We’re at a turning point with nuclear energy gaining momentum and uranium demand rising, while the uranium supply outlook remains highly uncertain. The time is right to consider an exposure to uranium stocks.

Momentum Building in Uranium Stocks

As you can see below, the spot price of uranium has entered into a narrow trading range of US$48-51 a pound for the past few months. But the share prices of uranium stocks have been advancing since the beginning of 2023 in response to positive undercurrents in the uranium market.

“Groundwork Being Laid for a Uranium Boom"

These are the words last week of Grant Isaac, the CFO of the world’s largest listed uranium miner, Cameco (NYSE: CCJ). Although it is in his interests to say this, it is a fact that governments are increasingly supporting nuclear reactor builds and life extensions due to energy inflation, a need for clean energy and to reduce dependence on Russia.

Over 50 large reactors are currently being built, which include SMR (small modular reactor) projects. SMRs are paving the way for increased market penetration by nuclear power, being smaller and safer, hence providing a cost-effective entry point. These could be considered something of a Trojan Horse, as Isaac pointed out. There are two SMRs in the US being built right now, which he referred to.

Decisions to extend the lives of reactors, rather than close them, is also creating near term unexpected demand for uranium. This follows over a decade of buying by utilities at less than the replacement rate. Reactors have been purchasing 60-80% of their uranium needs, relying on secondary uranium, such as ex-military material, to provide the balance. Weapons grade uranium is drying up quickly.

In the current environment, Isaac says buyers are confident: buying for multiple years with an improving term contact outlook and improving prices.

“Nuclear supply outlook more uncertain than it has ever been”

While he regarded the demand outlook as “the best ever,” he believes the uranium supply outlook is more uncertain than ever. This is a big positive for existing producers and those close to production, such as the stocks Under the Radar Report favours.

This doesn’t mean life is easy for existing producers, which face significant supply chain and logistics challenges. For instance, it has become very difficult to get central Asian supply out of Kazakhstan, the world’s biggest producer, which produces close to 40% of the total. The primary export route out of Kazakhstan has traditionally been via Russia.

After years of low prices, there has been an absence of investment in new supply and, in the main, studies for new projects have not been updated for inflation.

Increase in incentive price to US$80 a pound on the cards

Boss Energy (BOE) managing director Duncan Craib believes the inflationary impact on new project costs has caused the incentive price needed to establish a new uranium mine to rise, which is now at US$80 a pound uranium, having climbed from US$60. It should be noted that existing producers have a much bigger advantage because of their sunk costs and lower cost of production than those starting from scratch.