Nuclear energy has reemerged as a potential winner in the race to supply clean base-load energy after Democratic nominee and pro-nuclear power Joe Biden won a tumultuous US Presidential election.
Investors will likely look to uranium, the nuclear feedstock, as they seek exposure to the nuclear thematic and anticipate an upward rerating of the uranium price.
The newly appointed President Elect’s US$2 trillion climate plan is expected to do more for nuclear power in the coming four years than any of the past five administrations, as the long-serving Democrat looks to re-sign the Paris Climate Agreement in his first 100 days in office and curb carbon emissions through a combination of renewable and nuclear power.
The ambitious plan will place additional pressure on other, less climate-active countries (including Australia) to follow suit and invest in cleaner energy generation.
At the same time the incoming President has condemned incumbent President Donald Trump’s proposal to create a US$150 million uranium reserve in the coming decade.
Uranium spot prices climbed up past US$30 per pound following Biden’s victory, but their impressive gains this year – up from US$23.70 in March – have been driven instead by a range of global factors which are expected to see demand for the ‘other yellow metal’ rapidly outstrip supply in the coming two decades.
Source: Yellow Cake PLC
Demand is surging…
Biden’s decision to back nuclear power may seem an about-face for the US Democratic Party given the progressive party has opposed the power source for the past five decades, but it’s one that comes amid growing concerns over global carbon emissions and the devastating effects they have on the environment.
Japan, China, and the European Union have all committed to tough new climate targets, while Biden’s pledge to rejoin the Paris Agreement (a global pledge to keep rising temperatures within 2 degrees of pre-industrial levels) is expected to put pressure on Australia.
Nuclear power is expected to play a central role in this transition, 50 new nuclear generators already under construction globally, adding to the 440 currently operating across 30 countries.
China has committed to significant new generation capacity (currently building 14 new reactors) and is set to overtake the US as the leading producer of nuclear power by 2030, having already built 30 reactors since the Fukushima disaster in 2011.
Source: Nikkei Asia
Meanwhile British Prime Minister Boris Johnson is expected to publish a report within the coming week outlining nuclear power’s place in the UK’s transition to net-zero emissions, having initially declared his support for nuclear power back in April.
This renewed policy support and certainty from the US is expected to further support the nuclear power and uranium markets and underpin demand for the yellow metal.
…but supply is scarce
Following the Fukushima disaster in 2011, in which a hurricane destroyed the Fukushima Daiichi facility in Japan and prompted the country to shut down its entire nuclear reactor fleet, resulted in a sharp depression in uranium spot prices – the so-called ‘Fukushima funk’.
Source: Trading Economics
In the years that followed, uranium production went into oversupply and global utilities began stockpiling fissile material (with Canadian miner Cameco even reportedly buying uranium from other miners as a cheaper alternative to digging it out themselves).
That persisted until 2017 when a series of production cuts were announced, and by 2019 early signs of a uranium market rebalancing began to appear – and prices began to rise.
Further production cuts have since been announced, with the Russian Suspension Agreement set to curb the US’ imports of Russian uranium while one of the leading global producers, Kazakhstan’s KazAtomProm, has confirmed it will cut production by 20% until 2022 following the COVID-19 pandemic.
Arnott Capital portfolio manager Kenny Arnott said these changes mean the market is close to an “inflection point” between oversupply and undersupply, and the transition will result in uranium prices moving “extremely in one direction”.
“If you just think about it intuitively what happens when a commodity market goes into oversupply, you have a whole number of producers that ultimately end up operating … at an operating cost well above where they’re selling, so they go out of business or they go into care and maintenance,” he said.
“And you get a whole lot of buyers – in this case utilities purchasing uranium – who get very comfortable buying very cheaply.
“What we’ve all seen and experienced in markets is that when you get an inflection point and commodities move from oversupply to undersupply, the associated price move with that is generally very disorderly,” he added.
An Australian company which could fill the gaps
Amid this supply and demand rebalancing, Australian-listed exploration company Marenica Energy (ASX:MEY) is continuing to develop its 94 million pound uranium resources in both Australia and Namibia (where it has the largest exploration tenement holder by land size). Recent drilling in the Namibian Hirabeb site has uncovered mineralisation along a 30km stretch of ancient river systems – known as palaeochannels – which Marenica is now looking to further develop.
Managing director Murray Hill said the discovery means Marenica now has a “multitude of follow-up exploration targets with the potential to host a significant uranium deposit”.
Marenica is also testing its patented, CSIRO-developed beneficiation process which reduced acid consumption by roughly 77% during proof-of-concept tests at the Angela project site in the Northern Territory.
The business is currently conducting a Share Purchase Plan to finance further mapping of the Hirabeb palaeochannel with an eye to completion in March 2021 – which would pave the way for drilling in selected, optimised areas by the second quarter of 2022.
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