The uranium market has mimicked the escalations seen in nickel and lithium in the past few months, with prices reaching a nine-year high of $US50.08 ($70.26) per pound in September 2021. The price has undulated since then but was trading at $US43.9 per pound to start February, as supply shortage fears eased and political unrest in Kazakhstan, the world’s largest producer of the commodity, didn’t impact uranium production as traders first expected.
While Canaccord Genuity flag volatility in the market in the near-term, given the improved price performances, the financial services firm is bullish in its uranium outlook.
“From a fundamental perspective, the argument to maintain exposure to uranium remains strong,” the firm said in a recent uranium outlook report. “Demand for nuclear power continues to increase as the global transition to clean energy gains momentum.
“China announced plans to build 150 new reactors by 2035, the European Union (EU) has elected to classify nuclear as ‘green’ in its sustainable taxonomy draft, and Japan’s new Prime Minister has reconfirmed his support for additional reactor restarts, among several other developments — all of which are net positive for our demand outlook.”
Canaccord forecasts an annual uranium demand growth of 2.8 per cent through 2035.
Despite this growth, the firm believes the uranium market “still has a long way to go” before it can prove itself as a reliable investment option.
There’s currently a supply squeeze in uranium, with suggestions primary mine supply of the commodity is at a 12-year low.
“Primary mine supply remains under significant pressure, a situation that has only been compounded by recent COVID-19 disruptions and ongoing supply chain issues,” Canaccord said.
“We estimate that over the last six years, uranium production has declined by 24 per cent … and, following years of insufficient incentive pricing, we believe supply is not in a position (or willing) to front run demand.
“In our view, higher pricing signals are still needed to bring idled production back online, and this production alone will not be enough to satisfy long-term demand.”
Several companies are developing new uranium projects in Australia, including Boss Energy with its Honeymoon project in South Australia, and Vimy Resources with its Mulga Rock project in Western Australia.
In December 2021, Boss said its front-end engineering design (FEED) studies were more than 50 per cent complete, with the expectation these will be completed in the March quarter of 2022.
This will pave the way for the final investment decision to be made. Once the price environment is right, Boss will then look to move Honeymoon into production as soon as possible.
Vimy began development of Mulga Rock in December after receiving approval for its operational radiation management plan (ORMP). Excavation began on the Ambassador North pit ramp, as Vimy aims to access Australia’s largest undeveloped uranium resource.
The company still has a few milestones to tick off before it can elevate Mulga Rock into production.