Uranium Miners ETF Report | February

Uranium ETF Key Takeaways

The resurgence in uranium markets continued into January, with the U3O8 uranium spot price experiencing a significant 10.96% increase, climbing from US$91.09 to $101.08 per pound. This rise marks a crucial milestone, surpassing the psychological barrier of $100 per pound, a level not seen since before the 2008 financial crisis. Price momentum has accelerated, particularly since September 2023. In January, the price briefly spiked to $106 before settling back to $101, only to rise again to $106.51 on February 1st.

Several factors contributed to this upward trend, with one significant development being the primary catalyst. The world’s largest uranium producer, NAC Kazatomprom JSC (Kazatomprom), announced that it would not meet its previously announced production increases for 2024 and 2025. This sudden reversal after just indicating in September 2023 that it would expand production, signalled to industry participants that the supply response to the fundamental deficit in the uranium market will take longer than anticipated.

The lack of a supply response was particularly beneficial for uranium miners in January, as they have outperformed the commodity itself. This trend was even more pronounced among uranium juniors, who emerged as the top performers in the market during the month with an 18.78% return as measured by the Nasdaq Sprott Junior Uranium Miners Index.

Over the longer term, physical uranium and uranium equities have demonstrated significant outperformance against broad asset classes, particularly other commodities. For the five years ended January 31, 2024, the U3O8 spot price has risen a cumulative 245.75% compared to 22.09% for the broader commodities index (BCOM).

Kazatomprom signalled production issues on January 12th and gave an operational update on February 1st, for which the U3O8 spot price subsequently spiked 8.33% and 5.37%, respectively. Their announcement noted that they would have to reduce their 2024 and 2025 production guidance due to shortages of sulfuric acid and construction delays. This marked a U-turn from previous positioning where three months ago, in September, they had stated they would increase production in 2025 to a 100% level relative to their subsoil use agreements.

In their operational update, Kazatomprom quantified its reduced 2024 production guidance to be nine million pounds of U3O8 or 14% lower than its previous guidance. Given that they are the largest and lowest cost uranium miner in the world, this represents a 6% reduction in the global mine supply of uranium. Further, the company noted that it would be unlikely to meet its 2025 production targets.

Responding to the previous bull cycle in the 2000s, Kazatomprom was able to ramp up production with significantly lower costs. However, it became a world-leading uranium producer at an inopportune time as its increased supply coincided with the Fukushima accident in 2011, thereby oversupplying the uranium market. In 2017, due to years of suppressed uranium prices, Kazatomprom decided to reduce its production targets and has been operating below its licensed capacity ever since. In more recent years, mine supply has been insufficient to meet world reactor requirements and the world was forced to rely on secondary supplies, predominantly commercial inventories. By 2023, we believe that the available-for-sale inventories have been largely depleted and that security of supply has become paramount which will lead to the rebuilding of utility uranium inventories.

As such, Kazatomprom’s increased planned uranium production stood to relieve some pressure from inventories, though the market would have still been forecasted to be in a deficit. Further, it’s important to note that not all of their production is solely attributable to them. Through joint ventures, a considerable portion of the increase in supply may be allocated to Russia.

However, the new 2024 production guidance of 21,000 – 22,500 tU is relatively flat, and although we do not yet have a new target for 2025, it is likely to be significantly less than originally indicated. Therefore, the lowest cost and world’s largest uranium producer, who’s production increases in the last bull cycle helped end it, is not able to increase production despite the U3O8 spot price increasing to over $100 per pound. This evidently provides a strong notice to the market and may likely accelerate long-term contracting and substantiate the need for sustained higher uranium incentive prices.

Regarding the timeline for Kazakhstan’s production increases, this largely hinges on the availability of sulfuric acid. 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. However, ISR mining requires significant quantities of sulfuric acid, a resource primarily allocated to produce fertilizers, crucial for global food supplies. As such, 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 for a sulfuric acid plant to be commissioned by the end of 2026.

Finally, Kazatomprom has maintained its commitment to existing sales agreements. This suggests that any shortfall in production may necessitate drawing down from inventories or procuring uranium from the spot market.

There were multiple other industry developments that bolstered the uranium markets in January.

Britain’s commitment to invest £300 million in supporting domestic production of high-assay, low-enriched uranium (HALEU) demonstrates a proactive stance toward bolstering nuclear capabilities.   Similarly, the U.S. Energy Department’s up to $500 million request for proposals (RFP) for uranium enrichment services reflects efforts to establish a reliable source of HALEU, crucial for the next generation of nuclear reactors.  This initiative is particularly significant given that HALEU is currently only produced by Russia and China, highlighting the importance of diversifying supply sources.

Moreover, the finalization of $1.1 billion in credits aimed at maintaining the operation of the Diablo Canyon nuclear power plant in the U.S. underscores the government’s commitment to preserving existing nuclear infrastructure.  Furthermore, reports suggesting that Holtec International may receive a $1.5 billion loan to restart a closed nuclear power plant in Michigan represent a landmark potential achievement.  If realized, this would mark the first-ever restart of a decommissioned U.S. nuclear reactor, signalling a notable shift in government policy towards revitalizing nuclear energy projects.

Amidst these government initiatives aimed at bolstering the nuclear industry, there is also increasing uncertainty on the supply side of the market. The situation in Niger after its coup d’état in July 2023 is still unresolved and impacting the production and export of uranium. In January, Niger suspended new mining licenses and stated they would review existing ones.  This prompted a release from uranium developer Global Atomic Corp. to try to ease concerns that this did not affect their Dasa mine.

Supply uncertainty of enriched uranium is palpable, as the result of legislative efforts in the U.S. to ban imports from Russia. The Prohibiting Russian Uranium Imports Act (the Act), which passed the U.S. House in December, is still pending a vote in the Senate. The Act would limit imports of Russian supply to 2027 and ban them thereafter. However, Tenex, a Russian state-owned uranium company, has warned American customers that if this Act were to pass, Russia may pre-emptively bar exports of its supply to the U.S. These perceived risks have increased supply uncertainty, especially in the U.S.

Oddly, U.S. utilities decreased their procurement of uranium under long-term contracts from 2023 to 2022. This is in sharp contrast to the global figures where long-term contracting grew from 124.6 to 160.8 million lbs. of U3O8e. Globally, this represented the highest rate of contracting in over ten years and almost a return to replacement rate contracting (contracting a sufficient level to meet the world’s annual reactor requirements). Both the U.S. and global long-term contracting figures may also be set to increase, given that the peak of contracting in the previous cycle was 250 million lbs. and given the size of impending deficits. There is a forecasted 1-billion lb. deficit to 2040, and under Net Zero Nuclear, the pledge to triple global nuclear capacity by 2050, there is a 2.2-billion lb.  deficit.

Junior uranium miners led the charge in January, appreciating 18.78%. Supported by the increases in the uranium spot price, junior uranium miners continue to announce restarts of shuttered uranium mines.

Uranium Energy Corp. (UEC) announced the restart of its Christensen Ranch project. The project is located in Wyoming and was put on care and maintenance in 2018. It is projected to begin its first production in August and has a licensed capacity of 2.5 million pounds of U3O8.

Orano Canada Inc. and Denison Mines Corp. also announced a restart of their McClean North deposit.  The McClean Lake deposit is located in the Athabasca Basin region in Saskatchewan, Canada and was put on care and maintenance in 2010. The project has 800k pounds of U3O8 production targeted for 2025.

In Namibia, Paladin Energy Ltd. announced that its Langer Heinrich mine restart is now 93% complete and commercial production is expected within the next few months.  The mine’s operations have been suspended since 2018.

Multiple uranium juniors have reacted to the uranium price environment, albeit with small volumes. Notably, as opposed to well-established producers, many junior uranium miners have not yet sold their production forward under long-term contracts. As such, they may be well-positioned to benefit from future price increases.

Source of all performance data: Bloomberg / HANetf as of 31.01.2024. 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

Uranium reaching $100 lb. signals another inflection point in this bull market. A longstanding primary supply deficit, coupled with renewed interest in nuclear energy are highlighting the real challenges to bring the market back into balance. With no meaningful new supply on the horizon for 3-5 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 chosen to ignore 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 of critical importance. 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 is likely to continue to support a sustained bull market.

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

Uranium ETF Performance
As of 31/01/2024

Sprott Global Uranium Miners UCITS ETF12.78%23.19%63.48%12.78%54.92%52.65%
North Shore Sprott Uranium Miners Index12.86%23.46%63.91%12.86%55.78%54.64%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/01/2024

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.