Uranium market anticipates nuclear revival – but lots could still go wrong

In this issue, we bring you our popular annual look at “Canada’s Top Ten” — this year focused on Canada’s biggest mining companies, precious metals juniors, and base metals and uranium juniors by market cap. From year to year, these lists don’t usually see dramatic changes, with the biggest companies often shuffling up or down one or two spots.

This year, however, our Top Ten base metals and uranium companies have seen a big shift in balance. For the past two years, the bulk of companies on the list were copper juniors, with only three uranium juniors making the Top Ten. This year, that’s reversed, with six of the Top Ten focused on the energy metal, including No. 1 on the list, NexGen Energy. (In our main Top Ten list, too, uranium miner Cameco has climbed from No. 9 to No. 6.)

As noted in a late June report on uranium by BMO Capital Markets,2022 has been the best year for uranium prices in a decade — with the spot price rising 46% in the last year to around US$47 per lb. (and rising above US$50 per lb. earlier in the year). The increase has been supported by the Sprott Uranium Physical Trust, which bought up 24 million lb. of uranium oxide in the second half of 2021, and which BMO notes as of mid-year, still has US$1.7 billion left to purchase more.

According to BMO, which has raised its long-term price forecast for uranium oxide to US$58 per lb., up from US$50 per lb. (still far from the record US$138-per-lb. high it briefly flirted with in 2007), “the global push for energy independence following Russia’s invasion of Ukraine has provided a tailwind for uranium expectations, as nuclear build-outs are back in vogue.”

Even before Russia’s invasion of Ukraine in February catapulted energy security up the priority list for advanced economies, however, global decarbonization targets helped get nuclear energy back on the radar.

There’s a growing recognition that net zero is simply not possible without nuclear power. Governments including the United States, China, South Korea, India, the U.K., and even Japan, where the Fukushima nuclear disaster in 2011 prompted a global retreat from nuclear energy, are discussing a mixture of new capacity, extending the lives of existing plants, and investing in new technology.

According to a June 2022 report by the International Energy Agency (IEA), “Nuclear Power and Secure Energy Transitions,” governments will need to develop policies that support nuclear power and invest in nuclear technology for it to remain a viable energy option. Currently the nuclear technology market is dominated by Russia and China, the IEA notes, with 27 out of 31 reactors being built since 2017 having either Russian or Chinese designs. Both construction times and costs to develop nuclear facilities have also been rising.

Countries including Canada are pinning their hopes on small modular nuclear reactors (SMRs) — a technology that is still in development, but could be built with lower capital investment and water usage, provide more flexibility in the overall power mix, and have inherent safety advantages over traditional nuclear technology. SMRs are designed to generate less than 300 MW per module (about one-third the capacity of a traditional nuclear reactor), with some varieties designed for a very small capacity of 10 MW or less. According to the IEA, there are about 70 different designs in development internationally, using different underlying technologies. (In March, Canada’s Innovation, Science and Industry Ministry announced a $27.2-million investment in Westinghouse Electric Canada to support its $57-million SMR, the eVinci micro-reactor.)

However, SMRs won’t realistically be part of the energy mix for another 10 years.

Even more important than technological maturity is public perception. Sentiment has improved since Fukushima, including in Canada. As noted in a July 2021 article published by the University of Alberta-based commongroundpolitics.ca, surveys by the Canadian Nuclear Association have borne this out. While a 2012 survey found that the majority of Canadians saw nuclear power as “expensive and dangerous,” an Abacus Data survey conducted in 2020 showed that 55% of Canadians supported wider use of nuclear energy, with just 10% somewhat or strongly opposed to it.

Even though public sentiment around the safety and environmental risks of nuclear energy has improved, that could easily change. Starting next spring, Japan will begin slowly releasing treated wastewater contaminated by the Fukushima meltdown into the Pacific Ocean over a period of 40 years. The plan has drawn criticism and could spark a further backlash against nuclear energy more than a decade after the accident. Meanwhile, in Ontario, which has safely operated five of Canada’s six nuclear reactors for decades, the Nuclear Waste Management Organization is expected to decide next year on a “host community” site to bury 3.1 million used nuclear fuel bundles, bringing nuclear waste into the spotlight.

The biggest wild card in the whole situation is the global reaction to oil and gas giant Russia’s actions in Ukraine. The IEA, itself created as a response to the 1970s oil shock, notes that the current environment bears similarities to that decade.

“The oil security crisis of the 1970s spurred the first wave of nuclear newbuilds: in the decade that followed the first oil shock, construction started on almost 170 GW of nuclear power plants,” the report says. “These plants still represent 40% of the nuclear capacity that is operating today. If policy support is forthcoming and costs are kept under control, the renewed interest in nuclear today could point in a similar direction.”