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Nuclear power companies face competition for uranium supplies from financial investors, who are betting on sharply rising prices and demand for the radioactive materials used to power reactors.
The price of raw uranium, known as yellowcake, hit its highest level since 2014, thanks to a new investment trust led by Canadian asset manager Sprott.
Investors are betting that nuclear power will be a key part of moving away from fossil fuels and that a lack of new uranium mines will mean the price must rise.
The Sprott Physical Uranium Trust has recovered approximately 6 million pounds of physical uranium, valued at approximately $ 240 million, since its launch on July 19, helping to push uranium prices up to over 40 million. dollars a pound, compared to $ 30 at the start of the year. Global mine supply is expected to be around £ 125million in 2021.
Its aggressive purchase will put pressure on utilities that need to secure the supply of the product for power generation. It also comes as China plans a sharp increase in its nuclear capacity over the next decade. In addition to the holdings of an acquired fund, Sprott currently holds 24 million pounds of uranium, worth about $ 1 billion, in the form of yellowcake.
Other financial players also bought the commodity, betting that its price would increase. Yellow Cake Plc, a vehicle listed in London in 2018, holds around 16 million pounds of uranium.
“This has been a key factor in the 30% increase in the price of the metal in 2021,” said Nick Lawson, managing director of brokerage firm Ocean Wall.
Demand for uranium is expected to rise from around 162 million pounds this year to 206 million pounds in 2030 – and even more to 292 million pounds in 2040 – according to the World Nuclear Association, largely thanks to the increase power generation in China as Beijing seeks to cut emissions.
At the same time, uranium supply is expected to fall by 15% by 2025 and 50% by 2030 due to lack of investment in new mines.
“Financial players are clearly accelerating price discovery, but that wouldn’t happen if it weren’t for a fundamental and substantial deficit,” analysts at Canaccord Genuity said.
The pandemic has also disrupted supplies to some of the largest mining operations in Canada and Kazakhstan. In December, Canada’s Cameco temporarily suspended production at its Cigar Lake mine due to a labor shortage, before restarting it in April.
“This comes against a backdrop of growing energy demand with the economic recovery and the focus on carbon-free production, nuclear power being a key component of basic non-fossil fuel production,” said Jonathan Guy, analyst at Berenberg.
Cameco shares have risen 70 percent year-to-date on the Toronto Stock Exchange. Overnight, shares of Japanese utility companies rose sharply after Fumio Kishida, one of the top contenders for the country’s next prime minister, said restarting nuclear power plants was necessary to meet targets net zero of the country. Nuclear power was shut down in Japan after the Fukushima Daiichi disaster in 2011 and was only slowly restored.
Last month, the Sprott fund announced it would issue $ 300 million in new shares, which would be backed by new purchases of physical uranium.
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Currently listed on the Toronto Stock Exchange, the Sprott uranium trust is also looking to list on the New York Stock Exchange next year, which could stimulate further purchases, according to Canaccord.
The Sprott Trust purchases uranium through WMC Energy, which stores it in Canada, the United States and France. Sprott receives a management fee of 0.35 percent, as well as a commission of 1 percent on the gross value of any uranium purchase or sale.
If investors continue to buy uranium, analysts expect utility companies to come under pressure to replace long-term supply agreements before they expire.
Right now, long-term contracts cover 98 percent of the uranium that US utility companies need. But that figure drops to 84% next year and 55% by 2025, according to Yellow Cake.
“There is now no significant volume available,” said Nick Clarke, founder of Curzon Uranium. “Utilities will be forced to reassess their procurement strategies.”