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Key takeaways
- On 25-Apr-25, we hosted a conference call on nuclear fuel markets from a trader's perspective.
- Expert guests where Director/Head of Uranium at Curzon Uranium, Bram Vanderelst; and Founder/CEO of NTree Int., Tim Harvey.
- The key message: upward pressure on the uranium spot price is building. After an "ice age" in 2025, things are heating up.
The uranium market is heating up, the ice age is over
On 25-Apr-25, we hosted a conference call on nuclear fuel markets from a trader's perspective. We were joined by Bram Vanderelst, Director/Head of Uranium at Curzon Uranium, and Tim Harvey, Founder/CEO of NTree International Limited. Our discussion included nuclear fuel pricing, spot market dynamics, the supply outlook, conversion and enrichment, and the demand outlook, among others. The key message: upward pressure on the uranium spot price is building. After an "ice age" in 2025, things are heating up. This aligns with our view for a spot price recovery in H2'25E (rising to an average of $85 per pound (/lb) in Q4'25E). We see prices rising to average $135/lb in 2027E.
Upward pressure on the uranium price is building
After a what he described as a "terrible year" for the spot uranium price in 2024, Vanderelst thinks the price is establishing a bottom with trader and utility buying picking-up, and suppliers delaying production due to unattractive (spot) economics. He sees upward price pressure building. For traders, the large gap between the long-term price ($80/lb) and spot ($69.10/lb, $66.05/lb at the time of the call), means the carry trade (going long uranium today for future delivery at the long-term price) is profitable. Utility buyers, who normally contract, had purchased around 2 million lbs (Mlbs) in the spot market in the prior few weeks, with around another 1.8Mlbs in contracted offers. While Vanderelst hadn't yet seen a surge in multi-million lb contract offers, he noted a rising preference by utilities to negotiate privately with producers to limit price impact.
Geopolitics: US tariffs & Ukraine/Russia war
Vanderelst believes uranium is likely to be exempt from US tariffs since it's a critical mineral. However, there is less certainty further down the supply chain, as conversion (uranium hexafluoride - UF6) and enriched uranium product (EUP) might not have critical mineral protection. Regarding Ukraine/Russia, Vanderelst believes that an end to the war will provide clarity on what sanctions will remain (removing one impediment to an increase in market activity). He maintains that the damage to physical flows of uranium from the war are done, and he does not see western investors broadly exposing themselves to Russia, even after a possible conclusion to the war.
Western conversion remains a bottleneck
After rising to a fairly recent peak of $95 per kilogram uranium (kgU), the spot price of conversion is now in the range of $65-$75/kgU, a still robust price vs the $16/kgU price that persisted in the months leading up to the Russia/Ukraine war. Vanderelst sees utilities in the West as fairly well covered in conversion through 2028, but beyond then, sees conversion (ex-Russia) as materially undersupplied. He estimates that because of input cost inflation since the start of the Russia/Ukraine war, new conversion supply requires that utilities contract at prices above the $30-$40/kgU range. However, new supply is not emerging as many utilities are anchored on pre-Russia/Ukraine war prices.
Conference call topics of discussion
Topic 1: Pricing outlook - is the uranium market frozen?
Vanderelst asserted that the uranium market is not frozen. Despite weak spot uranium pricing suggesting inactivity in the market, he has seen activity picking up in the last few weeks. Vanderelst explained how uranium is discretionary on the buy-side, as utilities are not too time-constrained on when they buy, but instead focus on if there is a clear bottoming in the market. He pointed to two factors showing that the market had reached a fundamental bottom, the first being that carry-trade agreements are profitable since the spot price is far below the long-term price, and the second being that some miners have delayed their production and projects because of the weak pricing. Vanderelst stated that market buyers, especially utilities, waited for pricing to establish a range to ensure it wasn't temporary before they started buying. He commented that he has seen a decent amount of transaction volume from utilities in the spot market in the past few weeks.
Topic 2: Can utilities access enrichment & conversion?
Vanderelst affirmed that access to enrichment and conversion has been and still is a constraint for utilities, and sees conversion as the greater issue than enrichment. He explained that enrichment can be altered by changing the tails assay according to enrichment needs, whereas conversion is a bottleneck because it is necessary for enrichment. He also communicated that conversion issues are not immediate (in 2025), but are an issue further into the future, with uncovered conversion needs in 2026, 2027, and 2028, but stated that these uncovered needs are not substantial. Vanderelst sees the main issue for conversion and enrichment being the uncertainty surrounding where it will come from beyond 2028, especially in the western market.
Vanderelst underlined that although there are projects waiting to be developed for both conversion and enrichment, these projects take more than five years to start commercial operations. Vanderelst has seen primary conversion sellers engaging with utility clients to sell some conversions, and he has seen capacity utilization maximized, suggesting the bottleneck is getting some relief. He also explained that conversion plant builds involve a large capex spend, and thus require a significant book of contracts at sufficient prices to proceed (sufficient pricing now estimated to be above the $30-$40/lb range, up from $16/lb because of input cost inflation since the start of the Russia/Ukraine war).
Topic 3: sources of recent increased trading volumes
Vanderelst has seen utilities entering the spot market in recent weeks buying a couple million pounds, which is outside their usual behavior (as they normally purchase in the long-term contract market). He has also seen increased activity from traders, which, given the nature of their behavior, shows that they believe that a fundamental bottom in pricing has been achieved. Vanderelst communicated that he has also seen some fund activity recently. On the long-term contracting front, Vanderelst noted that there have been two public requests for proposals (RFPs), one for 2Mlbs and another for a few hundred Mlbs. However, going forward, he sees utilities targeting specific counterparties to inquire about long-term contracting, dealing private (or "off-market") to minimize the impact on pricing.
Topic 4: How are tariffs impacting the uranium market?
Vanderelst sees uranium and related components down the value chain being exempt from the US tariffs that have been announced and imposed since it's considered a critical mineral. He suggested that the impact of tariffs is more unclear further down the value chain, such as to the extent UF6 and EUP are considered critical minerals and if tariffs are applicable to the conversion enrichment portion or the whole product. Since uranium is exempt from tariffs, Vanderelst does not see any major changes in physical deliveries or physical directions. A premium at ConverDyn, located in the US, is not new with the tariffs; this premium has been seen over the last two years as flows adjusted for ConverDyn as it restarted operations three or four years ago. Vanderelst suggested that the continued premium at ConverDyn shows market participants are still keen on taking material at that delivery location.
Topic 5: Impact of an end to the Ukraine-Russia war?
Vanderelst believes that an end to the Ukraine-Russia war would provide clarity on what residual sanctions will be on Russia and what Russia's involvement in the uranium market would be. He also asserted that the war has done possibly permanent damage to the physical flows of uranium, as most western utilities will not expose themselves on long-term contracts to Russia in the future for conversion, enrichment, or physical uranium. Vanderelst explained that Russia is an importer of uranium (mostly from Kazakhstan), not an exporter. The end of the Ukraine-Russia war will impact the decisions of aspiring builders of conversion/enrichment plants as it will provide clarity on whether it is economical to build additional capacity and whether Russia will be involved in the western market. Vanderelst also highlighted the effect of the Suspension Agreement, which existed before the war, which is reducing the imports of uranium from Russia into 2028, which he sees as continuing irrespective of the war. Vanderelst does expect that Russian material would see flows into Europe, especially Eastern Europe, if the Ukraine-Russia war ended. Ultimately, Vanderelst expects a potential end to the Ukraine-Russia war to have a relatively minimal effect on the physical uranium market.
Topic 6: China's activity in the uranium value chain.
Vanderelst stated that China has always been self-sufficient in conversion and enrichment, but more recently has become an exporter of enrichment services, specifically EUP, and conversion. This began prior to the Ukraine-Russia war, but was possibly fast-tracked by it. Vanderelst pointed to China importing more EUP from Russia since the war began, and exporting more EUP to the west. However, Vanderelst stated that similar to their stance on Russia, western utilities are not comfortable exposing themselves to China. He maintained that western utilities are using Chinese (and Russian) material for short-term needs and existing contracts, but are not entering into long-term contracts for conversion, enrichment, or any commodities with them. Vanderelst does not see China becoming a major player in the uranium market value chain because western utilities avoid them due to the risk it brings.
Topic 7: can physical uranium fund track the spot price?
Harvey explained that a physical uranium fund that closely tracks the uranium price can use an open-ended structure, which gives investors access to daily creation and redemption of units, which gives the market maker the ability to cancel shares if there are too many in issue or deliver dollars if there are not enough in issue. Harvey asserted that investors are looking for "delta 1" exposure to the price of uranium, that being as close to 1:1 to the price of the underlying commodity is possible. He further explained that a fund structured like this would allow institutional investors to become demand in falling markets, and the fund to become supply in rising markets, which would ultimately add stability to the uranium market and allow miners to better raise capital.
Topic 8: Depth of liquidity in the uranium spot market
Vanderelst believes that it is possible for a physical uranium fund to closely track the price of spot uranium given more than sufficient depth of liquidity in the uranium spot market. He suggested that liquidity in the uranium spot market is greater than it appears, as people judge it based on transaction volumes, but the depth on either side of the bid and official spread should be considered.
Topic 9: Who is selling in the market?
Vanderelst explained that uranium supply needs to be looked at from a long-term perspective and a short-term perspective separately. He also explained that although the overall market is short, it doesn't mean that supply is short at any given point in time. Vanderelst broke down how certain players have a strategy of selling most of the pounds through traders into the spot market, and that when there is an attempt to move material into the market, there is not always a buyer. This is why large sales are affecting the market more than large purchases. Vanderelst sees a structural deficit in the overall market, and expects stop-gaps will run out, which is where short term supply such as inventory and lending have been in the past. This will ultimately make the market structurally short on a short- and long-term basis, which is currently what he sees uranium market is trending towards. Vanderelst is seeing some traders' material and market participants who allocate some of their production to the spot market selling, but this is dwindling. He has also seen investors selling material in the last few months.
Topic 10: physical uranium from the ANU fund?
Vanderelst stated that he does not have any certainty on the material from ANU Energy OEIC Ltd (ANU Energy), a privately-owned physical uranium investment fund in which Kazatomprom was one of the seed investors, and sees two opposing views in the market on the ANU fund's material. The first is that that the material has cleared and has been sold on the market. The second view is that the physical material is still in the market and is not fully cleared yet. There is a debate on how this resolves.
Latest views on the U3O8 market
A review of the 2025 World Nuclear Fuel Cycle event: World Nuclear Fuel Cycle event: tripling nuclear by 2050 will need much more fuel Highlights from our 2025 Nuclear virtual mini-conference: Highlights from our 2024 Clean Energy Summit: Takeaways from BofA's Clean Energy Summit, 06-Dec-2024. For an in-depth discussion of the uranium market, please refer to our Primer: Uranium & nuclear fuel, published on Sep-22-2020 |
Most of our investor conversations since the 2024 US election have centered around the fact that spot and term market activity has been lighter than expected year-to-date, and we attribute this to a pull-back in US fuel buyer activity because of uncertainty around the availability of Russian origin enriched uranium and tariffs. However, Russia's Q4'24 ban on enriched uranium exports to the U.S renders the Department of Energy's (DOE) waivers irrelevant (since the ban had an immediate effect) and implies a tighter market for uranium and lower volumes of available EUP. With increasingly limited supply of uranium in all forms, we think U.S. utilities will turn to purchasing natural U3O8 via the spot and term markets, which should put upward pressure on prices in the near-to-medium-term. However, the uncertainty around the threat of tariffs and the future path of the Russia/Ukraine war is likely to keep utility on the side-line in the immediate term.
Upside risks to our U3O8 price forecasts include (but are not limited to): (1) the potential for new nuclear reactor builds globally; (2) producer year-end spot buying to meet sales commitments that exceed production; (3) additional reactor life extensions and restarts.
We were overly bullish heading into a 2025E world of tariff threats, the artificial intelligence (AI) related excitement losing some steam, and US utility buying exhaustion in the face of steady nuclear fuel price increases plus the possibility of more demand for coal and gas at the expense of nuclear, under a new US administration. We're calling for a significant recovery in 2026E, though now from a lower base in 2025E. Fundamentals in the medium to long-term are very robust. Our long-term price is $65/lb.
We see the U3O8 price rising to $135/b in 2027E, with upside risk.
Uranium (U3O8) market prices
The spot price of uranium concentrate (U3O8) has been improving steadily since 2017 but recently pulled back below $70/lb (on energy-related concerns around DeepSeek).
In our view, the rise in U3O8 prices in the past five years has been driven by a range of factors, among which the key drivers are: (1) constrained supply that is the result of a seven-year U3O8 bear market, which included many mine closures, following from the 2011 Fukushima accident; (2) an increase in government regulatory and financial support of nuclear energy; (3) increased recognition by energy-consuming entities and individuals that nuclear energy will be needed to decarbonize electrical energy generation; and (4) more recently, expectations that AI will drive enormous growth in energy-intensive data centers to which nuclear energy is ideally suited given its ability to supply huge quantities of carbon-free baseload power.
Another factor that has helped drive U3O8 prices higher has been financial firms, such as the Sprott Physical Uranium Trust (SPUT). SPUT is an investment trust that acquires U3O8 on the spot market and holds it indefinitely to offer investors a vehicle through which to gain exposure to the spot U3O8 price. We map the relationship between SPUT purchases and U3O8 spot prices in the exhibits above.
Conversion market prices
Conversion pricing in North America and the European Union is at all-time highs and we think it's likely to continue appreciating given continued pressure on supply (i.e., existing assets in France and the US that are not yet able to operate at design capacity, the US ban on Russian uranium products, and the recent retaliation from Russia to limit uranium exports to the US). The exhibits below show historical conversion pricing. Globally, there are three conversion facilities ramping up: Honeywell's Metropolis Works (had been idled due to low conversion prices post Fukushima), Cameco's Port Hope (where a 20% capacity expansion is under way), and Orano's Philippe Coste (a new facility that was started-up several years ago and has been ramping up more slowly than planned). Until these facilities fully ramp, continued supply-side tightness and pent-up demand for U3O8 seems likely; and even after these facilities ramp-up, supply shortages appear likely, in our view.
Enrichment market prices
With Russia's recent uranium export ban (15-Nov-2024), global enrichment markets are tightening rapidly and that should lead to increasing demand for U3O8 through substitution of Russian enriched uranium, which is only partly derived from mined natural uranium. As such, we think that it is feasible that the U3O8 price reaches a new all-time high.
Global U3O8 supply-demand model
Our last adjustment to our uranium demand-supply model (published on 8-Apr-25) accounted for the following factors:
- We assume a somewhat slower ramp-up at the Dasa mine in Niger but still assume the mine achieves first production in 2026E;
- We assume that the now closed SOMAÏR mine in Niger remains closed through the end of this decade, whereas we had previously assumed it restarted in 2026E;
- We assume the Zuuvch-Ovoo mine in Mongolia achieves first production in 2030E vs 2029E previously; and
- We assume the Rook I / Arrow mine in Canada achieves first production in 2030E vs 2029E previously, one year later to account for the recent permitting delay (with the first of two public hearings to be held in November 2025 vs an expectation for Q1'25 (and only one hearing) previously).
These changes result in our U3O8 deficit being pushed out indefinitely. As such, we maintain our bullish outlook for spot U3O8 prices. Our most recent U3O8 supply and demand model is detailed below.
CCJ is our top pick for 2025E
Buy CCJ to gain exposure to diversified nuclear energy
Cameco (CCJ) remains one of our top picks for 2025 and our preferred name in the uranium sector for a few reasons: (1) we like its diversified exposure across the nuclear energy and fuel supply chains; (2) we are bullish uranium (CCJ's core product) and expect prices to rise amidst a supply deficit; (3) we see shares attractively valued vs other nuclear equities; and (4) we see hidden value in Westinghouse and idled operations.
Cameco Corporation (YCCO / CCJ)
Our US$61.00 (C$86.00) PO is based on 1.25x our NAV, and 16.5x 2025E & 16.0x 2026E EV/EBITDA (all three equally weighted). We use a CADUSD FX rate of 1.40. The 1.25x P/NAV is above the longer term avg around 0.9x but below peak of 1.35x. We think 1.25x is justified given Cameco's world-class tier one assets in favorable jurisdictions (Canada) and potential exploration upside partially offset by the fact that one of those tier-one assets has been voluntarily idled (but is in the process of restarting).
Downside risks:1) slower-than-expected global energy demand growth, 2) continued push-out of a Japanese nuclear fleet restart, 3) any worsening in sentiment toward nuclear or more favorable sentiment toward alternative power fuel sources, and 4) any production problems at Cameco's only operating mine, Cigar Lake. Upside risks: 1) additional potential mine disruptions that may further improve supply-demand dynamics, 2) better pace of reactor development in key future demand countries (China, Japan, and India), 3) more stringent carbon emissions restrictions in key countries, encouraging nuclear power as an environmentally friendly base line energy source, 4) a material rise in NatGas prices making nuclear power generation competitive in the US.
I, Lawson Winder, CFA, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.
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| Timestamp: 05 May 2025 07:17AM EDT |
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