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The uranium price has run up so quickly that one might confuse this mildly poisonous metal with a semi-precious one. Yellowcake, the uranium oxide required to produce nuclear fuel, has nearly tripled in value to about $84 per pound in just three years.
Listed uranium miners have enjoyed plenty of investor attention, who increasingly see the virtue of nuclear power as a low-carbon source of electricity. Two miners, Australia’s Paladin Energy and Toronto-listed Fission Uranium, decided this week to join forces in a roughly $830mn all-share deal. The timing makes sense.
Firstly, the market has cooled since January, with uranium prices down about a fifth on a spot basis. A long-awaited US ban on Russian enriched uranium, needed for reactor fuel, sounds bullish but in fact causes a supply glut downstream in a process that only begins with mining the ore. Uranium oxide is in the middle of this production stream.
Next, there is the risk of a supply overhang. Kazatomprom of Kazakhstan and Canada’s Cameco have 40 per cent of the market and low production costs, at least half of current prices. As uranium climbs in value, high cost miners in India and China start to make money. By January the price at $105 far exceeded the top of the cost curve at $75, points out Tom Price at Liberum. He thinks both producers are trying to increase production as a result.
Neither Paladin nor Fission have made any profits yet. From this year things will change. Paladin should turn free cash flow positive from next year (to June). This marks a good time to take on Fission’s Patterson Lake South project in Alberta. This should start up in 2029, while Paladin’s Langer Heinrich Mine in Namibia gets going this year. Both have other earlier stage projects to follow.
Both expect to fill the uranium demand/supply gaps that should appear in the 2030s as demand grows, primarily from China’s nuclear power expansion. Between 2023 and 2030 the world’s second-largest user after the US should boost its demand by 139 per cent.
But western economies, too, will need to choose a means of either generating reliable power to compensate for the variability of wind and solar electricity output or build battery storage. Nuclear generation, though not universally popular, offers one low-carbon option.
For Paladin and Fission, teaming up looks a sensible move. More deals that offer early-stage companies funding to get to production will hit as the heat comes out of the uranium market.
alan.livsey@ft.com
