MacroVoices #410 Justin Huhn: Investing in All Things Nuclear
Jan 11, 2024
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Investment expert Justin Huhn discusses the Uranium bull market, supply and demand dynamics of the global nuclear industry, challenges in the mining industry, crude oil inventory data and geopolitical risks, market trends and CPI data, and an overview of the podcast's content.
The global demand for nuclear energy continues to outpace the supply of uranium, leading to a sustained supply deficit.
The US Congress has proposed legislation to ban Russian uranium imports into the country, potentially disrupting the market in the short term.
The uranium market is currently experiencing a bull market, with prices gradually rising, driven by the supply deficit and increasing focus on nuclear energy.
China's growing demand for uranium as it expands its nuclear power program suggests a long-term bullish trend for the uranium market.
Deep dives
Supply and Demand Imbalance: Uranium remains in a deficit
The global demand for nuclear energy continues to outpace the supply of uranium, leading to a sustained supply deficit. This is demonstrated by the expected production compared to the burn-up rate of nuclear reactors, which shows a deficit even with projected peak production in the future. The uranium sector has faced production shortfalls for the past 30 years, with limited secondary supply to balance the deficit. The current supply shortage is further exacerbated by the lack of substantial secondary supply sources. Despite the rise in uranium prices, any mine globally can be profitable, but significant new mines will take several years to come online. The structural supply deficit is expected to persist for the foreseeable future.
Legislation Impacting Uranium Imports: Potential ban on Russian uranium
The US Congress has proposed legislation (U.S. Bill 1042) to ban Russian uranium imports into the country. The bill has passed in the House and is likely to pass in the Senate with bipartisan support. While the bill includes waivers allowing US utilities to continue receiving Russian uranium under specific conditions, there is a risk of Russia retaliating by cutting off uranium exports. If this occurs, it could significantly disrupt the market in the short term. Efforts are being made to ramp up domestic conversion and enrichment capacities in the US and other allied nations to reduce reliance on Russian resources.
Investment Opportunities in Uranium: Bullish Market Outlook
The uranium market is currently experiencing a bull market, with prices gradually rising. The demand for uranium is undeniable, leading to substantial gains in uranium mining stocks. The bullish market is driven by the supply deficit, strong long-term demand projections, and the increasing focus on nuclear energy as a clean and reliable power source. While equities in the sector can be subject to the fluctuation of stock markets, the fundamental supply-demand dynamics indicate the potential for significant growth in the uranium sector. Relative valuations of uranium companies compared to previous bull markets suggest that there is still considerable room for the equities to rise.
Long-Term Contracting Cycle: Utilities shifting towards term contracts
The uranium market is witnessing a shift towards increased long-term contract volumes. After a period of oversupply following the Fukushima accident, utilities are now securing long-term contracts closer to replacement rate levels. Year one of the replacement rate contracting cycle occurred in 2022, with expectations of steady increases in contracting volume going forward. The heightened demand for uranium and the need for long-term supply security are driving utilities to secure future supplies through term contracts. This trend indicates a positive outlook for uranium pricing and suggests the potential for future bidding wars and a sustained bull market in the uranium sector.
China's Need for Uranium to Meet Future Energy Demands
China is facing a growing demand for uranium as it expands its nuclear power program, with over 20 reactors currently under construction. To secure its uranium supply, China is looking to diversify its sources beyond domestic production. While China has significant in situ uranium resources, it has had to rely on contracts with other countries like Kazakhstan and Africa to meet its requirements. The long-term nature of nuclear assets, with reactors operating well into the 2060s and beyond, means that China needs to ensure a stable uranium supply, either through existing technologies like seawater extraction or through partnerships and investments in uranium mining projects. The expected growth in the nuclear industry in China, coupled with the country's commitment to triple its nuclear energy capacity by 2050, suggests a long-term bullish trend for the uranium market.
ESG Funds and the Growing Acceptance of Nuclear Energy
The recent COP 28 pledge to triple nuclear energy by 2050 has created an opportunity for the environmental left to embrace nuclear power. This shift in attitude among environmentalists could lead to increased investments in nuclear energy by ESG funds, which have been struggling to generate returns in recent years. Investing in nuclear energy, particularly through environmentally friendly methods like in-situ recovery (ISR) uranium mining, could be seen as a responsible and sustainable choice by ESG funds. The growing acceptance of nuclear energy, as seen with the investments by the US and UK governments, as well as plans to build new reactors in France, indicates a positive trajectory for the industry. The convergence of ESG acceptance and the overall bullish outlook for uranium suggests potential capital inflows into ISR-focused uranium producers.
Labor Challenges and Supply Chain Constraints in the Uranium Mining Industry
Existing uranium producers are facing challenges in the labor market and supply chain, which could impact future uranium production. In the US, more than half of the mining workforce is expected to retire by 2029, leading to a shortage of skilled labor in the sector. Additionally, supply chains have been disrupted, resulting in longer lead times and higher costs for necessary equipment and materials. These factors may delay the development of new projects and impact production timelines. Despite the increased demand for uranium, companies are struggling to attract skilled laborers even with attractive incentives. The combination of labor challenges and supply chain constraints suggests a potential long-term bull market for uranium, as existing producers' decline rates match the pace of new production coming online.
MacroVoices Erik Townsend & Patrick Ceresna welcome Justin Huhn as this weeks guest. Erik & Justin focus on the immediate investment plays in the uranium mining sector, and how pending legislation only strengthens the bull case for Uranium and Uranium mining shares.
