If I learn something new, or get a new perspective on the uranium sector, I think that someone else might find it useful too. That is the reason why I write this short piece. It is about the time around 2010-2011 that most people skip in favor of the 2007 run, and price formation/discovery.
TD Securities just had a Virtual Uranium Roundtable yesterday (October 7, 2021). Among the speakers were Grant Isaac, CFO of Cameco. He had a very good talk. What I, and other more recent investors to the uranium sector should take note of, was the topic of price formation. I will therefore try to recap and elaborate on what he said here:
Utilities are covered 2022-2023, and some do not expect us to get price formation/discovery in the market for a long time. However, two things might be true at once here. Utilities do not need to be involved in the market, at least for long periods of time. (We have not seen a real move in the long term price until recently). Still, this sector moves differently than other sectors (like natural gas and oil).
Grant Isaac, explains what happened when the Chinese entered the term market and contracted 150M lbs of uranium (1/3 with Cameco, Kazatomprom and Orano respectively) in one big move during the Summer of 2010. They contracted for the 2015-2024 period.
Utilities were covered 2011, 2012, 2013 and 2014. However, the Chinese moved in with contracts in the period 2015-2024. The time slot when the rest of the utilities were uncovered. Suddenly a lot of pounds were made unavailable by one big move. Therefore the rest of the utilities had to make sure that they also had security of supply for their nuclear plants. The spot price went from $40 to over $70 in a couple of months. Long term prices also improved from $49 to over $70 in the same period.
This trend continued until the unfortunate events at Fukushima in March 2011 that put brakes on the uranium sector for over a decade.
Long term 2030
According to WNA we are seeing an increasing production gap in the 2030s. Some of the utilities are investigating contracting in that period now. As things are today, not everyone will have enough supply. Communication out to utilities from UxC and TradeTech must be stronger. – This production gap will continue to manifest itself the longer we wait, and there is only one solution, we need higher prices.
We need all the assets in the pipeline to come online. This includes the tier 1, tier 2 and tier 3 assets. Price for all of these different players will need a price of at least $70 to cover their all in sustaining costs. (We will also need greenfield development and new discoveries).
I for one am looking forward to when Kazatomprom and Cameco start communicating to the market about contracted supply to see the response from the market.