Uranium price hike tantalises ASX-listed juniors

More than 2300 years ago, Alexander the Great – on his pathway to becoming one of history’s greatest ever conquerors – entered the Phrygian capital of Gordion to be confronted with a unique challenge.

He was presented with an ox cart and its yoke, once owned by King Midas. The knots binding the yoke to the cart were so complicated that Phrygian tradition held that anyone able to untangle it was destined to rule all of Asia.

Young Alex managed to nail it and went on to claim his destiny.

The story gave birth to the concept of a Gordian knot – a complicated problem where whoever finds the solution is offered the riches of the world. Fast forward to today and it seems we face another Gordian knot that needs untangling.

This one comes in the form of the competing and complex interests of an energy-hungry world intertwined with an insatiable green movement. A movement that is horribly conflicted and contorted by the rapidly advancing school of thought that uranium and nuclear energy might just hold the key to unlocking this confounding modern-day Gordian knot of sorts.

And if this debate is not directed by the intelligent and the informed, Dollar Bill fears it might rob Australia of its future as a global energy superpower – and a green one at that.

Until recently, uranium had taken on the part of orphan Annie or little Oliver Twist in the discussion about how to achieve a fossil fuel-free energy future. In many places, it still does. Much like that wonderful underdog Annie, or the homeless street thief Ollie, uranium mining has for years been largely unloved, mostly misunderstood and generally cast aside – particularly in these parts of the world. Almost certainly, however, just like Annie and that little scamp Ollie, uranium promises to become one of the stars of the show in any successful effort aimed at forging a pathway towards the goal of net-zero.

Barring some unforeseen technological breakthrough, the worldwide push for net-zero seems an impossible goal in the stated timeframe without uranium as an energy source being seriously in the mix. However, some jurisdictions – such as Western Australia, for example – that potentially preside over some of the world’s biggest uranium deposits, have regularly kicked the can down the road in this debate.

WA is home to 574 ASX-listed companies operating in the resources space. That’s more than twice the combined total of NSW, Victoria and Queensland.

While some of those 574 companies – and largely those in the small-capped space – are already tacitly searching for uranium in WA with some success, many more would join the hunt if the political battle could be won.

For Dollar Bill, the political issues are almost too much to bear – and in many cases too much to even understand.

There has been a “no policy” position, a “Three Mines” policy and a “no new mines” policy. Certain Grandfathers that Dollar Bill had never heard of were also introduced and various other head-spinning policy pontifications have all served to push those junior explorers towards gold or iron ore or some other bright and shiny object that won’t save the planet.

Even the great mining State of Queensland won’t allow uranium to be mined and of course, as things currently stand there’s no chance of that in the pinnacle States of NSW and Victoria. All of these political contortions would be enough to make a Romanian gymnast blush.

Putting all that to one side for a moment, Dollar Bill suggests the best way to untangle this knot is to ignore the political complexities of the matter and reduce focus to the fundamentals of the market, the merits of the mineral, the issues with mining it and the mountains of money at stake – the latter of which makes Dollar Bill wince.

Firstly, let’s look at the market, where uranium spot prices have been on a tear like never before.

In just the past couple of years the price per pound for uranium has surged from about US$35 (AU$51.60) to a spot price that is bumping along at 15-year highs near US$80 (AU$118) per pound. To put that in even greater perspective, it was only about five years ago when uranium was priced closer to US$20 (AU$29.50) per pound.

This giddy price hike reflects what has for years been an increasing imbalance between supply and demand. For example, last year the global primary production of uranium totalled some 130 million pounds, which contrasts dramatically against the 180 million pounds of current global demand. And it’s not only current demand that has driven the recent price trend, it is also predicted future demand.

Just this year, France – a global leader in domestic nuclear power production – abandoned a previous goal of reducing its reliance on uranium-sourced energy, which had stood at 50 per cent. France is now looking to lift its total energy load carried by uranium, which is likely to put additional upward pressure on prices. China is poised to establish a nuclear capacity target range between of 120 and 150GW by 2030, which is more than double the current levels of about 50GW today.

And these are not isolated trends.

There are also many other reasons for the recent price hike in the uranium spot price, which all fall back to a lack of obvious alternatives in the drive to net-zero debate.

Consider nuclear energy from a carbon emissions point of view. Nuclear power plants produce a ridiculous amount of electricity with virtually no greenhouse gas emissions. And, unlike fossil fuel-based power plants that emit large amounts of carbon dioxide, nuclear power emits only water vapour.

This should be nectar of the Gods for the greens, so Dollar Bill can’t quite fathom their opposition.

Uranium – in its enriched form – has high energy density. Just small amounts of uranium can produce huge amounts of energy, making nuclear power one of the most, if not the most, efficient sources of power.

OK, so what about those regular flagbearers of the renewable family such as solar, wind, geothermal and the like … can’t they fill the gap? In short, the answer is no ... at least not anytime soon.

The first point to make here is that almost all green, or renewable sources of energy production are intermittent. The sun doesn’t shine 24/7 and the wind is not always blowing (even around Dollar Bill’s favourite hillside retreat).

More importantly however, the technology to store energy for down times is not anywhere close to being good enough.

One of Dollar Bill’s roguish colleagues recently got all uncharacteristically green and shelled out probably a year’s worth of drinking money for a lithium battery to soak up the rays from his solar panels at his new estate. Fast forward a few months and he is now lamenting the loss of all that drinking money after learning the grand total of energy his lithium battery is able to hold when full equates to, wait for it … just $4.50 worth!

Recent discussions involving the director of the Loan Programs Office of the US Department of Energy, Jigar Shah and the role of nuclear in the drive to net-zero was somewhat illuminating on this topic. To put this in some context, Shah was a pioneer in the field of solar, having founded SunEdison in the US – one of the first commercially-successful solar energy companies in that country.

As reported by Robert Rapier, a chemical engineer assigned to covering the energy sector for Forbes magazine, there is no greater advocate of cleantech than Shah. However, even Shah openly accepts the fact that solar cannot grow fast enough to achieve our stated green targets and nuclear has to fill the gap. To quote Shah: “Every model shows it”.

The modelling Shah is referring to concerns the question of what is called “base-load power”, meaning the minimum required power to pump electricity constantly into the grid. The ability of green power to do this just doesn’t come close.

Fuelling the potential for further uranium price hikes, there is currently very little yellowcake (uranium oxide product) inventory in the world and new production to meet demand is needed in the near term. Russia and China have captured 35 per cent of the world supplies and have taken significant positions in Kazakhstan, making global deliveries vulnerable to geopolitical ruptures.

Post 2016-17, both the European Union-based and US-based utilities have been burning more fuel than they’ve been purchasing and they are continuing to reduce global inventories.

That being that case, it’s a truism that uranium, having surged from below US$30 a pound to about US$80 in the last few years, has done so for a reason. And to be clear, that reason is not because we’re running out of potential supply – there is plenty of that. The market – as it does – is pricing in expected future demand against actual current and potentially future supply constraints.

Providing a perfectly succinct explanation to the rising price of uranium and its place in the energy mix, the International Energy Agency has said nuclear power production globally needs to double by 2050 to achieve net-zero.

Despite the uncertain regulatory regime, the dramatic surge in the price of uranium and its increasingly high-profile position as an alternative energy source has nonetheless attracted a vanguard of ASX-listed companies willing to take the punt that the winds of change will blow in the Parliaments of Australia.

Now in all this, Dollar Bill can hear the call whistling down from the peanut gallery regarding the elephant in the room, “what about the waste?” The waste that glows, right?

The Fukushima incident is what most immediately comes to mind. It decimated the uranium market. There was also Three Mile Island in the US in the late ‘70s and some place in Ukraine that apparently still glows at night.

The one common factor in all of these disasters. however, is that they all relate to power stations – not uranium mining.

With regards to waste from uranium mining: forget the issue of the tailings. ASX-listed Boss Energy has given us the answer to this with its in-situ recoveries (technique which avoids the need to transport irradiated ore.

There is also no need to fret over the issue of what to do with the storage of used uranium mining equipment. According to innumerable independent reports, Australia’s Sandy Ridge facility has the ability to safely store equipment previously used for mining uranium.

Since the 1930s, uranium in this country was first mined at Radium Hill and Mount Painter in South Australia and now is most famously associated with BHP’s Olympic Dam in SA. According to Geoscience Australia, our country boasts almost half (46 per cent) of the global uranium resources, but only produces 8 per cent of the world’s total and we export all of our production.

In addition to the producing Australian mines operated by BHP, Paladin Energy and the soon-to-be-in-production Boss Energy, there is a swathe of domestic exploration companies jockeying for a position at the starters gate for what they believe is the next step-change in opportunity for uranium mining in Australia.

ASX-listed small caps Alligator Energy Resources, Cauldron Energy, Toro Energy, Valor Resources and Marmota, to name just a few, are among a crowd of players that all have high quality and undeveloped uranium projects on their books. And now, a number of these early-stage explorers are dusting off their boots and either accelerating timelines for development or reviving projects previously shelved until a time when uranium mining in Australia may be about to finally shakes its shackles.

Speaking to Dollar Bill, Marmota executive chairman Colin Rose explained why that company recently revived the development of its intriguing Junction Dam project in SA, having decided to put it on ice back in 2015-16. Rose explained the decision to suspend operations was a relatively simple one and the choice to revive it was just as easy.

He said: “After Fukushima, the uranium market got hammered and stayed that way for years after, and market fundamentals dictate your path, and woe is the company that does not listen to them”.

Marmota has now decided the time is right to revive Junction Dam, citing the “exploding” price of uranium and the fact that it sits right next door to Boss’s Honeymoon project, sharing many of the same geological characteristics. And of course, it helps to be in the uranium mining-friendly jurisdiction of SA.

After nearly 10 years on care and maintenance, Rose is confident the time to awaken Marmota’s uranium project has arrived.

Australia’s fortunes have always been tied to trade and exports.

About a century ago, it rode on the back of a sheep. In the past 50 years, it’s been on the back of a dump truck. Looking to the future, this country has an opportunity to become a global superpower in renewable exports and alongside lithium, uranium has arguably the central role to play.

Sometimes, Dollar Bill likes to don his smoking jacket and retire to his den with a 96 Grange or Chateau Latour where he delights in watching the green types on the news twist themselves up into a pretzel. They argue fervently against fossil fuels but fail to make a coherent, non-alarmist argument about why they do not support nuclear power – or at least uranium mining.

Oh well, let them all bicker like cats – the answer seems clear, and Dollar Bill has a plane to catch.

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Dollar Bill (sometimes known as Bill McConnell) is an Associate Director at Bulls N’ Bears and a former derivatives trader. He is also a former financial journalist and a raconteur of note. This column is for informational and entertainment purposes only and nothing contained within it constitutes financial advice – in fact Dollar Bill specifically recommends that you seek advice from someone other than him….

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