17% cut in expected production 2025 in Kazakhstan (~45% of world production) announced & there already was a global uranium supply problem

Hi everyone,

Now that the NVDA earnings are out, and investors can again look beyond that…

My previous post on this sub that had a lot of success, explaining the nuclear construction pace in China: https://www.reddit.com/r/wallstreetbets/comments/1eyj9vf/china_just_approved_the_construction_of/

Before looking for stocks, you need to understand the drivers of the sector of that stock (imo)

The uranium sector is in a global structural supply deficit, and now Kazakhstan, responsible for ~45% of world production, announced a big cut in the hoped uranium production for 2025 and hinted for additional cuts for 2026 and beyond.

A. There is an important difference between how demand reacts when uranium price goes up compared to when gas price goes up.

Let me explain

a) The gas price represents ~70% of total production cost of electricity coming from a gas-fired power plant. So when the gas price goes from 75 to 150, your production cost of electricity goes from 100 to 170… That's what happened in 2022-2023!

The uranium price only represents ~5% of total production cost of electricity coming from a nuclear power plant. So when the uranium price goes from 75 to 150, your production cost of electricity goes from 100 to only 105

b) the uranium spotprice is only for supply adjustments, while the main part of the uranium supply goes through LT contracts. So when an uranium consumer needs 50k lb uranium through a spot purchase in addition to the 450k lbs they got through an existing LT contract to be able to start the nuclear fuel rods fabrication, than they will just buy those 50k lb at any price, because blocking the start of the nuclear fuel rods fabrication is not an option.

c) buying uranium (example: 50k lb) at 150 USD/lb through the spotmarket, doesn't mean they need to buy 100% of their uranium needs at 150 USD/lb (example: 100% is 500k lb)

Those are the 3 main reasons why uranium demand is price INelastic

Utilities don't care if they have to buy uranium at 80 or 150 USD/lb, as long as they get enough uranium and ON TIME

B. The evolution from oversupply in 2011-2017 to a structural global deficit since early 2018 and growing in the future

From 2011 till end 2017 the global uranium market was in oversupply which created an uranium inventory X (explained in a detailed 30 pages long report of mine in August 2023 where I calculated the creation of inventory X and the consumption of it starting early 2018)

Since early 2018 the global uranium market is in big structural deficit and this structural deficit will continue for the coming years for different reasons which have been consuming that inventory X

But now that inventory X is mathematically depleted. In previous high season (September 2023 – March 2024) we saw the first impact of that nearing depletion with the uranium spotprice going from 56 USD/lb in August 2023 to 106 USD/lb early February 2024

A good week ago a non-US utility went semi-public by sending an email to different uranium stakeholders in the world because they couldn't find 300,000 lb of uranium for delivery in October 2024. Not a surprise because inventory X is depleted now, and there aren't enough idle uranium productions left in the world to close the supply gap. And those few idle production capacities will take years to get back online.

300,000lb is not even enough to run one 1000 Mwe reactor for 1 year! The total global operational nuclear fleet capacity today is 395,388 Mwe

So now that that inventory X is depleted, the structural global uranium deficit has to solved with a lot of new production that is't available.

How come?

During 2011-2020 not enough was invested in exploration and development of new uranium deposits, while existing uranium mines are nearing depletion.

An example: The biggest uranium project in the world is Arrow in Canada, but that projects needs at least 4 years of construction before it can produce the first pound of uranium, and the greenlight for the construction start hasn't been given yet.

The production start of other smaller uranium projects have been postponed:

• Dasa: postponed by 1 year from early 2025 to early 2026
• Phoenix: postponed by at least 2 years from 2025 to 2027 at the earliest

While producers are producing less than hopped: the majors Cameco, Kazaktomprom, Orano, CGN, Uranium One, … but also Paladin Energy (2.5Mlb instead of 3.2Mlb planned for 2024)

And at the demand side, the last 3+ years a lot of uranium reactors licences have been extended by an additional 20 years and even some by an additional 40 years. But that's a lot of unexpected additional uranium demand that the uranium sector haven't prepared for.

C. On Friday Kazatomprom announced a 17% cut in the hoped production for 2025 in Kazakhstan, the Saudi-Arabia of uranium + hinting for additional production cuts in 2026 and beyond

Article: https://www.ft.com/content/240af090-8684-49dc-a85e-20b535d62dda

About the subsoil Use agreements that are about to be adapte to a lower production level:

Source: Kazatomprom (Kazakhstan)

Problem is that:

a) Kazakhstan is the Saudi-Arabia of uranium. Kazakhstan produces around 45% of world uranium today. So a cut of 17% is huge. Actually when comparing with the oil sector, Kazakhstan is more like Saudi Arabia, Russia and USA combined, because Saudi Arabia produced 11% of world oil production in 2023, Russia also 11% and USA 22%.

Here are the production figures of 2022 (not updated yet, numbers of 2023 not yet added here): https://world-nuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/world-uranium-mining-production

b) The production of 2025-2028 was already fully allocated to clients! Meaning that clients will get less than was agreed upon or Kazatomprom & JV partners will have to buy uranium from others through the spotmarket. But from whom exactly?

All the major uranium producers and a couple smaller uranium producers are selling more uranium to clients than they produce (They are all short uranium). Cause: Many utilities have been flexing up uranium supply through existing LT contracts that had that option integrated in the contract, contractually forcing producers to supply more uranium, than they actually produce. And in the future those uranium producers aren't able to increase their production that way.

c) The biggest uranium supplier of uranium for the spotmarket is Uranium One. And 100% of the uranium of Uranium One comes from? … well from Kazakhstan!

Conclusion:

Kazatomprom, Cameco, Orano, CGN, …, and a couple smaller uranium producers are all selling more uranium to clients than they produce. Meaning that they will soon all together try to buy uranium through the illiquide uranium spotmarket, while the biggest uranium supplier of the spotmarket (Uranium One) has less uranium to sell now.

And the less uranium producers deliver to clients (utilities), the more clients will have to find uranium in the spotmarket themself.

There is no way around this. Producers and/or clients, someone is going to buy a significant volume of uranium in the illiquide spotmarket during the new high season in the uranium sector.

And before that production cut announcement of Kazakhstan, the global uranium supply problem looked like this:

page 10 of this presentation: https://prod.cameco.com/sites/default/files/documents/Cameco-Investor-Presentation.pdf

Note: For that slide on page 10 Cameco used data from UxC, 1 of the 2 sector consultants of all uranium producers and uranium consumers in the world

With all the additional uranium supply problems announced the last weeks, I would not be surprised to see the uranium spotprice reach 150 USD/lb in Q4 2024 / Q1 2025, because uranium demand is price inelastic and we are about to enter the high season in the uranium sector.

We are at the end of the annual low season in the uranium sector. This week we will gradually enter the high season again

In the low season in the uranium sector the activity in the uranium spotmarket is reduced to a minimum which reduces the upward pressure in the uranium spotmarket and the uranium spotprice goes back to the LT uranium price.

In the high season with an uranium sector being a sellers market (a market where the sellers have the negotiation power) the activity in the uranium spotmarket increases significantly which significantly increases the upward pressure in the uranium spotmarket.

Note 1: the uranium spotmarkte is an iliquid market. Sometimes you don't have a transaction for a couple days, so an uranium spotprice not moving each day in the low season is normal. In the high season the number of transactions increase in the uranium spotmarket.

Here a link to the uranium spotprice: https://numerco.com/NSet/aCNSet.html

Here a link to the Uranium LT price: https://www.cameco.com/invest/markets/uranium-price

Note 2: I post this now (at the very end of low season in the uranium sector), and not 2,5 months later when we are well in the high season of the uranium sector. This week we will gradually enter the high season again

For those interested. No rush. Take time to double check the information I'm giving here, before investing in the sector.

This isn't financial advice. Please do your own due diligence before investing

Cheers