Market news and an update on Uranium.

Market News

The dollar index rebounded on Friday as investors tried to assess what could be next for interest rates following a batch of economic data. The latest US jobs report showed the unemployment rate unexpectedly rose to 3.8%, the highest since February 2022 and above market expectations of 3.5%. Meanwhile, the economy added 187,000 jobs, exceeding forecasts of 170,000 but following a 110K downward revision to the prior two months of payrolls. The 10-year Treasury currently yields 4.17%, while gold is $1,945 an ounce.

This morning in Asia, markets were firm after China’s latest property stimulus measures: Nikkei 225 (+0.7%); Hang Seng (+2.4%); Shanghai Composite (+1.2%). European markets have also opened higher on what is expected to be a quiet start to the week with the US closed for Labor Day. The FTSE 100 is currently trading 0.5% higher at 7,506. Sterling buys $1.2617 and €1.1688.

Brent Crude extended its rally to $88.60 a barrel. the highest level since November on expectations that supply cuts by OPEC+ leaders will tighten the market. Uranium remains well supported following news that Cameco will miss its production targets (see below).

On the geopolitical front, Gina Raimondo told CBS’s Face the Nation that her visit to China produced “a great deal of progress,” though “there can be no trust” unless Beijing does more in areas such as ensuring predictable regulations. Joe Biden said he was disappointed about reports that Xi Jinping plans to skip the G-20 summit in New Delhi this week.

Source: Bloomberg

Commodity News - Uranium

Over the weekend, Cameco, the world’s second largest producer of uranium concentrate (U3O8), reduced its 2023 production forecast because of challenges at its Cigar Lake mine and Key Lake mill. At the Cigar Lake mine, the group now expects to produce up to 16.3m pounds of U3O8 this year, a reduction from the previous forecast of 18m pounds. Production from the McArthur River/Key Lake operations for 2023 is now anticipated to be 14m pounds, down from the previous forecast of 15m pounds. Global annual production is currently around 130m pounds.

Back in July, there was a military coup in Niger, a country which accounts around 5% global U3O8 production. Although producer Orano has stated that any interruption in uranium production or transport would not impact the French nuclear programme due to sufficient uranium inventories, while the outcome of this geopolitical event remains unresolved, there is clearly a risk to production.

These announcements come at a time when there is the potential looming supply gap, as demand for nuclear power as a low-carbon baseload source continues to increase, while a lack of investment in new supply sees existing mines reaching end of life, with insufficient new mines under development to replace them.

From a low point of below $20/pound in 2016, the U3O8 price is now around $60/pound. However, we believe it is still too low to support existing production or to incentivise the ramp up of idle capacity, while there is also little appetite to begin new mine development at these price levels. Even if producers choose to bring back a mine online, it takes at least a year, while the development of a new mine takes years.

On the demand side, there has been a change in attitude towards nuclear energy and the role it can play in future energy plans as countries seek to meet their carbon emission reduction commitments and limit global warming. Not only does nuclear generate more than 99% less CO2 equivalent emissions than non-renewable power sources (natural gas, oil, and coal), but it also generates the least amount of emissions when considering other renewable power sources traditionally considered environmentally friendly (wind and solar). Furthermore, energy diversification and energy security are key issues. Countries are looking to move away from dependence on Russian fuels and looking to diversify away from coal.

The global nuclear reactor fleet will continue to grow, especially in China, India, and the Middle East. For example, in addition to its 55 operable reactors, China has 23 reactors under construction and another 45 planned. This compares to the current global fleet of around 435 reactors.

Small modular reactors are also becoming a reality, with 76 designs currently being developed globally across 18 countries. In the US, for example, a joint development agreement has been executed between utility Energy Northwest and X-Energy Reactor Company for the deployment of up to 12 Xe-100 small modular reactors in central Washington state.

Elsewhere, we note South Korea is evaluating its need for additional nuclear power reactors in response to increasing electricity demand resulting from the expansion of data centres, investment in high technology industries (semi-conductors and batteries), and escalating utilisation of electric vehicles.

It’s not just new reactors that are being planned and built – the high cost of energy infrastructure construction is encouraging life extensions for the existing reactor fleet. In Japan, for example, the government adopted an energy strategy which maximises the utilisation of existing nuclear reactors by implementing a more comprehensive restart program as well as prolonging operating lifetimes of eligible reactors beyond the current 60-year timeframe.

Finally, we note long-term contracting activity by the nuclear power utility companies has increased significantly but is not yet close to replacement levels.

A good proxy for the spot uranium price is Yellow Cake, the AIM-listed company focused on buying and holding physical uranium (U3O8). The company offers shareholders exposure to the uranium spot price, without the risks associated with investment in companies that explore for and produce uranium. The company utilises a low-cost outsourced business model that minimises cost leakage – annual operating costs are less than 1% of NAV – while securing access to additional expertise through strategic partnerships with suppliers and other relevant industry players. The shares are up around 30% year-to-date and currently trade on a small discount to NAV.

Source: Bloomberg