be approx. 135 million pounds U3O8.
Uranium Market Commentary and Update:
The uranium market has recently shown notable signs of recovery with increasing uranium prices and improving sentiment, and this recovery appears to be accelerating amid recent news and several sector developments. Uranium prices have been moving higher in 2018 and UxC reports that spot uranium activity has been at higher levels in terms of both number of transactions and volume. Analysts that cover the sector have stated that this could be a sustained upswing as they are currently seeing some of the best fundamentals since pre-Fukushima which should be supportive of higher uranium prices as a major supply-side response is playing out while the sticky demand-side continues to improve. Uranium production is on the decline and expected to be approx. 135 million lbs U3O8 in 2018 given recent closures and project deferrals while demand continues to rise and is expected to be approx. 190 million lbs as per UxC in 2018. The spot uranium price is in the low 20’s / lb U3O8 which is well below the average global cost of production and significant price appreciation is needed to justify this production as well as developing new mines to ensure sustainable and secure supply to meet growing global demand.
In more recent news, mine closures and production curtailment continue to dominate headlines while US lawmakers are starting to take notice of external pressures on what is deemed a strategic industry. The USA has to import approx. 95% of its required uranium for its nuclear power plants and as a result the Trump Administration has recently instructed the US Department of Energy to halt uranium sales to fund decommissioning projects and has also placed a two year moratorium on nuclear plant closures. Outside of the USA, major production cuts and depleting mine reserves appear to be working their way into the uranium market and driving prices higher. The two largest producers, Cameco and KazAtomProm, have announced large supply cuts in 2017 and 2018 including Cameco’s suspension of operations at the world’s largest uranium mine, McArthur River, as well as KazAtomProm’s announcement that it will cut 20% of planned production over the next three years and produce 60.1 million lbs in 2018. More recently, the Kazakh Energy Minister suggested there would be another 6% production cut over previous expectations to 56.2 million lbs. Additionally, a new uranium holding company called “Yellow Cake” raised US $200 million in a London-based IPO and has bought 8.1 million lbs of uranium from KazAtomProm representing a significant portion of the uranium spot market which should help take further spot supply from circulation. There has also been recent talk that current producers are more likely to buy larger quantities of material from the spot market going forward which should add upward pressure to the uranium price.
On the demand side, there are 452 operating nuclear reactors and 56 new reactors under construction globally. China continues to be at the forefront of demand growth and has the largest reactor pipeline by far, including 38 operating reactors, 17 under construction, and another 184 planned or proposed, making up just under 40% of the global pipeline of non-operating units. Furthermore, the situation in Japan finally seems to be improving with 9 reactors at full commercial operation with several more slated to come back online shortly, up from just 3 in 2017. Japan has reiterated a long term nuclear commitment of 20-22% of its power mix by 2030.
Nuclear utilities purchase uranium primarily through long-term contracts. These contracts usually provide for deliveries to begin two to four years after they are signed and provide for delivery from four to ten years thereafter. In awarding medium and long-term contracts, electric utilities consider the producer's uranium reserves, record of performance and production cost profile, in addition to the commercial terms offered. Prices are established by a number of methods, including base prices adjusted by inflation indices, reference prices (generally spot price indicators, but also long-term reference prices) and annual price negotiations. Contracts may also contain annual volume flexibility, floor prices, ceiling prices and other negotiated provisions. Under these contracts, the actual price mechanisms are usually confidential.
The long-term demand that actually enters the market is affected in a large part by utilities' uncovered requirements. Uncovered demand, is projected by UxC to increase significantly over the period of 2018 to 2020, such that up to 54.9 million pounds remains uncovered for 2020, representing 29% of projected demand in that year. Annual uncovered demand rises rapidly for years after 2020, to 150 million pounds U3O8 in 2025 and over 179 million pounds U3O8 by 2030 (representing roughly 80% of total base case demand). At 179 million pounds, uncovered demand in 2030 is over 16 million pounds U3O8 more than total production expected from the year. In order to address the rising portion of demand that is uncovered, utilities will have to return to the market and enter into long-term contracts. From 2006 to 2010, on average, 39 million pounds U3O8 equivalent were purchased on the spot market per year and roughly 200 million pounds U3O8 equivalent were contracted in the long term market each year. In 2016, by comparison, 46 million pounds U3O8 equivalent were purchased on the spot market, and approximately 66 million pounds U3O8 equivalent were contracted in the long term market. With low contract volumes in recent years and increasing uncovered requirements, we expect that long term contracting activity will have to increase in the near future as utilities look to secure supply and move U3O8 through the nuclear fuel cycle in order to fuel the world's growing fleet of nuclear reactors.
Uranium: Value of Grades
|U3O8||1%||22||$35 / lb||$770|
|Gold||20.0 g/t||-||$1200 /oz||$770|
|Silver||1404 g/t||-||$17 / oz||$770|
|Copper||13.7%||302||$2.55 / lb||$770|
|Zinc||28.0%||616||$1.25 / lb||$770|
|1% U3O8 (Uranium) =||20.0 g/t Gold|
|1404 g/t Silver|
Uranium: Exploration in the Athabasca Basin, Northern Saskatchewan
The uranium (U3O8) deposits of Saskatchewan, Canada are the richest in the world. The Athabasca Basin is an ancient sedimentary basin which hosts the world's most significant uranium mines and produces almost 20% of the current world uranium production in a safe and favourable jurisdiction. Athabasca uranium deposits also have grades substantially higher than the world average grade of under 0.2% U3O8.
2012-2016 Southwest Athabasca Basin Uranium Discoveries
- The Arrow discovery made by NexGen Energy (TSX-V: NXE); now the high grade Arrow deposit
- Patterson Lake South discovery made by Fission Uranium (TSX: FCU); now the high grade Triple R deposit
- Cameco / Orano (formerly AREVA) / Purepoint Uranium's Hook Lake Spitfire Zone high grade discovery
- Three seperate major discoveries in a short period of time in this emerging uranium district illustrate high grade nature of mineralization and potential for additional discoveries
2005-2016 Eastern Flank Athabasca Basin Uranium Discoveries
- Wheeler River's Phoenix and Gryphon Deposits being explored and developed by Denison Mines (TSX: DML); Phoenix deposit contains indicated resources of 70.2M lbs U3O8 at a grade of 19.1% U3O8 and the Gryphon deposit 3 kilometres northwest of Phoenix contains inferred resources of 43M lbs U3O8 at a grade of 2.3% U3O8
- Hathor Exploration which was acquired by Rio Tinto in 2011 explored Roughrider deposit which contains indicated resource of 17.2M lbs U3O8 at a grade of 1.98% U3O8 and inferred resource of 40.7M lbs U3O8 at a grade of 11.2% U3O8
- J-Zone discovery by Fission Uranium and KEPCO; indicated 306,831 tonnes at 1.52% U3O8 (10.2 million lbs) and inferred 138,404 tonnes at 0.90% U3O8 (2.7 million lbs)
- The majority of the large, high grade uranium deposits and mines are found on the east side of the Basin with the potential for additional discoveries to be made