U.S. Uranium Producers Reviving Abandoned Mines Amid Supply Squeeze

• Crux Investor: the ~60 nuclear reactors currently under construction across the globe will need about 30 million pounds of uranium per year when they finally come online.
• Uranium producers across the United States are trying to turn back to left-for-dead uranium mines that were abandoned more than a decade ago.
• Uranium spot prices have surged 96.8% over the past 12 months to trade at $81.32/lb.

As the AI craze continues to hog the limelight, another asset class has been enjoying a similar boom, albeit under the radar. Over the past couple of years, uranium and shares in companies that mine it have gone on a tear amid a spike in demand and looming shortages. After being ostracized for decades as the black sheep of the alternative energy industry, nuclear energy is back in fashion as the global energy and climate crisis are forcing policymakers to return to the drawing board. Last year’s COP28 held in the United Arab Emirates made history as the first ever climate summit to back nuclear energy among low-emissions technologies.

Unfortunately, uranium supply cannot seem to keep up. According to a report by mining investment news and analysis provider Crux Investor, the ~60 nuclear reactors currently under construction across the globe will need about 30 million pounds of uranium per year when they finally come online. It’s this reality that’s forcing uranium producers across the United States and its allies to turn back to left-for-dead uranium mines that were abandoned more than a decade ago. At least five U.S. producers in Texas, Arizona, Wyoming and Utah  are restarting operations to capitalize on soaring demand for the pivotal nuclear fuel.

Uranium spot prices have surged 96.8% over the past 12 months to trade at $81.32/lb, helping propel uranium mining stocks and exchange-traded funds (ETFs) to new highs: Canada’s Cameco Corp. (NYSE:CCJ) has rallied 56.1% over the past 52 weeks; Colorado-based Ur-Energy Inc. (NYSE: URG) has returned 41.7% while Texas-based Uranium Energy (NYSE: UEC) as well as Australia’s Paladin Energy (OTCQX: PALAF) and Boss Energy (OTCQX: BQSSF) have rocketed 93.8%, 84.7% and 105.6%, respectively. Colorado-based Energy Fuels Inc. (NYSE: UUUU) is the laggard of the group having returned 4.7% over the timeframe.

Uranium miners ETFs have not disappointed, either: Sprott Physical Uranium Trust Fund (OTCPK:SRUUF) is up 67.9% over the past 12 months while Horizons Global Uranium Index ETF (TSE: HURA), Global X Uranium ETF (NYSEARCA: URA) and Sprott Uranium Miners ETF (NYSEARCA: URNM) have returned 55.0%, 38.9% and 50.7%, respectively.

Source: Y-Charts

Meeting Emissions Targets

The majority of American mines were idled following the 2011 Fukushima nuclear disaster in Japan that led to a spectacular crash in uranium prices. But with scores of governments now willing to incorporate more nuclear power in their energy mix in a bid to meet climate goals, uranium prices have rebounded and those once-unprofitable uranium operations have suddenly found a new lease on life. Cameco and Kazakhstan’s state-owned Kazatomprom have struggled to ramp up production and warned of various operational setbacks that will hamper them from achieving their optimal uranium output  in the coming years. The two companies account for half of global uranium supplies. 

"We’re in an old-fashioned, plain-and-simple supply squeeze. Demand is increasing again, with new reactors coming online,” Scott Melbye, executive vice president of Uranium Energy, has told the Japan Times. According to Melbye, production has failed to keep up pace due to years of underinvestment in mining and exploration, adding that his company plans to reopen mines in Texas and Wyoming that were idled in 2018. Last year, Uranium Energy’s peer Energy Fuels initiated plans to restart operations in Utah, Arizona,and Colorado while mid-sized companies in Canada and Australia have announced similar plans.

Unfortunately, these smaller mines--most of which are nearing the end of their lives--can only act as a stop-gap solution. According to the International Atomic Energy Agency, the world will need more than 100,000 metric tons of uranium per year by 2040 to meet its needs, an amount nearly double the world’s current mining and processing capacities.

"The industry is clearly trying to respond with smaller mines reopening, but when you have a mine that hasn’t operated for that long, it’s obviously not very substantive,” John Ciampaglia, chief executive officer of Sprott Asset Management, operator of the Sprott Physical Uranium Trust, has told the Japan Times

Still, U.S. uranium mine reopenings mark an important revival for an American industry that had been all but written off. American uranium production crashed from its 44-million-pound peak in 1980 to hit an all-time low of 174,000 pounds in 2019 as the country turned to Canada, Australia, Kazakhstan and Russia for supplies. But the U.S. and its Western allies are now desperate to decouple from Russian energy hence the renewed urgency to build alternative supply chains.

By Alex Kimani for Oilprice.com

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