Asset Classes

Uranium

Uranium

Parent Asset Class

Radioactive chemical element that is primarily used in nuclear power generation and military weapons.

  • Two primary uses:  Civilian Power Plants & Defense
  • As of 2018, the USA imports over 90% of its uranium
    • This could be a security risk as this is used for nuclear power reactors and nuclear powered navy ships
    • Much of the USA's imported uranium comes from Russia, Kazakhastan, Australia and Canada
    • Uranium prices in the United states could jump if laws/restrictions/tariffs are put in place to spur US production
  • Uranium Junior Mining is a Relatively Small Industry
  • Demand Can Easily Be Forecast Years ahead of time (unlike other commodities)
    • Supply and Demand and Price Changes tend to move slowly because the industry is so slow:
    • A new plant can take 2+ years of planning and then 8-10 years to construct (new demand)
    • An old plan usually gives de-commissioning notice 4-5 years in advance (drop in demand)
    • This predictability allows you to forecast years in advance
    • Therefore, imbalances and price changes usually are driven by the supply of uranium
  • To major producers are responsible for the majority of supply: (60% world production 2019)
    • Kazatomprom from KazakhstanKazakhstan is the worlds largest and lowest cost producer
    • Cameco in Canada
    • There are only ~40 mines total in the world
    • Smaller producers include Australia and Nigeria
  • End User Demand Factors (Mostly Powerplant "fuel buyers")
    • Tend to make purchases 2-3 years in advance
    • After purchase, the uranium needs to be processed into fuel - (go through a fuel cycle)
      • 1) Conversion
      • 2) Enrichment
      • 3) Fuel Fabrication
      • 4) Inventory Management
    • Buyers tend to move in a "herd mentality" when prices strat to move
    • Buyers tend to be price takers
    • The US is the largest consumer globally (100 reactors) - this drives price cycles
    • France (70% of electricity)
    • New demand coming from Emerging Markets (China, India, Russia, etc - where electricity demand is growing)
  • Since nuclear power fuels base load (it never turns off), it's important to have enough fuel.  A stable supply is required.  Plants run 24x7.

Uranium is a Politicized Metal

Nuclear Scares & Disaster Can Negatively Impact Uranium Prices
  • These events cause publish disfavor and protests
  • Can even cause closure of nuclear plants and/or cancellation of new nuclear project
  • Examples include:
    • Three Mile Island
    • Chernobyl
  • This results in reduced demand and a fall in prices

Uranium Minds
  • Tend to be very remote - takes multiple flights to get there
  • There is little else near them:  works tend to live there in shifts of 2-3 week periods

  • Is for product traded for delivery within one year
  • Tends to have lots of inventory traded back and forth ( is not as big of a market as you'd think)
  • Uranium prices tend to follow cyclical patterns
    • Rise very high when nuclear power is in favor
    • Fall below production costs when nuclear power is out of favor
  • 20 year bear market from early 1980s to early 2000s
  • Bull market till mid 2000s
  • Bear market from mid 2000s to current (2018)
  • Setup for a potential price increase in 2018 & beyond

    • The number of uranium miners is shrinking
    • Globally the number of nuclear power plants is increasing
    • There has been no new capital investment (no new mines coming online) (c 2020)
    • 2020 roughly 140M pounds new supply vs. 185M pounds new demand - will eat into stockpiles