VANCOUVER — The CEOs of three North American uranium juniors took to the stage during an open-panel session at the Vancouver Resource Investment Conference in January to discuss the broader uranium market and argue why it is due to heat up.
“The last two weeks we’ve seen the biggest shakedown in the commodity sector ever seen in the past decade, and it really showed what any commodity is made of,” Amir Adnani, CEO and president of Corpus Christi, Texas-based Uranium Energy (NYSE-MKT: UEC) said to the crowd.
“Yet uranium didn’t go down … it’s been on an upward trajectory over the past 15 months.”
Adnani noted that uranium prices were hit hard in 2011 when the Japanese government shut down all 52 of the country’s reactors after the Fukushima nuclear disaster, which drove spot prices down to US$28 per lb. U3O8.
Since then, producers have steadily worked through a supply surplus, slashing projects and making the supply side “so tight that if you buy 1 million lb. uranium, you can move the market up US$5 per lb.”
“Japan is finally back online and picking up speed. U.S. utilities are in the market right now buying uranium and we’re in a contracting cycle, because they don’t want to get restricted with sanctions against Russia,” Adnani said.
With current spot prices at US$35 per lb. U3O8, David Cates, president and CEO of Toronto-based Denison Mines (TSX: DML; NYSE-MKT: DNN), described Japan as the “psychological elephant” in the uranium business, considering the country has only turned on two of its reactors in the second half of last year.
“Utilities have bought as much uranium in the past four or five years compared to what they used to buy in one year,” Cates said. “They’re just sitting on their hands, and what are they waiting for? Japan. Once the country shows they’re on the path, they’ll go back to finding uranium.”
But the uranium market isn’t just hinging on what Japan will do next, Adnani said. The U.S. — which is the world’s largest uranium consumer — has a shortfall of 52 million lb. U3O8 a year, while nuclear reactors continue to pop up worldwide, and require a steady supply.
“From the U.S. to Argentina there’s a real shortage of uranium, and most of the production that’s taking place in Canada is earmarked either for the French with Areva Resources’ involvement, or some of the long-term contracts with the Chinese,” he said. “People don’t realize that there are reactors operating in Latin America and there are 16 more reactors either under construction or planned to be built in Chile, Brazil and Argentina, with zero production of uranium in South America.”
For Dev Randhawa, chairman and CEO of Kelowna, B.C.-based Fission Uranium (TSX: FCU; US-OTC: FCUUF), the big catalyst for growth is China and India, which is why Fission struck a deal with China’s state-owned CGN Mining last December to provide the financial footing for its Patterson Lake South uranium discovery, south of Saskatchewan’s Athabasca basin.
“There are 30 reactors in China, with 24 being built, and 40 more going into the ground — that’s more than one reactor per month,” Randhawa said. “Those of us that have been to Beijing know they’re not doing it strictly for power — they need clean power. They have 1.5% coming from renewables and nuclear, and they want to go to 15–20% … we cannot continue to go at the pace we’re at and not need more uranium.”
But the uranium industry is not entirely transparent, Adnani admits. Potential secondary supply fuelled by the possible decommissioning of thousands of Russian and American nuclear missile warheads creates an unpredictable overhang in the market, but he said it’s not enough to warrant concern.
“As deep as Russia’s pockets of secondary supply might be, they’ve spent a couple of billion dollars just as they’ve taken Uranium One private, and are buying exposure to uranium mining operations,” Adnani said. “Not only do they have their own domestic needs, but when they sell a reactor they’ll give you life-of-reactor fuel supply … and when you add that up then secondary supply will not be enough for them.”
Adnani said another “tender spot” of discussion is Kazakhstan. It’s the world’s largest supplier of uranium, and saw a 90% ramp-up in production over the past decade, accounting for 40% of global supply.
“If you’re that percent of the market you’d think that mother nature has handed you this gift — the same way the Saudis have with oil — and they’re just sitting on something that’s just oozing with mineralization that can defy logic,” Adnani said. “But that’s not the case, they mine grades of 0.03%, whereas Denison and Fission talk about mining uranium at 1% grade or higher, which is 10 times the grade in the world.”
“What Kazakhstan had for a long time was the Soviet Union — the Soviets ploughed money in during the Cold War days when money was no object because it was strategic … and they’ve reaped the benefit of that investment for the last 10 years.”
And Adnani reckons that the next decade of production will see more development in the Americas.
“This is the biggest opportunity, and I’m putting my money where my mouth is. Myself and my team have been buying stock,” Adnani said. “We keep measuring our industry to what it looked like pre-Fukushima. Today it looks the best it’s been, yet our stocks are trading like they did in the financial crisis in 2008.”
Cates agreed, arguing that uranium equities are caught up in the bigger energy sell-off.
“It’s a tremendous opportunity because if you look at the performance of commodities and the equities in those sectors, and do the same for uranium, you’ll see a tremendous decoupling,” Cates said. “Which is exactly why we’re buying stock … because we know at some point rational money is going to come back into the space and see that uranium has performed well, so there’s no reason why the equities should perform poorly.”
“We’ve had a crazy meltdown of commodities and what did uranium do? It went up last year,” Randhawa added. “If you want to hide in commodities, hide in uranium. You’ve got three great stocks right here, including Cameco — we’ve had our bottom.”
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