Australia’s next uranium producer says the industry is “on the verge of a new renaissance” as nuclear power plants begin to engage with miners amid price fluctuations in the spot market.
Uranium miners have suffered for almost a decade with low spot prices that have seen investment seep from the sector.
Owners of nuclear reactors have been able to rely on low-cost material in the spot market to supplement their long-term contracts.
This possibility quickly opens up as feverish uranium purchases from the North American listed Sprott Physical Uranium Trust, hedge funds and mining companies have put a rocket below uranium prices.
Spending in the low US $ 30s for every pound of yellow cake for most of the year, the price shot up to more than US $ 50 / lb in quick time before hitting chopped water a few weeks ago.
After slipping below $ 40 / lb, it was back at $ 46.50 / lb yesterday, including a $ 7 price increase in a single night.
Investors’ reaction to uranium shares has been wild.
Boss Energy (ASX: BOE) CEO Duncan Craib, whose company owns the development-ready honeymoon mine in South Australia, believes utilities are almost ready to get the market back to sign the long-term contracts needed to restart mothballed operations as Boss’.
Craib spoke at the Resources Rising Stars Boom at a space conference in Perth yesterday and said the renaissance is ready to start.
Decarbonization brings investors and public sentiment back to nuclear power
Nuclear power has been a long-term pariah due to a series of high-profile incidents.
The most recent is the Fukushima disaster in 2011, but attitudes to nuclear power have been colored for decades by the response to tragedies such as the Three Mile Island and Chernobyl crashes.
Although it serves up to 20% of global electricity demand, nuclear power is still under a moratorium in Australia.
In some quarters, however, attitudes are emerging from politicians who see nuclear power, which, unlike burning coal, gas or diesel for electricity, does not emit greenhouse gases as a basic quantity to support the shift to renewable energy.
While nuclear power has been held back by the capital intensity of new construction, Craib says a shift to smaller, cheaper modular reactors will help the sector grow, making uranium a coveted green fuel.
“So global increased recognition of the (role) of nuclear power can play in decarbonising and mitigating climate change by reducing our CO2 emissions while addressing the energy crisis is what really drives the price of uranium, as we see,” he said.
“And the gap between demand and supply that has always existed is further exacerbated by the fact that the Sprott Commodity Trust is now acquiring a lot of available inventory and removing it from the market.”
Craib believes perceptions of nuclear power and uranium mining have changed markedly over the past six months, amid growing concerns about how the world will reach an ambitious net zero by 2050 target and soaring energy prices in the northern hemisphere.
But he said the fundamentals that have underpinned the market’s latest optimism have been on the rise for several years.
“There has been a real shift in transformation over the last six months … but the key element here is that it fundamentally existed long before this change in the global view towards mitigating climate change,” he said.
“It existed long before COVID. The basic thing was simply that the industry was in doldrums.
“This meant a lack of investment in new mines that have not been investigated. The tools have relied on existing inventory.
“The big change that has happened (with) the sharp rise in the spot price has been the emergence as ourselves, junior producers acquiring physical inventory, we are seeing the price increase, in the same way that we can see with the Sprott Commodity Trust.”
“And since February, we’ve seen a marked increase in investment in uranium stocks of about $ 2 billion, which is really changing the market.”
It is widely accepted that a new supply will be needed from 2024 to keep the world’s nuclear fleet running.
Utilities that have pulled on inventories and are now on their way back to the table with current and potential manufacturers as security of supply becomes a concern.
“(The spot price is) to force nuclear power plants to change their method and go back to long-term contracts, this is where restart projects like honeymoon come into play,” Craib said.
“The only way the industry is going to get off its knees, as it has been for the last 5-10 years, is to encourage higher prices.
“A new incentive price of up to $ 60 / lb is required to bring new projects online again.”
Boss Resources stock price today:
Conditions for a restart are approaching
Spot markets are relatively small and can be particularly volatile, but they provide an important index for long-term contracts, generally signed with a 20% premium to spot prices, and give consumers and producers confidence that both utilities and mines can be sustainable.
A preliminary study in June showed that a honeymoon, a restart of an old uranium mine with approvals and an export permit for already 3.3 million lb uranium per year, could be in production within 12 months after an investment decision at a price of only 80 million dollars.
Because of this, Craib says that honeymoon is a “proven project” with a clear path to production.
Honeymoon would be cash flow positive at current spot prices, but Craib says the boss is waiting for evidence of a sustainable market that will support long-term contracts.
“For us, we only want to make up about 40% of our mining life,” Craib said.
“At these prices, we can do it and keep a lot of the spot material to get exposure for the upside.
“We are on the verge of this new renaissance period.”