Running with the bulls: juniors fuelling uranium run despite macroeconomic uncertainty

Junior uranium mining companies went nuclear in June 2023, appreciating 18.93% and outperforming large-cap miners considerably.

This is according to the latest Sprott Uranium Report, which says the performance of smaller uranium players reflects the sector’s ‘increasingly bullish’ fundamentals. The report adds it also illustrates the growing reality that future uranium supplies will have to come from restarting mothballed operations and bringing new ones into development.

S&P Global adds that after idled capacity comes back online over the next 5 years, uranium supply deficits will grow deeper starting in 2028.

The Sprott Uranium Report says uranium mining equities posted strong results last month, climbing 11.66%. The report, which is produced by Sprott Asset Management, notes the outperformance of mining equities over physical uranium was a reversal of prior months of underperformance, which the firm believes was an indication of market dislocation.

Sprott reiterates the sentiment of mining magnate Tim Goyder who told in May he was a “uranium bull” and that the sector is likely to see further upside in the coming years. This was echoed by Deep Yellow (ASX:DYL) CEO John Borshoff who spoke to this news service on the sidelines of the Noosa Mining Investor Conference last week.

As Sprott reports, while difficult market conditions tend to affect junior uranium miners more significantly, given lower levels of liquidity and higher volatility, as what has been witnessed in June, juniors have the potential for greater upside when uranium prices move higher.

“Looking beyond June’s performance, we believe the uranium bull market still has a long way to run and remains intact despite the uncertain macroeconomic environment”

“Looking beyond June’s performance, we believe the uranium bull market still has a long way to run and remains intact despite the uncertain macroeconomic environment. We believe conversion and enrichment services price increases have started to boost the uranium spot price.”

Supply chain concerns

Sprott adds that uranium mining equities have been hurt by higher interest rates and macroeconomic headwinds that have affected many capital-intensive sectors. However, it adds that in June, uranium stocks were boosted by heightened supply chain concerns, given that the contracting cycle has begun and the spot price has been shifting higher.

“While 2022 was the highest uranium contracting year in a decade, utilities are still not yet at the annual replacement rate. As a result, we expect the contracting cycle to accelerate as utilities become more concerned about the long-term security of supply.”

The Sprott Uranium Report notes this may likely lead to higher uranium prices – back to levels last seen in April 2022 when it reached an 11-year high of about US$64. The U3O8 uranium spot price gained 2.61% last month, increasing to just over US$56 per pound as of 30 June 2023. Year-to-date (as of 30 June) uranium has posted a 15.95% return and continued to show strength relative to other commodities, as per the Bloomberg Commodity Index (BCOM). For the 5 years to 30 June 2023, the U3O8 spot appreciated a cumulative 146.15% compared to 16.1% for the BCOM.

Analysts forecast that as major economies continue to announce plans to bolster nuclear power capacity to strengthen energy security and to lower carbon emissions, a long-term uranium price above US$60/lb is on the cards.

Haranga Resources uncovers numerous uranium targets from sampling at Saraya Project, Senegal

Pursing investment deals

The World Nuclear Association is also bullish and expects the uranium market to grow over the next 10 years.

Strategic investment in uranium production has become a priority for some countries while global prices have been generally low.

In a market historically dominated by primary market participants – utilities and producers – the bulk of growth in uranium demand is coming from Russia and China. The World Nuclear Association says Russia and China have also been pursing investment deals globally to shore up their uranium supplies.

However, utilities and producers have reduced their exposure to the sector over the past few decades. In 2000, these primary market participants accounted for 95% of the spot market – that share decreased to two-thirds by 2005 and one-third by 2011. It has remained at 30-40% since.

The rest comes from the financial community – namely traders and financiers that have moved in on the market, bringing greater liquidity and efficiency.

The World Nuclear Association reports: “With the main growth in uranium demand being in Russia and China, it is noteworthy that the vertically integrated sovereign nuclear industries in these countries (and potentially India) have sought equity in uranium mines abroad, bypassing the market to some extent.

“Strategic investment in uranium production, even if it is not lowest cost, has become the priority while world prices have been generally low”

Strategic investment in uranium production, even if it is not lowest cost, has become the priority while world prices have been generally low.”

For example, Russia’s ARMZ acquired Canada-based Uranium One in 2013, while China holds equity in mines in Canada, Kazakhstan, Namibia, Niger, and Uzbekistan.

Meanwhile, the Sprott Uranium Report says this year’s uranium term contracting cycle has been dominated by Central and Eastern European utilities, which the firm says are ‘clearly focused’ on shifting away from Russia.

“Surprisingly, US utilities have been less active in 2023 and are contracted to buy less uranium in 2022 versus 2021 (40.5 million pounds U3O8 equivalent versus 46.7 million).

While US utilities have historically held lower uranium inventories than the rest of the world, its uncovered uranium requirements for the 2023-2032 decade stand at 179.2 million pounds. This is relatively unchanged from the prior year’s figure of 182.1 million pounds. To meet this need, we are seeing considerable supply being earmarked for future contract deliveries and a growing interest in the capacity of junior uranium miners.”

Fuelling demand

The World Nuclear Association also reports that about 440 reactors with combined capacity of about 390 GWe require some 74,000 tonnes of uranium oxide concentrate containing about 62,500tU from mines (or the equivalent from stockpiles or secondary sources) each year. This includes initial cores for new reactors coming online. The association says capacity is growing slowly and at the same time the reactors are being run more productively, with higher capacity factors, and reactor power levels, which is fuelling demand.

“However, these factors increasing fuel demand are offset by a trend for increased efficiencies, so demand is dampened – over the 20 years from 1970 there was a 25% reduction in uranium demand per kWh output in Europe due to such improvements, which continue today. Each GWe of increased new capacity will require about 150tU/yr of extra mine production routinely, and about 300-450tU for the first fuel load.”

Mines in 2021 supplied some 56,961 tonnes of uranium oxide concentrate (U3O8) containing 48,303tU, which accounted for 77% of the utilities’ annual requirements, the association reports. The balance is made up from secondary sources including stockpiles held by utilities. In the past few years of low prices these civil stockpiles have built up again following their depletion over 1990-2005. At the end of 2020 stockpiles were estimated at about 40,000tU in each of Europe and the US, about 130,000tU in China, and some 60,000tU in the rest of Asia.

S&P Global notes that escalating interest in the global energy transition as part of decarbonisation efforts and by the ongoing pandemic recovery has led to the resurgence in uranium.

However, rather than search and dig for new uranium, the industry is instead focused on dealmaking amid strong metals prices and healthy financing conditions.

Comparatively, global exploration budgets rose 16% in 2022, following a strong 34% rebound in 2021, according to S&P Global. After budgets fell 10% year over year to $8.35 billion in 2020 due to the COVID-19 shock, nonferrous global exploration budgets hit a 9-year high of $13.01 billion in 2022.

S&P Global Market Intelligence data found that spending on uranium exploration peaked in 2008, with $1.16 billion being spent on the back of record prices. However, in the years that followed (until recently) interest in uranium exploration has waned.

Market Intelligence says 2022 uranium exploration budgets was expected to be US$216.2 million – “an improvement over exploration budgets in 2020 and 2021, but still a far cry from headier market days in the late 2000s and early 2010s”.

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Written By Adam Orlando Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.