💹 A quick look at the Uranium Bull Run and my two cents…

The Uranium Bull Run continues…

The Uranium Bull Run has seen prices significantly grow over the past year, reaching new highs in 2024. This surge has been driven by renewed interest in nuclear power as a solution to the world’s increasing energy demand. The limited supply of uranium has further propelled this trend.

The combination of growing demand and a constrained supply has increased the value of uranium. A recent bill by the US Congress to prohibit the supply of Russian uranium has also contributed to the run. This ban covers approximately a quarter of the US’s uranium needs.

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Nuclear power is here to stay, and we need to support a strong domestic uranium industry.

Michael Burgess

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Emerging countries with high energy demands seek consistent and reliable power sources to meet their growing needs. It is widely acknowledged that renewables such as wind and solar energy are not able to completely fulfill the gap. They can’t provide reliable base-load power for large countries or developing economies.

The world is facing a global energy crisis that began in 2021. This was due to the pressures on energy supply caused by the c19 economic recovery. This was then compounded by the Russian-Ukraine war and Gas crisis.

🐂 The Dynamics of the Uranium Bull Run…

With the increase in nuclear power and the construction of new power plants, particularly across Asia, Uranium is likely to remain in demand, indicating a sustained uptrend in prices. From 2022 you can see the amazing run Uranium has had so far.

The supply-demand imbalance has not yet reached a saturation point. A lot of Uranium is needed to meet the expansion of new plants in China, India, and the US.

The heightened geopolitical risk due to the Russian-Ukrainian conflict has further increased the demand for nuclear power security, thereby fueling the demand for Uranium.

There is a significant shortage of Uranium, with reactor demand surpassing mine supply and commercial stockpiles starting to deplete.

Considering all of these factors, the price of Uranium still has the potential for further increase, although it’s uncertain for how long. The cycle of capital flooding into the Uranium market due to high demand, could be followed by a potential oversupply leading to a drop in prices.

Therefore, there are many factors to consider before participating in the Uranium market uptrend.

🔁 A quick touch on Commodity Cycles.

When a commodity is in demand, mines and producers can increase operations profitably to supply the resources. If the base price of a commodity is not profitable to mine, extract, or produce, then it makes little sense to continue doing so.

Uranium mines and producers are finally reopening old projects to be able to meet the new growth in demand profitably. As such, the cycle begins again; new capital flows will start to pour into uranium companies from exploration to mining, extraction, and production.

When a commodity is not “hot,” underinvestment across that sector causes a future issue when all of a sudden supply increases. This squeeze then reinvigorates businesses to ramp up to meet this new demand.

If you had picked the macro theme a couple of years ago and hand-selected a few of the uranium stocks that specialise and focus on this commodity, you would have seen some pretty spectacular gains.

It’s all about Reliable Power sources.

Nuclear power is the only non-fossil fuel source available to countries without hydroelectricity. There are no other base-load options. To say that countries should steer towards green energy such as wind and solar is to not understand the sheer demand within these countries.

Having lived and travelled in India, for example, for the past 14 years, I have seen the demand needs and felt the rolling blackouts firsthand. Reliable power is essential to provide consistent power to over a billion people.

I lived in a nice city in south India where green initiatives were everywhere, but the dozen blackouts and power cuts per day were not sustainable.

They need a reliable base load, and nuclear power is the solution they have for the time being. This all points towards uranium being a viable long-term commodity that has a long-term theme to play to.

As long as the price stays above the cost of production…

The price of the commodity is what drives the bull run. If the price per pound remains high due to the demand from nuclear power-hungry countries, then mine operators have a reason to continue mining.

If the uranium market price falls below the average cost of production, it could interrupt the trend. There have been several cycles of Uranium, with the last cycle resulting in an excess of stored supply which has only started to decrease. So, this cycle could happen again.

If Uranium starts to be stockpiled again and the demand decreases, it will signal the end of the run. This is typical of commodity cycles.

As long as the price per pound remains high, more uranium miners will continue to operate. The cost of production has been around $60-70 per pound for larger operators. Anything above this price point is a good signal for mines to increase capacity.

If the spot price remains high, it allows more operators to invest in new projects.

😱 How dare I promote anything other than clean energy…

Life is not simple; transitioning to green energy is not a simple solution to saving the planet. It takes time. I was directly involved in a solar and wind energy company in India. Our mission was to provide energy solutions to rural areas. Although we were able to provide some solutions to those who were willing and could afford them, it was largely unattainable for the masses.

It was unreliable and, even worse, unaffordable to many. This is not a solution, but rather an option for a select few.

People need power. Whether I believe in green clean energy is irrelevant because at the end of the day, I want to see people with a light on in their home, the ability to be connected, and not live in the Stone Age because they couldn’t access affordable power.

Having lived and travelled to remote rural areas in third-world countries, I have seen that the problem is widespread. There are many abandoned clean energy projects, some government-funded and some private. The ongoing cost of maintenance and the challenge of energy storage, as no weather conditions are perfect all the time, create even more unreliability.

So nuclear power is the runner-up.

Fossil fuels may be a no-no, but for a large part of the emerging world, it’s all they have. I don’t think I am special to say let’s boycott all power that isn’t green because I can afford to give myself a solution while over 2 billion people worldwide can’t access reliable sources of energy.

In developed countries, we grapple with the rising cost of electricity to access this soon-to-be-luxurious commodity. However, I’ve seen families amazed at the wonders of seeing a light bulb turn on for the first time. It brings it all down into perspective.

So, I don’t have solutions or am for or against anything. Like investing, there are a million shades of grey between the black and white thinkers.

⚠️ There are always downsides…

Nuclear power has its downsides. It is a high-cost alternative to renewable energy sources and suffers from long lead times for construction and development.

This may make it unsuitable for addressing current energy concerns at scale. Additionally, nuclear power produces radioactive waste and has limited scalability to meet the demand required for addressing climate change, as well as the risk of a disaster.

It’s clear that there are several drawbacks to nuclear power plants.

Nuclear Power is a long-term macro theme.

I believe that the long-term outlook for nuclear power is positive, and the industry is expected to perform well over the next decade. However, there are several factors investors should be cautious of when it comes to nuclear energy and uranium.

Understanding the commodities cycle is crucial. The combination of supply-demand imbalances, geopolitical instability, and expansion in nuclear power provides a strong foundation for the continued uptrend in uranium prices. As the demand for nuclear energy increases, uranium prices are likely to remain high, creating opportunities for both investors and mining companies.

Currently, mines are meeting about half of the current demand. The elevated prices at present are incentivising exploration and new projects.

For investors looking to invest in uranium, it’s important to consider the history of uranium prices. A decade ago, uranium was in the spotlight, and understanding the past price movements can provide insights into potential future fluctuations.

For example, the Fukushima disaster in 2011 led to a sharp drop in uranium prices from $70 to less than $20. Something like this could happen again.

Despite the volatility, the long-term fundamentals suggest an opportunity. Instead of speculating, it may be wiser to focus on established uranium miners and producers with strong asset bases rather than smaller exploration-based companies.

I’m keeping an eye on a few companies listed on the ASX and the TSX.

⚛️ The theme of nuclear power, although volatile, is based on the potential solutions it can offer, providing stable, low-carbon, reliable baseload electricity.