Since 2020, the price of uranium has gone from $21/lb to a high of $106/lb in Feb 2024. The price has experienced a slight pull back since then to $83/lb. I believe this 4-5x change in the price of uranium to be small compared to what lies ahead, and I will explain the reasons why in this paper. 

What is Uranium?

Uranium is an abundant, radioactive metal naturally occurring in earth's crust. The vast purpose of it today is used for creating nuclear fuel to provide energy. It is one of the cleanest burning fuels and very easy on the environment. Think of Uranium as a gas pump, there are different options you can choose between based on grade. We will focus on the two main isotopes for Uranium. When it is mined, approximately 99.3% is uranium-238 and 0.7% is uranium-235.

U-238 is a critical component of plutonium production which in itself gives a TON of demand. The major application of Uranium in the military sector is depleted Uranium (DU). DU is mostly U-238 after U-235 has been removed. It is used to create armor piercing rounds and military projectiles. The high density of DU makes weapons highly effective. There are other important uses of U-238, such as counterbalancing aircraft, though we are not focusing on those.

U-235 is even more important because for the most part, this is what fuels nuclear reactors. In order to power a nuclear reactor, the concentration of U-235 needs to be 3-5% instead of 0.7%. The higher concentration makes it fissionable, meaning it can power light-water reactors which are the most common reactor design in the USA (United States Nuclear Regulatory Commission). One kilogram (2.2 LBS) of U-235 produces as much energy as 3,306,930 pounds of coal.

HALEU

High-assay low-enriched uranium. A crucial material needed to deploy advanced nuclear reactors. Currently, HALEU is not commercially available from US based suppliers. Boosting domestic supply could spur the development of advanced reactors in the US (Energy.gov). In November, the DOE reached a key milestone under its HALEU demonstration project, when a company produced the nation’s first 20 kilograms of HALEU. Thus, providing a first of its kind production in the United States in more than 70 years. Amid growing efforts to secure a reliable domestic nuclear fuel supply, the DOE has awarded contracts to six companies as part of an $800 million initiative to bolster the deconversion of high-assay low-enriched uranium (Roan, 2024).

The existing fleet of US reactors run on enriched uranium up to 5% with U-235. However, most advanced reactors require HALEU which is enriched between 5% to 20% in order to achieve smaller and more versatile designs with the highest standards of safety, security and nonproliferation. HALEU also allows developers to optimize their systems for longer life cores, increased efficiencies, and better fuel utilization. Together, the US, Canada, France, Japan and the UK have announced collective plans to mobilize $4.2 billion in government-led spending to develop safe and secure nuclear energy supply chains (Energy.gov). 

As we now know, enriched uranium is crucial. Although, the enrichment process is very costly. Russia is the biggest player in the enrichment process. They are responsible for roughly 44% of the world’s enrichment capacity and supply approximately 35% of imported nuclear fuel to the US. As of August 12th, 2024, Uranium imports into the USA from Russia are outlawed. This allows $2.7 billion in funding to build out the U.S uranium industry specifically, to increase production of LEU and HALEU. The DOE estimates that US utilities have roughly 3 years of LEU available through existing inventory or pre-existing contracts. To ensure no plants are disrupted, a waiver process is in order to allow some imports of LEU from Russia to continue for a limited time. “In the meantime, we’re taking aggressive steps to establish a secure and reliable uranium supply market” (Energy.gov). 

Uranium Supply

Now, the supply that was once held of uranium is running out. “The inventory overhang that was so damaging to the market for almost a decade has been largely consumed, and going forward, we’re going to have an increasing reliance on primary supply” (World Nuclear News). Idled mines are now starting production again, as well as increases in mines under development, and planned mines. “There is no doubt that sufficient uranium resources exist to meet future needs, but producers have been waiting for the market to rebalance before starting to invest in new capacity and bring idled capacity back into operation. This is now happening (World Nuclear News).

The uranium market has been facing a supply deficit for years due to underinvestment. The problem is that uranium mines take a long time and require a ton of capital to get up and running. A mine can take 10-15 years to begin production AFTER they are opened. 

As with other minerals, investment in geological exploration generally results in increased known resources. Over 2005 and 2006, exploration efforts resulted in the world’s known uranium resources increasing by 15% (World Nuclear Association). Therefore, there is no need to anticipate any uranium shortage.The world’s current measured resources of uranium will last about 90 years. This represents a higher level of assured resources than is normal for most minerals. There is nearly limitless supply because most of it has not been discovered due to little investment in mining and exploration. To be clear, although we know this uranium exists, that does not mean it has been mined. 

Primary Supply – This type of supply refers to uranium extracted directly from mining.The primary supply has been under heavy pressure in recent years due to low uranium prices. Low prices lead to reduced mining operations. This is because mining is incredibly expensive and companies won’t do it if there is no good price incentive at which they could sell the uranium. It is forecasted that uranium mining will not meet the reactor demands for at least 15 years. Now, it is also estimated that by 2035, primary uranium production will decrease by 30% due to resource depletion and mine closures. New mines will only be able to compensate for the capacity of the exhausted mines.

Secondary Supply – This refers to all uranium that is not sourced directly from mining but from other inventories and recycled materials. This includes, civil stockpiles, military stockpiles, recycled uranium and enrichment tails. Civil stockpiles (uranium reserves held by utilities, hedge funds, and government) grew immensely after the 2011 Fukushima disaster. Many reactors shut down due to the worries surrounding uranium, and investment in the nuclear sector decreased. Due to this, there was a large oversupply of uranium. Since then, these stockpiles have been largely drawn upon to meet reactor demand, instead of relying on primary supply. So, utilities have been relying on their inventory to fuel their reactors, instead of getting fresh uranium from mines. This has caused a gradual depletion of their reserves. There is no mathematical way to rely on reserves anymore. The ONLY option is to produce uranium in order to keep reactors operational, while meeting future demand.

Uranium Demand 

The United States, China, and France represent around 58% of global uranium demand. Uranium demand can be characterized as a predictable function of the number of operating nuclear power plants, their capacity factors and fuel burn up levels. As of April 30th, 2024, there are 94 operating nuclear reactors in the United States. The global count of operating nuclear reactors is 440. These account for 9% of the world's electricity. Currently, there are 60 nuclear reactors in production across 16 countries spanning into 2030. About 90 more reactors have been planned and over 300 have been proposed. 

Looking ten years ahead, the uranium market is expected to grow. The 2023 World Nuclear Association’s Nuclear Fuel Report shows a 28% increase in uranium demand over 2023-2030. This same report predicts a 51% increase in uranium demand for the decade 2031-2040. Global demand for electricity may rise 165% by 2050 while at the same time, 101 countries have committed to net-zero carbon emission goals and are actively pursuing a shift to clean energy.

https://preview.redd.it/ld8y5xf7u4vd1.png?width=975&format=png&auto=webp&s=8cd6d742feca0b2df30d583972a4ed949e064941

Global Price of Uranium Last 25 Years (USD/Lbs)

Uranium Production

The main producers of uranium are Kazakhstan, Canada, Namibia, Australia, and Uzbekistan. Kazakhstan is the major producer. In 2022, they produced 43% of the world’s uranium. The company Kazatomprom is responsible for the massive production within the country. Very big news came out recently stating they have slashed their production target for 2025 by 17%. This is due to project delays and sulfuric acid shortages (a critical component of uranium extraction). They are expected to produce 25,000-26,500 tonnes of yellowcake (a concentrated form of uranium ore produced during the early stage of processing).This move is likely to continue the upward pressure on uranium prices. This slash in production is occurring while Kazatomprom has their lowest reported uranium inventory levels since 1997 of 4,142 tonnes of uranium, down 31% from the previous year (Dempsey, 2024). “This is a structural problem. It won’t just be the west saying this is an issue for us; it will also be Russia and China saying it’s a problem for our new nuclear power plants” (Nick Lawson, CEO of Ocean Wall). 

Uranium prices have been low for decades due to oversupply and stockpiles. This has made it less appealing to develop new mines and instead, rely on existing mines and supply. However, the US and other countries are showing increased signs of uranium mining at an alarming rate. In the first quarter of 2024, the United States produced more than 82,000 LBS of uranium which is more than the entire 2023 production. In Q2 of  2024, production increased to 97,709 LBS, an 18% increase from Q1 2024. While this increased production is significant for a domestic supply, it does not begin to put a dent in the global deficit. It simply goes to show the US is beginning their own production of uranium. 

https://preview.redd.it/0i0y5ta8u4vd1.png?width=975&format=png&auto=webp&s=fea4c5c8d96e63e0991cbee91763b86ffdd1d513

United States Uranium Production 2000-2024 Q2 lbs

In a recent interview with Justin Huhn, a uranium market expert, he stated, “YTD there has been 54 million pounds contracted. Demand pulled back temporarily and when that happened, price kept rising. It's a hugely important indicator that when demand comes back in, which it is starting to, the prices are going higher. We're starting to see early signs of that. Honestly, I think we are on the cusp of a very large movement in the coming weeks. We're going to see a competitive environment for limited supply. That's what is coming next. The ceiling in the contracts tells you where the price is going. The 3 and 5 year forward tells you where the spot is going. Every piece of evidence in the physical market is telling us that prices are going higher."

"Companies need uranium and they aren't going to not buy it at price xyz. Now, could we get to a point where logically the price of uranium utility does not justify continued operations? That's possible. And unless we have a balanced market, that might be the limiting upside factor. Price would have to be somewhere in the $700s for the average utility to not afford to buy uranium in order to operate their facilities.”

https://preview.redd.it/tryxvqs8u4vd1.png?width=975&format=png&auto=webp&s=9d232e82dee2be8fcd1a85af980584987b2bcb4d

World Uranium Production vs Reactor Requirements, 1945-2022 tU

Conclusion 

Although we’ve seen drastic changes in the price of uranium already, I believe the bull market is just beginning. There is immense demand, and production simply can’t meet the requirements. Prospective mines can take 10-15 years to become operational, while 30% of current mines are estimated to be depleted by 2035. There is not enough time available for the uranium supply to meet the demand despite increases in production. Companies are willing and obligated to secure nuclear fuel at almost any price. Increased investment into nuclear energy is happening from a governmental side and big tech. Amazon, Microsoft and Google have all come out with news recently, investing insane amounts into nuclear. Countries are uniting in the fight against climate change to establish a global supply of clean, zero-carbon energy. Therefore, I believe that as the supply continues to dwindle and demand continues to increase, the fight for uranium that will ensue is going to send the price to levels we have never before seen in history. 

Investment Ideas

I think mining companies are best set up to gain from this market. A high uranium price means they earn higher revenues by selling it. This also allows them to further develop mines and explore new areas, increasing overall production. We are in a seller dominated market where prices are based on bidding wars between utilities, governments, and hedge funds. These mining companies are Cameco (CCJ) currently trading at $50.86 and NexGen Energy (NXE) trading at $7.26. I also like the mining ETF Range Nuclear Renaissance Index (NUKZ) trading at $38.31 and Sprott Uranium Miners ETF (URNM) trading at $48.26. The other companies I like in this sector are Clean Harbors, Inc. trading at $257.48 and Constellation Energy (CEG) trading at $265.86. Clean Harbors has a dominant position in the market for the handling and disposal of nuclear waste. They also have very good management. I’d say they are my favorite pick out of the entire sector. Aware that this is WSB, YOLO calls on URNM is the play. This is a chance to create generational wealth.

Disclaimer 

This is not financial advice.

Edit – These companies are trading higher now. I wrote this DD a few days ago.