Since our last report on this sector in October (Issues 620 & 622) nuclear stocks have continued to be weaker owing to frustration over the lack of long-term contracts between uranium suppliers like Paladin Energy (PDN) and the big utilities. This cannot go on forever and we’re in a waiting game. We remain optimistic about the sector, which is high risk, even for commodities.
NUCLEAR ANALYSIS CONT.
URANIUM PRICES AND THE STOCK MARKET
The uranium spot price is a thinly traded market that accounts for only a small percentage of utility needs but importantly serves as a price signal for investors. The price can move higher than the real market in a bull market, but the reverse is also true. In 2024, spot uranium prices did rise to levels high enough to incentivise the reopening of operations previously mothballed (brownfield projects) but prices fell back when it became evident uranium inventories were still sufficient for nuclear power generation in the near term. The prices of uranium mining equities followed suit.
In contrast to industry expectations, long-term uranium supply contracts were slow in 2024, although strengthened towards the end of the year. The fact is that demand (the amount of uranium consumed) was almost double the amount contracted.
This low level of contracting, below the ‘replacement rate’ is not sustainable and is only delaying the inevitable. It is a matter of time before utilities have to replenish the uranium needed to keep their reactors running. The low level of contracting in 2024 was a factor that drove spot prices lower.
2024 INVESTOR NERVOUSNESS
Despite the strong and rising demand expected for uranium in the medium and long term, equity markets are liquid and many investors chose to exit the uranium sector while it was underperforming and switch to sectors that were rising, accounting for the severe correction in uranium equities worldwide.
A GROWTH INDUSTRY
Price action aside, as uranium demand keeps growing, nuclear is becoming a growth industry. During 2024, the worldwide fleet of operating reactors expanded by 1.5%.
In 2025, growth has the potential to rise to 2.5% based on reactors under construction.
The World Nuclear Association now reports 441 operable reactors globally (399GW) with 64 more under construction (69GW), 87 in advanced planning (84GW) and 344 proposed (365 GW). The International Atomic Energy Agency estimates global nuclear capacity will grow to 2.5 times its current level by 2050.
DEMAND FROM AI & CHINA
Industry analysts anticipate power demand for data centres to keep growing at 10-15% a year to 2030, eventually accounting for 5% of global power. This marginal demand lowers the risk of investment in uranium mining and in nuclear infrastructure. Expected nuclear capacity in China is expected to grow three-fold from current levels to 150GW by 2035.
THE END RESULT: URANIUM PRICE & NUCLEAR STOCK UPLIFT
The potential is for a uranium price recovery in 2025. The uranium price bottomed in late 2024 at around US$70/lb and has since staged a small recovery to almost US$74/lb. We believe that this will gain momentum due to the fundamentals of supply and demand in the sector. Having said that, there remains a very high risk because the industry is early stage of its life cycle, despite having been around for a long time. The best years for uranium are expected to be in the future, due to the lack of alternatives for off-peak baseload power.
Just as uranium equities fell swiftly with lower uranium prices, we believe producers such as Paladin Energy (PDN) & Boss Energy (BOE) and uranium project developers such as Lotus Resources (LOT) & Bannerman Energy (BMN) are well-placed for recovery, although the timing uncertain.