Uranium Mine Supply Faces Challenges


The article below is an excerpt from our Q4 2023 commentary. 

On January 12th, Kazatomprom, the publicly traded Kazakh national uranium company, shocked the markets by announcing it could not meet its production guidance for 2024 and 2025. That announcement represented a dramatic about-face after years of stated planned capacity expansions. In August 2022, Kazatomprom increased its expected 2024 production by four to six million pounds in response to significant strength in their forward sales book. Following the announcement, Kazatomprom expected to produce between 55 and 56 mm pounds in 2024 – an increase of 11 mm pounds over 2023’s estimated output. The company followed this up with a second announcement on September 29th, 2023, again increasing production guidance for 2025: 

Consistent with our market-centric strategy, our intentions to return to a 100% level of Subsoil Use Contracts production volume in 2025 is primarily driven by our strong contract book and already growing sales portfolio against a conservative 2023-2024 production scenario. As we are seeing a clear sign that the industry has entered into the new long-term contracting cycles, driven by the recognition of the restocking needs, Kazatomprom, with its best-class and lowest-cost mines, is absolutely prepared to respond to these improving marketing conditions. Our current contact book provides sufficient confidence that the additional volume in 2025 will have a secure place in the market and be needed to fulfill future contractual obligations.”

Kazatomprom announced they would boost 2025 production to between 67 and 69 mm pounds to meet strong demand – a significant 15 mm pound increase above the expected 2024 output. Our 4Q23 letter expressed skepticism over Kazatomprom’s planned expansion, citing a potential sulfuric acid shortage.

Our concerns were justified. In their January 19th announcement, Kazatomprom warned that a lack of sulfuric acid and ongoing construction delays have made their 2024 and 2025 production guidance impossible. On February 1st, Kazatomprom officially lowered their 2024 production guidance by nearly 20%, from 56 to only 46 to 50 mm pounds– a decrease of almost 10 mm from previous guidance. Although the company did not discuss 2025 production, we believe their 67 to 68 mm pound target will be impossible.

Uranium rallied sharply to $90 per pound during the fourth quarter, driven by solid utility buying. Even after the recent activity, global utilities remain woefully under-contracted compared with historical norms. In past letters, we warned that utilities would need to re-enter the market to meet their needs – it appears that time has now arrived. Following Kazatomprom’s surprise announcement, uranium surged another $16, hitting a cycle-high of $106 per pound.

Although the uranium market is notoriously opaque, we believe Kazatomprom already sold forward some portion of its previously expected 25 mm pounds of 2024 growth. Depending on how much uranium Kazatomprom has already committed, it may have to buy material in the spot market to fulfill its contract obligations.

The world’s two largest producers are now both short of uranium. On September 3rd, Cameco, the world’s second-largest uranium producer, announced expected production shortfalls at McArthur River and Cigar Lake, totaling 3 mm pounds. Given that before their recent announcements, Cameco and Kazatomprom were likely fully contracted for the next four years, we believe both companies have committed to selling more uranium than they can produce. If correct, both companies may have to buy material on the spot market, driving higher prices.

Our 2Q23 letter explained how uranium had entered uncharted territory. Since the end of World War II, there existed, without exception, a material inventory cushion of secondary supply to bridge any period where reactor demand outstripped mine supply. Based upon our modeling, and the fact that financial buyers have emerged to compete with utility buyers for scarce spot volumes, we concluded these inventories would soon deplete entirely, making this cycle different from past bull markets.

Uranium has now slipped into a structural deficit and is about to get even tighter. Demand continues to grow, while production is beginning to disappoint.

Although we believe new production will eventually end the bull market, we expect very little new mine supply for the next several years. In previous letters, we predicted the uranium bull market would soon become chaotic– that period is now upon us.

Intrigued? We invite you to download or revisit our entire Q4 2023 research letter, available below.   


2023.Q4 Research - The Norwegian Illusion


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