Uranium Miners ETF Report | Apr 2024

Uranium ETF Key Takeaways

Uranium markets had varied performance in March, with the U3O8 uranium spot price declining -6.84%, from US$94.60 to $88.13 per pound. On the other hand, uranium miners and junior uranium miners rose, gaining 1.75% and 2.47%, respectively. The recent trading behaviour of the uranium spot price suggests a potential bottoming out in the market. In the first half of March, we witnessed a descent in the spot price, reaching a low of $83.78 before commencing a recovery that culminated in reaching $88.13 by month-end.

One key factor influencing the spot market has been a” buyer’s strike”, as some utilities and select producers have stepped away as the price broke above $100 lb. Nuclear utilities have significantly different procurement strategies than others, such as natural gas plants. The latter needs to buy fuel consistently, but the former generally has several years of inventories. Uranium inventories within reactor cores and in various stages of the fuel cycle allow utilities to step away from the market if they are reluctant to chase a rising price.

The recent pullback in prices follows a remarkable surge that saw the uranium spot price climb by nearly 80% over seven months, from July 2023 to January 2024. February’s peak of $107 marked a historic recent high before a period of profit-taking tempered the bullish momentum. However, this retreat should be viewed as a natural correction within the broader context of a bullish market cycle, rather than indicative of fundamental weakness.

Despite a temporary dip to $84 mid-month, the subsequent partial rebound in price signals renewed buyer activity. Volatility is natural in the uranium markets, and gains may typically follow a staircase pattern that may provide investors with opportune entry points. Especially considering that this price loss has not been due to an underlying change in the fundamentals, which remain strong.

Over the longer term, physical uranium and uranium miners have demonstrated significant outperformance against broad asset classes, particularly other commodities. For the five years ended March 31, 2024, the U3O8 spot price has risen a cumulative 249.40% compared to 22.69% for the broader commodities index (BCOM).

The recent retracement of the uranium spot price has not been due to weakening fundamentals. Mine supply, 2024 forecasted production of 156 million pounds, is still well short of the world’s uranium reactor requirements, with 176 million pounds forecasted for 2024. Further, given the increasing global recognition of the vitality of nuclear energy to energy security and decarbonization, the demand for uranium is forecasted at 338 million pounds in 2040.

Ergo, the uranium mine supply needs to more than double by 2040, but the supply response thus far has proven to be more challenging to ramp up than anticipated. In March, NAC Kazatomprom JSC (Kazatomprom) released its 2023 full-year results and reaffirmed that it would not meet its previously announced production increases for 2024. Further, they noted that production guidance for 2025 will not be given until August.

With the significant increase in the uranium price since 2021, one would expect the world’s largest and lowest cost producer would be best positioned and incentivized to increase production to capture the market opportunity.

The timeline for Kazakhstan’s production increases largely hinges on two things: the availability of sulfuric acid and Kazatomprom’s growth strategy. Kazakhstan holds the advantage as a low-cost producer due to its reliance on in-situ recovery (ISR) mining methods, in contrast to Cameco’s Cigar Lake and McArthur River underground mining operations. ISR mining, however, requires significant quantities of sulfuric acid, a resource for which 60% is allocated for producing fertilizers, crucial for global food supplies. The prioritization of sulfuric acid for agricultural needs may delay the pace of Kazakhstan’s production ramp-up. To this end, Kazatomprom signed an agreement in January with an Italian company to construct a sulfuric acid plant in Kazakhstan to be completed in 2027. This would increase their in-house production capacity significantly by 800,000 tpa for a total of 1.48 million metric tons (relative to Kazatomprom’s 2023 needs of 1.7 million metric tons).

Kazatomprom’s growth strategy will also play a pivotal role in its future supply response. For the past few years, they have adopted a value-over-volume philosophy. The supply discipline is achieved by prioritizing the increasing price of products/services, as opposed to volume growth. Irrespective of the sulfuric acid shortage, Kazatomprom has recently stated they will remain committed to their “value over volume” strategy.

In the interim, we believe inventories will continue to play an important, but diminishing role to balance the market. As it relates to Kazatomprom, on a 100% basis they announced inventories of 7,242 tU. Though this would be sufficient to cover 34% of last year’s production volume (2024 will be similar in production), it also represents a 23% drop year-over-year.

This trend is also reflective of broader commercial inventories, which are predominantly utilities. With mine supply insufficient to meet world reactor requirements, countries have been forced to rely on secondary supplies, predominantly commercial inventories. By 2024, we believe that the available-for-sale inventories have been largely depleted and that the security of supply has become paramount, which will lead to the rebuilding of utility uranium inventories. Supply from commercial inventories peaking in 2021 at 65 million pounds of U3O8 (29% of total supply), is expected to fall to 18 million pounds by 2024 (9%) and diminish thereafter.

Fuelled by rising uranium spot prices and a vast market deficit, several junior uranium mining companies are answering the industry’s call. Although small individually, collectively, these restarts and new builds help to incrementally edge supply closer to demand.

To this end, Ur-Energy Inc. (Ur-Energy) announced in March the decision to build out their Shirley Basin Project.  Located in Wyoming, the project is fully permitted and licensed with a capacity to produce up to a million pounds of U3O8 per year. The project was pioneered in the 1960s, suspended operations in the 1990s due to low uranium pricing and is targeted to be in production by 2026.  This restart follows a flurry of others that are working towards production, such as enCore Energy Corp.’s restarted Rosita Plant that announced its first shipment of uranium in March.

In terms of new builds, news came out from Global Atomic Corporation’s (Global Atomic) Dasa Project in the form of a positive project feasibility study. The study extended the Dasa Mine Life from 12 to 23 years, increased mineral reserves by 50% to 73 million pounds of U3O8 and increased projected uranium production from Dada by 55% to 68.1 million pounds.  These results were well-received by investors and helped support the company’s stock after being hurt by geopolitical considerations from its location in Niger.

The geopolitical situation in Niger has intensified in March. For context, a military junta led a coup d’état in July 2023, overthrowing the democratically elected president. Prior to this, Niger had been an ally of the West, namely the United States. However, in March, the ruling junta announced an end to a military relationship with the United Sates.  The increasingly anti-Western stance, which follows French troops leaving Niger when the two countries’ military cooperation ended in December, is increasing geopolitical risk to uranium miners Orano, Global Atomic and GoviEx Uranium Inc.   Not all risk was elevated for Nigerien operations, though, as the tensions had recently eased somewhat locally in West Africa. The Economic Community of West African States (ECOWAS) recently decided to lift sanctions on Niger.

As it pertains to uranium mining this was beneficial due to the lifting of border closures. Though the current state remains in flux, this may help ease logistical constraints. Specifically, Orano had announced significant difficulties in both exporting uranium and importing necessary reagents for uranium processing.

The first-ever restart of a nuclear power plant in the U.S. is now in sight. The U.S. Department of Energy’s Loan Programs Office announced a conditional commitment for up to a $1.52 billion loan to Holtec Palisades LLC (Holtec) to finance the recommissioning of the Palisades Power Plant.  The 800-MW single reactor nuclear power plant was retired in May 2022, and if realized, this would mark a notable shift in government policy towards revitalizing nuclear energy projects. Further, Holtec aims to use the site for two small modular reactor (SMR) units for an additional 800 MW of generation capacity. However, this was not part of the $1.52 billion loan. Notably, as opposed to new reactors, reactor restarts such as these, along with reactor extensions of life, represent a more immediate source of demand. The project aims to be in commercial operation by the end of 2025 and, therefore, needs to have secured the perquisite fuel beforehand.

Orano was reported in March to be considering building an enrichment facility in the United States.  This continues the increasing Western efforts to reshore or friend shore uranium enrichment services. Where last October, Orano’s decision to increase production capacity at its uranium enrichment facility in France. Further, in March, U.S. President Joe Biden signed a bill approving $2.7 billion in funding in a push for domestic enrichment capabilities.

Russia is the largest uranium enricher, and according to Orano, Russia provides about 30% of the West’s enriched uranium. The West is moving away from these Russian services. I.e., concretized by the U.S. House’s passing of the Prohibiting Russian Uranium Imports Act, which specifically prohibits the imports of Russian enriched uranium to certain waivers, with all imports banned by 2027. The Act remains stalled in the Senate, but when it is passed, it may provide another tailwind to the market. Especially given that Tenex, a Russian state-owned uranium company, has warned American customers that if this Act were to pass, Russia might pre-emptively bar exports of its supply to the U.S., further exacerbating supply uncertainty, especially in the U.S.

Source of all performance data: Bloomberg / HANetf as of 31.03.2024. Additional sources available upon request. All performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

Macro Outlook

We believe that uranium’s recent pause may be an attractive entry point in the overall uranium bull market. A longstanding primary supply deficit and renewed interest in nuclear energy highlight the real challenges to bring the market back into balance. With no meaningful new supply on the horizon for three to five years, we believe this bull market has further room to run. While last year’s multi-year record in long-term uranium contracting was celebrated, the overall numbers disguise a bifurcated market. Some utilities are well covered, while others have ignored the powerful market signals and adapted their procurement strategies to the new market realities.

With global uranium mine production well short of the world’s uranium reactor requirements, the supply deficit building over the next decade, and near-term supply inhibited by long lead times and capital intensity, we believe that restarts and new mines in development are critical. The uranium price target as an incentive level for further restarts and greenfield development is a moving target, and we believe that we will need higher uranium prices to incentivize enough production to meet forecasted deficits. Over the long term, increased demand in the face of an uncertain uranium supply may likely continue supporting a sustained bull market.

Please remember that when you invest in ETFs, your capital is at risk.

Uranium ETF Performance
As of 31/03/2024

Sprott Global Uranium Miners UCITS ETF1.75%2.42%7.69%2.42%63.90%N/A38.63%
North Shore Sprott Uranium Miners Index1.75%2.56%7.90%2.56%64.75%103.31%40.53%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/03/2024

Performance before inception is based on back-tested data. Backtesting is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back-tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs, your capital is at risk.

Performance for the Sprott Junior Uranium Miners UCITS ETF is not yet available due to the age of the fund.