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We are convinced that energy and electricity generated by nuclear power plants is a necessary and important part in a balanced energy mix of various fossil and renewable energy sources. Energy produced from nuclear power is CO2-neutral and therefore also indispensable within the framework of important climate protection and stricter climatic conditions, while at the same time a strongly rising demand for electricity.
Nuclear fuel circuit and background information:
Uranium is a chemical element with the element symbol U and the order number 92. In the periodic system, it is in the group of actinides. Uranium is a metal, all isotopes of which are radioactive. It was found in 1789 by Martin Heinrich Klaproth. The melting point of uranium is 1,132 degrees Celsius.
Uranium has a very high energy density. Thus, 1 kg of natural uranium – after an appropriate enrichment and for the generation of electricity in light water reactors – corresponds to almost 10,000 kg of mineral oil or 14,000 kg of coal and enables generation of 45,000 kWh of electricity.
At the beginning of the value chain is the mining of the raw material uranium, which is obtained either in open pit mining, in underground mining or by solution mining industry (ISR method). The method of extraction depends on the characteristics of the ore body. These include, for example, the depth, the type of rock and the ore grades. Typically, the uranium content of the mined ores is about 0.2%. The uranium present in the mined ore is separated from the rest of the rock by various chemical and physical processes. When uranium is spoken, the term “yellow cake” often comes to mind. This so-called “yellow cake” contains about 70 to 75% of uranium. The uranium contained in the “yellow cake” has a natural isotope composition of 0.7% U-235 and 99.3% U-238. However, most nuclear power plants require uranium with a fraction of 3 to 5% of the cleavable isotope U-235. Therefore, the uranium component U-235 must be enriched. Since the enrichment is possible only in the gas state, the uranium is converted into the chemical compound UF6 (uranium hexafluoride). In the fuel assembly, the UF6 is then converted into UO2 (uranium dioxide). The UO2 powder is used for pressing pellets, which are sintered at temperatures of more than 1700 ° C, filled into seamless drawn casing tubes made of a zirconium alloy and gas-tight sealed. Thus, individual fuel rods are obtained, which are then arranged in fuel elements. The fuel elements of a pressurized water reactor contain about 340 kg of uranium, while a boiling water reactor contains about 190 kg of uranium.
The Swiss 1,000 megawatt nuclear power plant in Gösgen consumes 20 tons of enriched uranium or 200 tons of naturally uranium (or approximately 441,000 pounds) every year, producing around 8.5 billion kilowatt hours of electricity. In order to produce the same amount of electricity with other energy sources, one would need either:
• 9,100,000 tonnes of hard coal (equivalent to 180,000 rail cars);
• 4,250,000 tonnes of natural gas;
• 220 square kilometers of solar panels;
• 5,500 state-of-the-art wind turbines with two megawatts each and 4.5 million kilowatt-hours of annual production
In other words, there is much more electricity generated from uranium than from all other energy sources. With only three to four fuel tablets of the size of a glass marble, a four-headed family can be supplied with electricity for one year.
A look at the legal and political situation of the countries listed below is, in our opinion, of great importance for the entire uranium sector:
Japan:
Japan imports about 84% of its energy demand. 42 reactors are in the maintenance mode. Of these, 24 reactors currently undergo the approval procedure for re-commissioning. In August and October 2015, the first two reactors were brought back into operation. A total of 4 reactors are now in operation as of May 2017.
In July 2015, a new long-term energy supply policy was adopted. It is intended that the share of nuclear energy produced should be 20-22% by 2030.
China:
China is the world’s largest energy-consuming nation and had a total of 36 nuclear power plants operational at the end of 2016. According to the International Atomic Energy Agency (IAEA) / PRIS database, the share of electricity produced by nuclear power plants in China (2016) was 3.6%. The average share of electricity generated by nuclear power in all 29 countries was 21.6% in 2016. A gradually rise from 3.6% to 10-20% should trigger a significant Chinese demand for uranium in the future.
India:
According to the International Atomic Energy Agency (IAEA) / PRIS database, the share of electricity generated by nuclear power plants in 2016 was 3.4%. The average share of electricity generated by nuclear power in all 29 countries was 21.6% in 2016. A gradually rise from 3.6% to 10-20% should trigger a significant Indian demand for uranium in the future.
USA:
In the United States, 99 reactors are in operation, about 94% of the annually required uranium needs to be imported from other countries. The share of electricity produced by nuclear power was 20% in 2015, according to the US Energy Information Administration (EIA) estimate.
The last Uranium bull market in the years 2000 to 2007:
In the last big uranium bull market, the price of one pound of uranium rose from 7 USD in 2000 in a breathtaking, parabolic movement to over 135 USD in the summer of 2007. One reason was the mine flooding in the largest uranium mine in the world, ‘Cigar Lake’ in the Canadian province Saskatchewan in October 2006. Many energy utilities urged to secure long-term supply delivery contracts with the miners.
The companies from the sector experienced spectacular stock market movements, in some cases several thousand percent. Here are two examples:
- Cameco rose from 5.50 USD in the top to over 60 USD
- Hathor exploration rose from 1.6 million to over 587 million USD in 2012 and was taken over by Rio Tinto
It is not the question whether, but only when the strong fundamentals will lead to the re-launch of a new bull market in the uranium sector. What could be a trigger?
- A renewed reduction in the supply side of Kazakhstan, which has been partly (mainly) settled over the small uranium spot market over the last few years. The announcement of Kazakhstan in January 2016 to reduce its sales volume by almost 10% led to an increase in the spot uranium price from 18.5 to 25 USD.
- Further reduction on the supply side of the current uranium producers, who do not want to sell their precious resources with high losses. In 2016, Cameco began to close down mines with high production costs. This trend could continue.
- There are currently 24 reactors in Japan in the approval phase for re-start-up. Should this happen, Japanese sales on the spot uranium market should be drying out – it is likely to be the start of a tandem price movement on the price rise of uranium and shares from the sector
- A failure of one or more large uranium mines, e.g. like the ‘Cigar Lake’ in October 2006, is likely to trigger a buying panic
- Over the next 12-24 months, many long-term uranium supply contracts are being phased out to nuclear power plant operators who have traditionally secured the bulk of their needs not through the spot market, but through long-term contracts. It is also interesting in this context that the pure cost of uranium is only a fraction of the total production costs of a power plant operator. As a result, nuclear power is considered to be very favorable compared to other sources of energy in the current long-term operation, after initially very high investment costs.
Over the last few years, these utility companies have been able to secure their needs by the spot market as the price levels there have been severely depressed by the oversupply of Japanese stocks and contract deliveries. If further sales pressure on the spot market is now eliminated, we expect the utility companies to enter into new long-term delivery contracts. Industry experts estimate the total production cost, including the cost of financing, for a variety of projects worldwide, between 45 and 60 USD per pound. As a result, existing or future uranium producer will not enter into long-term supply contracts that are subject to the current bombed-out low uranium prices. We are assuming that the long-term and spot uranium prices will have to rise significantly in the coming years. It is estimated that over 90% of world uranium production is currently operating at a loss.
If the uranium price remains at the current low level for longer, we expect further production reductions from uranium producers. It also makes no sense for project developers to sell the precious resources at these low prices – so in such a scenario, hardly any new mines will be built.
The equation of dynamically increasing demand in the next few years, with constant or stagnating volumes on the supply side from uranium producers will lead to a new uranium bull market!
A look at the remaining companies in the uranium sector:
According to our research, there are currently 63 exchange listed companies focusing on the production, exploration and development of uranium projects. The current market capitalization of all companies is only USD 8.9 billion and also includes the companies CGN Mining and Areva, which also operate nuclear power plants in addition to uranium mining. If we exclude these two companies, a total of 41 companies from North America with a current market capitalization of 5.7 billion USD and a further 20 companies with a stock exchange listing in Australia remain. Their combined stock market value is only 826 million USD.
A small number of sector funds as well as the company ‘Uranium Participation Corp.’ can be added to the investable investment universe. Their business model is to buy physical uranium in the market and resell it after a storage period again with profit.
