I sat in on a recent presentation by noted analyst firm, Eight Capital, entitled Uranium: A Tale of Two Markets. The analysts covered a lot of ground but several things in particular stood out that are worth sharing.
Primary Demand Drivers
The Eight Capital analyst considers China, Japan and India as the biggest sources of demand growth in the near and medium term.
Source: World Nuclear Association, Eight Capital estimates
China’s continued reactor build out is well known. Current generating capacity is sitting at 50GWe and their goal is to hit 70GWe by 2025, requiring a 25% growth rate increase compared to the last decade. Eight Capital’s analysis suggests this is perfectly achievable. Going forward, we can expect even more aggressive growth in order to reach China’s 100GWe target for 2030.
Japan is now up to nine reactors in operation, with another three to join them this year. The country plans to be carbon-neutral by 2050 and their strategy includes 20-22% from nuclear power.
Then there is India. Possibly as a result of China’s massive nuclear energy program, the spotlight is less often focused on India’s reactor program. Did you know, for example, that the country now has 23 reactors in operation, +6 under construction, +14 planned and +28 proposed? It’s a very significant number and will be a boon to the uranium sector.
Source: World Nuclear Association, Eight Capital estimates
Supply
As I discussed in my post on 2021 uranium trend predictions, by 2025 UxC anticipates that producers will need to bring on higher cost production due to declining ore bodies. However, for the nearer term the main question is when will McArthur River restart and when will Kazakhstan resume full production. The answer, in Eight Capital’s view is not before US $40/lb.
In the medium term, the analyst firm points to NexGen’s Arrow, Denison’s Wheeler River and, naturally, Fission Uranium’s Triple R deposits as the expected new sources of production.
The New Green Economy
With numerous governments making it clear that nuclear will be an important part of their strategy to decarbonize electricity, one area is less understood is the impact that electric vehicles (EV) are expected to have on electricity demand itself. Eight Capital’s analysis points to EV related demand growing aggressively over the coming decade and beyond.
What Could the Uranium Rally Look Like?
This, of course, is the question that I get asked the most. Uranium equities have a history of strong reaction where the spot price is concerned and recent months are no exception. What then is the potential for prices. This is what Eight Capital presented:
Post GFC (July 2010) / Pre-Fukushima (March 2011)
- Spot price rose +$0.85/lb per week and the long-term uranium price rose +$0.39/lb per week for a period of 33 weeks.
- Spot +71% to $69.75/lb (from $40.75/lb)
Source: UxC LLC, Eight Capital estimates
$69.75/lb… it’s a big jump between current prices and that 2011 peak. Put another way… it’s a lot of potential upside.