Uranium Prices Up on Increasing Odds of European Nuclear RenewalNov29

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Uranium Prices Up on Increasing Odds of European Nuclear Renewal

Summary: Uranium prices are reaching levels unseen in 15 years as decisions on new nuclear plants in Europe, as well as the extension of numerous existing reactor lifespans, are likely to revamp the outlook for the yellow metal. The vast majority of Europe’s nuclear power plants are more than three decades old, but refurbishing of these facilities could make them run for as many as 80 to 100 years with proper investment. France and Switzerland are two nations keen on maintaining their nuclear capacity for decades ahead. More specifically, France is preparing to issue decisions on the construction of as many as 14 new reactors through the end of 2026.

Related ETF: Sprott Uranium Miners ETF (URNM)

Uranium prices shot to a 15-year high above $80.00/lb last week. The metal that fuels zero-carbon nuclear power generation continues to enjoy a strong 2023 on the back of continually positive shifts back toward nuclear energy capacity in the western world, compounded by continual tightness on the supply side. That tightness was spurred on by years of miners cutting back mine production from the late 2010s into the 2020s.

Recent data from the World Nuclear Association (WNA), initially highlighted by MRP in September, indicated that demand for uranium in nuclear reactors is expected to climb by 28% through 2030 and nearly double by 2040. The WNA notes that capacity will grow not only through the establishment of new reactors, the bulk of which are planned in China and India, but by extending the operating lifetimes of existing plants. Nuclear power plants usually target operating lifetimes of up to 60 years, but Rafael Grossi, director of the International Atomic Energy Agency (IAEA) has suggested refurbishing operations could soon expand plant lifetimes to 100 years. The US’s Nuclear Regulatory Commission (NRC) has already issued approvals of the first licenses for American reactors to operate for 80 years.

MRP has highlighted Europe as a key battleground for the resurrection of nuclear power, as the nations of that continent have enacted some of the world’s most aggressive policies to combat climate change by reducing greenhouse gas emissions. In 2022, the European Commission’s “taxonomy” on green energy projects included nuclear power, despite pushback from several nations including Germany and Spain. The taxonomy is a critical part of EU plans to direct massive low-carbon investments to meet its goal of net zero greenhouse gas emissions by 2050. The pro-nuclear power coalition was able to withstand opposition to it being included in the taxonomy due to France’s heavy support for nuclear.

That support was largely a reversal of French President Emmanuel Macron’s previous position on nuclear. Along with promising a “nuclear renaissance”, Macron committed $1.13 billion on nuclear power R&D by 2030, focusing on the development of a new generation of small modular reactors (SMRs) to replace parts of the existing fleet that supplies around 70% of the country’s electricity. More recently, Macron has said that France could build as many as 14 new reactors by 2050. Bloomberg notes that decisions on six of those reactors are now due by the end of 2024, and the option to build a further eight reactors will be on the table through the end of 2026.

Per data from LSEG and EnAppSys, France’s main power provider, EDF, has managed to boost nuclear generation by nearly 14% so far in 2023 versus the same period in 2022, raising France’s total electricity generation by 10% and allowing the country to re-emerge as Europe’s top power exporter. The export of electricity generated by France’s nuclear plants has played a critical role in wrangling European energy prices since they spiked to all-time highs last fall. That surge came amid a massive drop-off in natural gas supplies that previously flowed from Russia. With the EU set to continue weaning itself off of reliable pipeline gas from Russia, in the wake of its ongoing invasion of Ukraine, EDF’s reactors are expected to reprise their role as key exporters of power this year and beyond.

Historically, nuclear has provided about a quarter of EU electricity and 15% of British power, according to Reuters reporting. The UK and EU have 109 nuclear reactors running. Of these, 95 (or 90%) are 30 years or older. Details regarding extension of these plants’ lifetimes are becoming increasingly critical for uranium markets as many are approaching their originally commissioned lifespan.

Though outside of the EU, Switzerland is home to the Beznau nuclear power plant – the world’s longest-lived continually operational power plant, which has now been running for more than 46 years. The Swiss, who previously initiated a plan to end the use of nuclear energy in 2017 have yet to put a date on the expected shutdown of its four nuclear power plants. As time has gone on, however, any potential deadline for an end to nuclear power generation has only gotten further away. Earlier this month, Bloomberg reported that domestic operators Axpo Holding AG and Alpiq Holding AG have boosted the planned lifespan for their plants to 60 years from a previous target of 50, and the latter is studying the impacts of a further extension to as many as 80 years on safety, investments and profitability.

THEME ALERT – LONG Uranium

MRP added LONG Uranium to our list of Active Themes on September 14, 2023, due to a renaissance of support for nuclear power as a major component of the ongoing energy transition. With nuclear power now recovering its status as a mainstay within the global utility mix, reversing previous plans to retire much of the western world’s nuclear capacity, we believe that spot and long-term prices of uranium should continue to rise in the months to come. Uranium spot prices have already risen sharply, up nearly two-thirds in the year-to-date period, but that’s almost -43% below 2007’s all-time high.

Though fears have subsided regarding the use and operation of nuclear power plants in recent years, procurement has become more complicated due to geopolitical developments in Eastern Europe and Africa. Russia’s war in Ukraine and military coups affecting nations across the Sahara Desert may carry vast implications for uranium exportation to the western world in months to come. Bloomberg reports that Niger, currently under a military junta following a coup in late July, is Africa’s second-biggest uranium producer and the leading African supplier for European utilities. Additionally, dozens of nuclear power plants in the US and Europe derive equipment and fuels supplies from Russian state-backed uranium giant Rosatom. Potential disruptions to the steady export of the yellow metal from these regions would likely bolster prices and, in turn, increase the valuation of publicly traded miners in North America.

MRP closed two successful themes focused on uranium last year, utilizing the Sprott Uranium Miners ETF (URNM) to track our performance. In the first run of our LONG Uranium theme, which spanned the period between April 8, 2021 – May 2, 2022, URNM returned 17% versus an S&P 500 gain of 1% over the same period. A re-initiation of our LONG Uranium theme lasted from July 12, 2022 – September 21, 2022 and saw the URNM gain 29% versus an S&P 500 return of 2% over the same period. 

We will utilize that same fund again for this iteration of the Theme. Since the initiation of the latest LONG Uranium Theme, URNM has gained 14%, outperforming an S&P 500 gain of just 1% over the same period.

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