Uranium - The stars keep on aligning
18th of January, 2023 - torck capital management AG
We are just a few days into 2023, which means it’s a good time to evaluate one’s investment strategy for the year. As any savvy investor knows, a lot can change in one year when it comes to one’s investment portfolio, which is why it’s always good to stay up to date with the current trends. In this article, we once again turn to Uranium. The radioactive metal that is used as fuel in nuclear power plants is still top of mind for us at torck capital management. Our previous pieces on the topic can be found here, here, here, and here.
Given the energy crisis being experienced by most countries in the world that was covered here in detail, Uranium still seems to be an investment one does not want to ignore in the foreseeable future. But, how exactly has Uranium been doing? What is the state of the market, and what’s to come in the near future?
State of the Uranium market
The Uranium market remains extremely thin in terms of material that is available for sale and trading. A November 2022 physical Uranium Trust equity research report done by Sprott revealed that the secondary Uranium that was available has already been ‘cleared out’. The research goes on to reveal that while there may be hedge funds still holding this commodity, there are no expectations that it will become available for sale anytime soon. In fact, the working assumption is that what’s currently being ‘held’ will only be available for sale when the price shoots up. Simply put, as soon as the Sprott Uranium Trust (SPUT) can get back to a premium when it comes to its net asset value per unit (NAVPU), the spot uranium prices are expected to quickly rise given that the demand is high while the supply is limited due to the lack of availability of the physical material in the current market.
The macro developments with Uranium are still very positive. As indicated in this article, nuclear power is fast becoming an option again for many countries, thanks to the global energy crisis that began in 2021. Additionally, there are strong fundamentals in the supply-demand setup. And even though most investors are frustrated because of Uranium’s performance to date, its demand is expected to grow. This, in turn, should most likely have a positive impact on the commodity’s price due to its supply-side rarity.
The question being asked by the astute observer is: Even with all the positive macro developments being witnessed in the recent past as well as the supply-side scarcity, why isn’t the sector performing better at the moment? For starters, the bulk demand for Uranium comes from the nuclear power generation industry. However, about a decade ago, many governments turned away from nuclear energy following the events that happened in Fukushima, Japan.
However, with increased fuel prices across the board, most governments are taking a different stance and pivoting by undoing the decision that followed the Fukushima nuclear accident. What this means, therefore, is that enrichment facilities will need to be ramped up again, which should lead to ‘overfeeding’ instead of ‘underfeeding’ in 2023 and beyond. The result is that this change will most likely act as a catalyst for higher Uranium prices in the short term. Also, many investors have been taking a wait-and-see approach, therefore, not really investing in Uranium as they wait for ‘clear signals to arrive’.
Is the Nuclear Renaissance still a thing?
At torck capital management, we believe that these signals can already be detected if looked closely. Also, we have hypothesized that there will be another super-cycle for commodities and that nuclear energy will enter a renaissance. We expect the coming years to be good for Uranium; not least because the world is going through an energy transition as described in this article of ours.
Nuclear energy has now become a major alternative option to gas/coal-fired plants to offset the instability of renewables. Nuclear energy, unlike coal or gas, requires less maintenance and generates clean energy. In addition, they are designed to operate for longer periods (~1.5 years to ~2 years) before refueling is needed. Coal and natural gas, on the other hand, require fuel to generate electricity, making them more expensive. Also, the ongoing energy crisis is expected to only get worse if governments don’t consider other alternative options to better manage the energy crisis. Nuclear energy can therefore play a crucial role in helping countries to alleviate the energy crisis.
As it stands, different countries have come up with various initiatives geared toward nuclear energy. For instance, the United States government has reached an agreement with Centrus Energy Corp to begin to domestically produce High-Assay Low-Enriched Uranium (HALEU) this year. The company is expected to reach 900 kilograms by 2023. HALEU is Uranium that is enriched so that the concentration of the fissile isotope U-235 is anywhere between 5 and 20 percent of the mass of the fuel. This is higher than with other types of enriched uranium. HALEU is often used for nuclear reactors and is also being considered as a fuel for future advanced nuclear systems, such as fusion and fission systems, that are being developed for space exploration and other applications.
Sweden, on the other hand, has embraced a positive stance when it comes to nuclear energy by calling for the opening of idled reactors and the construction of new ones. France has plans to increase its domestic Uranium enrichment by increasing the capacity for the Georges Besse II plant to 11 million separative work units from the current 7.5 million. South Korea has also reversed the rule to phase out nuclear power and is returning to it while reinstating its 24 commercial reactors. Moreover, the country has plans to build two new reactors. Canada has commenced the production of Uranium via Cameco after a four-year closure. India joins countries like China and Singapore that are set on building new-generation nuclear reactors.
Interestingly though, Japan has gone all in on nuclear again. This, of course, will come as a surprise to many, given the Fukushima Daiichi plant disaster in 2011. Japan’s government has already started reopening the old reactors as it looks to build new ones. Moreover, Japan is also in talks with the US to collaborate on small modular reactors plus other innovative nuclear power technology to curb blackouts in the country.
So, if all the countries that have been warming up to nuclear once again, actually foster its adoption, it is estimated that the world will need to invest more than $1 trillion to build better nuclear reactors.
A quick word on the supply side
Kazakhstan, located in Central Asia, is the world’s largest producer of Uranium. For context, Kazakhstan’s dominance in uranium production is four times that of Saudi Arabia’s contribution to global oil production.
As such, Kazakhstan plays a critical role in the wider Uranium market and can play a strong role in influencing geopolitical relations between the east and the west. This it can do by promoting cooperation and dialogue on nuclear nonproliferation and disarmament. Other nations recognize this and are thus fostering their relationship with the country in Central Asia.
One such nation is China. In September 2022, China’s president Xi Jinping visited Kazakhstan as the first country after the president’s travel break due to Covid. This goes to show the importance China ascribes to the world’s biggest uranium producer. While China is interested in resource rich countries generally, some experts believe that Xi was also sending a signal to Moscow that Beijing regards Central Asia as its sphere of influence.
Kazakhstan is well aware of the fact that they play an important role to China as well as the world at large. The world’s largest uranium producing company, the state-owned Kazatomprom (KAP), has recently noted that the company is looking to increase its usage of a trans-Caspian supply route that will avoid Russian territory to mitigate geopolitical risks. So, when it comes to the supply of uranium, Kazakhstan is likely to continue tipping the scales in the future as well.
Take-aways for the investor
We at torck capital management are still positive about the investment potential of Uranium, as the supply-side of the market of the radioactive metal remains limited, while the demand will not fade but rather increase since governments are starting to pivot back to nuclear energy as a reliable energy source. Investors are advised to take a wait-and-see approach in anticipation of the impending resurgence of the uranium industry. They won’t regret this and their patience will pay out.
About torck capital management
torck capital management is an asset management boutique based in Zurich. Well-established in the Swiss financial industry, our goal is for torck to become the leading boutique of choice for exponential opportunity investments. We aspire to both drive meaningful change with our investments and seize exponential return opportunities in times of market disruption. Our new “Energy Revolution Fund” – launched at the end of September 2021 – builds on the thesis that a worldwide clean energy transition will kick-start another “super cycle” of rising commodity prices, which was last seen in the early 2000s when China’s economic growth took off. With investments in hand-picked junior mining companies that ensure an adequate supply of minerals for the clean energy transition, we see the potential for our next exponential opportunity.
Follow our upcoming blog articles to learn more about how the clean energy transition will impact the demand for critical minerals and create a strong investment case for junior mining companies.