How the Uranium Market Works
Per Jander of WMC, the Technical Advisor to Sprott Physical Uranium Trust, discusses his origin story involving uranium, a day in the life of a uranium trader, the current state of the market and what the landscape looks like going forward.
September 22, 2023 | (31 mins 20 secs)
Per Jander of WMC, Technical Advisor to Sprott Physical Uranium Trust, draws upon his years of experience as a uranium trader to reveal how the market works. Who are the buyers and sellers, how is uranium transacted, and how will the market evolve moving forward? Per answers these questions and more to give investors a better understanding of the dynamics of the uranium trade.
Jesse Day: Hello, everybody, and welcome to Commodity Culture, where we break down the commodity space for new and experienced investors. My name is Jesse Day, and before we dive in, standard disclaimer: nothing here is investment advice, do your own due diligence. Today's guest is the Director of WMC and a technical advisor for the Sprott Physical Uranium Trust, somebody I'm very excited to talk to about uranium. It's Per Jander. Welcome to the show.
Per Jander: Hi, Jesse. It's great to be on.
Jesse Day: Great to have you here. As it is your first time, as is the custom with this show, the origin story is where we start. How did you first discover uranium, and how did that lead you to becoming a uranium trader and a technical adviser for the Sprott Physical Uranium Trust?
Per Jander: I started in electricity trading straight out of college on the Nord Pool market. I grew up in Sweden and then moved to Oslo, Norway, a beautiful country with great hiking. I was on the electricity exchange and that didn't last. I was working with Enron, which went bankrupt shortly after.
But then I ended up with a Swedish utility, in a graduate management program where you'd rotate around the company. I started in trading, and then they said, "Alright, now you got to spend three months somewhere else." I've worked with hydropower and combined heat and power before. They were pretty big in nuclear. I was like, "I don't even know what to think of nuclear. Do I like it? Do I not like it? It sounds cool, but it's also a little scary." I just said, "Okay, how about I just go and work at the nuclear power station?"
That's one of those moments that kind of changes your life. When I got there, I was just absolutely fascinated. Humans built these amazing machines, they’re humming along, and you're standing there looking at the water pool essentially, and just below that water, about 10 meters down, was 5% of Swedish electricity production. It blew my mind, and at this point in the early 2000s, climate change was becoming an issue. I was and am quite conservative, and that's how I got into nuclear energy.
I was working there for a while, but I wanted to get more international exposure. I ended up with a trade association, the World Nuclear Association, which is based in London. It includes nuclear companies from all over the world, whether mining companies, nuclear operators or reactor vendors, all coming together to have a common voice. I was working on it towards the UN with climate change and sustainable development. I got that aspect covered a little bit.
Eventually, I ended up with Cameco. Cameco asked me, "Hey, we need a uranium sales guy for Europe. We think you could be good at it." That's how I got into uranium sales. Cameco buys quite a lot of uranium as well. I was buying and selling uranium, and I did that for about 10 years.
Then we started our own company with WMC, where I am now. Not a straight road in any way, but certainly, it all made sense from the trading aspect and electricity to nuclear energy. It all came together.
Jesse Day: Great origin story. I do want to talk about the buying and selling of uranium because for people who invest in the uranium space, it can be quite opaque, and it can be difficult to understand all of the different elements of the transactions occurring with uranium, the nuclear fuel cycle, et cetera. Maybe you could start by breaking down the market for us because we know some trades happen on the spot market, there are carry trades and carry traders. Could you explain what that is, and also long-term contracting, and any other ways that uranium is transacted? I know it's a big question, but could you give us an overview of how that works?
Per Jander: I'm happy to take a crack at it. Also, a slight disclaimer that it's opaque to people who do trade uranium as well. It's an interesting community, but it's not a market where you sit and just click on a screen and buy and sell that way. It's very much a relationship-based industry. You only deal with people you know and have established relationships with.
I would say if you start with the spot market, it's grown a lot in the last 15 years, for sure, but it is still what most people would consider in its infancy or an archaic market. It's a lot of phone calls, emails, and messages on the phone. You have, say, a dozen, 15 very regular actors on that market, and then you have another 10, 15, maybe, that are on the periphery. You talk to each other directly. There are a few broker services where if you want to be anonymous, you can go through them.
But there's not necessarily a transaction every day. Most of the time, there are a few. You have a few price points, but reporting is on a voluntary basis. You have a few price reporters who objectively collect this information and then publish a price at the end of the day. It’s very hard to get an intraday price. They're starting to move in that direction, so the market is maturing. But it's still very much in its infancy, I would say.
That's the spot market itself. When you look at utilities or the main end buyers in this market, they don't necessarily buy that much of the uranium they need on the spot market. They might do 10, 15, some even 20%, but it's not more than that. They're active on the term market, and that's where it's even more opaque. It's hard to know what's going on there.
It's a bilateral agreement. When I was working with Cameco, you talked to every utility under the sun, and then you would do longer-term agreements that could be in delivery from 2 years out to 12, 15 years. There might even be some that are even longer now. It's all a negotiation thing. When you agree, those deliveries don't even start until a bit further out in time.
What happened about 15 years or so ago, is the last peak of uranium price in 2007. But then after that, when they went into a bit of a bear market, you had a very large oversupply in the spot market. There was a lot of spot material that was quite depressed, and prices were around $20, $25 a pound. On top of that, there were very low-interest rates.
In that environment, it was quite easy to do a carry trade. You buy material in the spot market. You find a way to finance it either with your own money on your balance sheet, or you find external financing entities. Then you offer them at fixed prices out in time in the term market to utilities. That's what WMC did, to begin with as a basic business model. We’re quite successful and we’ve had a few successful transactions. But then, of course, as the spot market gets tighter and tighter and interest rates go up, that sort of transaction becomes less attractive.
In today's market, when the spot market is very tight and the interest rates are quite high, it is not nearly as attractive. It sort of shapes the contango in the market, but not entirely. Those volumes are not nearly as big now as they were before.
Jesse Day: That's a great breakdown. Now that leads me to the next question, which is, I'd love you to walk us through your day as a uranium trader, a day in the life, what you go through on any given day dealing with transactions, speaking with potential clients. Obviously, you have a lot of experience in the industry if you want to go back to your days at Cameco and how things work there and shed some light on that. That would be great as well.
Per Jander: Sure. It's fairly similar. It is a little bit different now because of the role I have with Sprott, because I've been North American based, but working a lot towards European clients. Now it might even start earlier because of the emergence of China as is a huge player in the market. Kazakhstan has grown to become the largest source of uranium.
Now it starts quite early. When you get up, you check in with your colleagues and friends over in that part of the world and see what's happening there. Then as you get into the office or get going, you have a few hours when you overlap with the European market. I'll speak to some utilities over there, some trading entities just to get a feel for what's going on there.
Mostly the spot market still follows the North American market. Unfair to our friends in other parts of the world, but that's also why I choose to be in North America. Because even though I spend a fair bit of time on the road, in Europe, from 3:00 PM to 10:00 PM, you've got to be checking your phone and seeing if something happens because it's not a steady flow of transactions or things that come up. There are little spurts of energy, and then it goes quiet, and then something happens again.
Obviously, in the background of all this, you also have the utility activity, and that is something you're responsive to. The big tender comes out, and then as you come up to the deadline of that one, submit an offer, and then there can be some negotiations back and forth. But for me, I like the mix.
You have the longer-term transactions, the really big ones with the utilities. That's the heart and soul of the nuclear fuel market. But still, you have the excitement of the spot market. The daily activities, you're going to be on top of things, what happens there. It's a very good mix, I think.
Jesse Day: Let's now talk about the nuclear fuel cycle. Would you be able to walk us through the different stages of the nuclear fuel cycle and how transactions occur at the different stages?
Per Jander: Uranium is in the ground most of the time. It could be in seawater, I guess, but we haven't gotten there yet. You get it out of the ground, you mill it, and then you make it into U3O8, which is the most basic form of natural uranium. It's the uranium oxide powder. That's the most commoditized of the forms. It's the first step in the fuel cycle.
That's where you have the most actors. There are three major Western hubs where you trade this, one in the U.S., one in Canada, and one in France. That's where you have the most actors. You haven't had an account at these places. Obviously, all the large producers are there. The utilities have accounts there. Then the trading entities as well. That's where you have most of the activity.
The reason why the uranium is shipped to these locations is because that's where the conversion facilities are. That's the next step of the fuel cycle. That's when you convert the uranium oxide into a gas, hexafluoride or UF6. You need it to be a gas to go to the next step, and that's the enrichment state. When you have natural uranium, it's a very small portion, about 0.7%. That is the U-235 isotope and the fissile isotopes. That's the one that you use that can be split, that creates most of the energy.
What you need to do to have a sustained chain reaction in the science that we use mostly in the Western world is the light water reactors, you need to enrich that from 0.7 to 3-5%. That's the enrichment process, which is essentially very brute. Just like you have a 235, you have a 238, there's a slight weight difference between the two, about 1%, and you need to separate them.
You do that today by spinning them in a centrifuge. That's spinning them very fast, heavy ones on the outside, lighter ones on the inside, and then you just repeat it about a million times. In a short sense, that's what you do anyway. There have been very exciting developments in using lasers and other ways to do it, but from a commercial perspective, that's the system we use today.
From there, it goes into fuel fabrication. You need to put them into fuel bundles that you then stick into the reactor and replace them every 12, 18, or 24 months depending on the reactor. As you move down this chain, the product becomes more and more specific for an individual reactor. You can't trade it. The more specific it gets, the harder it is to trade.
Some utilities, absolutely. You can bundle the first three stages. You have the uranium, you have the conversion service, and you have the enrichment. You bundle that into one, and you form EUP, it's called enriched uranium product, and that's what goes into the fuel bundles. You can do a tender for EUP. That happens now, especially for reactor operators of the Russian type reactors, the VVER reactors in Europe, because they had all this supply from Russia.
Because of the conflict with Ukraine, the uranium supply agency has told them, "We can't be relying on Russia anymore, so you need to diversify." They need all of it at once. Otherwise, it could be a 3, or 4-year process where you buy uranium, you buy conversion, and you buy enrichment. But if you don't have that much time, you need to buy everything at once, you send out the tender for EUP. That creates a bit of pressure on the market because it's normally not done. That's contributed to some of the market movements we've seen over the last two years.
Jesse Day: Very interesting. I was going to ask about the effect of a squeeze on conversion and enrichment capabilities. As you were pointing out, utilities and countries as well are wanting to get away from the Russian supply. Russia doesn't supply a ton of the world's uranium, though, not a small amount either, but they do supply the majority of the conversion and enrichment. Under these circumstances, maybe you could give us some more insight into how that could affect the price of uranium itself as a commodity.
Per Jander: It's a very good point. As you say, Russia is not big on uranium, but they are very big on conversion and enrichment. If you move away from Russia, you must replace the conversion and enrichment with capacity in the west. The capacity is there to a certain extent, but you're going to need more. I'm quite certain more will be built, but it's going to take up until '27, '28 before that's online.
But you can make up for it. You cannot make up for conversion, but I think there is enough capacity because ConverDyn, the large U.S. producer, is restarting their facility after idling it for about 5, 6 years because the market was so depressed post Fukushima. Now they're ramping back up, so that will create the conversion services we need.
The reason this is important is that when you have enrichment and enrichment facilities, you have some flexibility in how you produce there. Depending on how you choose to operate your plant, in turn determines how much uranium you need to put into it. After Fukushima, markets were depressed. A lot of idled enrichment capacity.
You can run it as a uranium mine. You just squeeze more uranium out of the feed that you put into it, and you create the same amount of end product. You just use maybe more work to get that uranium out of it or get enrichment out of it, and that leaves you with a lot of natural uranium that you can then sell into the market.
Now we have the opposite happening because you don't have enough enrichment. In order for you to free up some of that enrichment capacity, you need to put a lot more uranium into it. That's called overfeeding. This swing will represent about a 30% increase in uranium demand in the West to make up for this. That's the connection between the shortage of enrichment and additional tightness in the uranium market. Because it's going to take a while for a new Western enrichment capacity to come online, it's a very tight market for the next few years.
Jesse Day: I wanted to have you shed some light on conversations you may be having with utilities. Obviously, as much as you're able. Are you seeing a heightened sense of urgency at this point in time? Are you seeing more and more favorable long-term contracting terms and prices for the sellers? I talked with John Cash, the CEO of Ur-Energy, recently. He was saying these days, it feels like it's becoming a seller's market for uranium. I'm wondering if you agree with that and what you're seeing in your own conversations.
Per Jander: It’s 100% a seller's market. I know John quite well. He's a great guy. We went to a training camp about 15-something years ago. Time flies. But you're right, it is completely a seller's market. They can more or less dictate the terms. Back when the market was pretty depressed, the utility could ask for a 20, even 30% volume flex, which is just free optionality, that you can say that I choose to take this much more or this much less.
When things started to change with the war, there was not a mad rush to the bank for all this because they had so much flexibility baked into their already existing contract. That's why the market didn't see that right away. Now the producer saw it. Some of them could ramp up their capacity in order to absorb that. Some of them had to go to the market and cover. That was the first thing that happened.
Utilities rarely panic. First of all, they're very level-headed people. If you've ever met the reactor operator, they will never get panicked by anything because that's what they're trained to do. But even fuel buyers have that sense of calm around them. One other aspect that's unique when it comes to a nuclear power station is that you only refuel it once every year or sometimes even every 2 years.
You have some spare fuel bundles on your site. It's very rare. If you have a gas power station and something happens with the pipeline, well, you're going to run out. You have a few hours, and that's pretty much it. When you have a nuclear power station, you still have a year or two, but of course, this fuel chain takes a long time to do all this stuff. There has been a sense of urgency from these operators of the Russian design reactors I just told you about.
Mostly in, Central and Eastern Europe. But of course, they were more or less mandated to, "You have to change your supplier." The industry has been quite supportive. I think it's seen a lot of success from a Western group of companies led by Westinghouse because it's a different fuel design. They've all been made in Russia. It's a different shape. They're hexagonal and not the square ones used in the West.
First, you need to be able to make those fuel bundles. The utilities needed to rush to Westinghouse and get all these contracts, which I think is quite technically complicated, so this took some time. But the second they were done with those contracts, then they immediately turned into the fuel market, and that's what we saw.
Starting last year, and carrying over to this year, Finland was one of the companies. Finland was the first one to get it done. They've had press releases, the Czech Republic has followed, and now a few other Central European countries are getting there, there's concern among fuel buyers, but there's no panic. Because I think there will be enough uranium too. It's just a matter of what price you pay.
That's where it also comes in that a nuclear power station is not that price sensitive to the fuel cost because the fuel cost is only about 10, 15% of your operating costs. If you have an increase in fuel prices, it's not that bad. Especially not lately since electricity prices have gone up quite a bit in a lot of jurisdictions. They can absorb that. If you have a gas power station or a coal power station, you're much more sensitive to fluctuations in fuel prices.
For the time being, everything is fine, but still, we are looking at a fairly tight situation for the next couple of years. We're already seeing some of that starting now, the last couple of weeks, that the uranium price is moving pretty fast. Now, some of that might be hype as well. We'll see. But regardless, it's the highest price it has been in the last 12 years. It was just an article in the Financial Times this morning that we haven't seen this price level since Fukushima.
Jesse Day: The price has been moving. The equities have been moving as well. People are getting excited at the moment in the space. I'm wondering what your thoughts are on the current spot price. Is it enough to incentivize production from many of these companies in development? Do you think it needs to go higher ultimately to bring enough projects online to supply the world's uranium needs? If so, what would be your estimate for where the price needs to be?
Per Jander: That process is a moving target, I think. If you would have asked anyone about 5, 6 years ago, they would have said, "Fifty-five, 60 at the most. That's where you can have a lot of mines come on. While you ask those mines today, they will probably say something 75, 80, maybe even the 90s. That's moving. And, of course, there's been COVID. You had a lot of inflation. You have a lot of labor costs going up. Material costs go up, transportation costs go up. It's all for good reasons, but I think $50 uranium is probably behind us as well. 60, you should probably take it and run.
I think it will be so tight in the next few years that we can certainly see higher prices, significantly higher prices, maybe even. But it probably feels that that 80 to 100 a few years from now, that seems reasonable. But again, I'm not a forecaster on this. The only thing you know about forecasts is that they're wrong, but that's the gut feeling I think most people have.
Jesse Day: I want to ask your opinion on what you think will be the next jurisdiction to become a big uranium producer. Obviously, right now, we have Canada, Kazakhstan, and Australia being some of the major ones. Who are you seeing next in terms of countries or jurisdictions currently in the development phase, or maybe they're producing a little and might eventually ramp up.
The U.S., obviously, is an interesting story because the government there started a strategic nuclear fuel reserve where they bought some pounds from domestic producers. We have a few companies that are producing in smaller quantities. Do you see that expanding, and anywhere else you think that might produce a lot of pounds in the future?
Per Jander: I think Kazakhstan will be the undisputed largest producer for the time being. Canada is ramping up very quickly because they are quite large. Not the largest. Well, they were the largest before Kazakhstan got big, but Cameco shot obviously to its largest mines, and they are just coming online. I think next year, you're going to see an undisputed number 2.
Number 3, I think, is Namibia, which is bigger than people think. Now, much of that material is owned by China, so it just goes into the big Chinese program. But there are some other mines there, too, so they are a jurisdiction to keep an eye on. Then Uzbekistan. They are fairly large today, and they have plans to double their production. It has very similar assets to Kazakhstan, so same mining methods.
Obviously, same problem of getting the material where the uranium is, it's not where you need it. It needs to get from Central Asia to mostly the West, but obviously, much of it is going to China and even Russia for processing. The geopolitics are changing very quickly. Of course, Nigeria is a fairly significant supplier too, and we have many concerning developments there. You have to keep an eye on geopolitics in this industry, that's for sure.
Jesse Day: I know a lot of viewers are already familiar with the Sprott Physical Uranium Trust, but maybe as the technical director there, you could give us an overview from your perspective on the role of the Sprott Physical Uranium Trust, exactly how it works. I've seen some misconceptions out there. People say, "What if Sprott suddenly decides to sell everything?" Which I don't think is a possibility. Maybe you could explain that to us and how Sprott functions.
Per Jander: I'm only in charge of the physical inventory and all the physical transactions. Regarding the technicalities of the trust, it's probably best to talk to Sprott about that. Right now, we can't sell material other than to raise money to function to keep the trust running. But there may be a redemption feature in the future. Where that's going, it's too early to speculate on. I'll leave that to Sprott to talk about. But, it's a vehicle for people to invest and get physical exposure to uranium.
I think today, it's clear the most successful, considering the moving uranium price yesterday. It's over $4 billion right now. It's head and shoulders larger than anything else, and I think the success story of it is unparalleled. It's been going well. It's certainly been a lot more work, but it's also been a lot of fun. More work than fun, I think.
It's very successful so far, but it's also a very interesting investment community. I think investors that got their eyes up on nuclear energy and uranium in particular, they called it right. It's still early innings. It's a long way to go. The sentiment around nuclear energy is only getting better every day. It's by no means done. If we're serious about decarbonization and electrification, the role of nuclear, it's going to grow, and it's going to grow massively. It's only early stages so far. It's a very exciting time to be in the industry, for sure.
Jesse Day: Agree with you there. I'd like to end by asking for those who are watching, and there are probably only a few of them, but you never know who might be thinking, "This sounds cool. I love uranium. I'd like to become a uranium trader someday." Obviously, it's not a common career path, but for those who might be thinking, what's the best way to get started and to set yourself on a path to be in your position?
Per Jander: That's a good one. I never got that question before. When you say "uranium trader..." I mean, I don't say it very often. But how to get into it? I think an understanding of nuclear energy helps, especially if you're going to interact with end buyers, the utilities, to understand their situation and their needs. That certainly helps too. Most people in the industry are very passionate about it too. I also would say because you don't sit in front of a screen, you do interact with a lot of people. If you're not a people person, it's probably not for you either.
But it's a very tight-knit community. And it's a very good community. A lot of people come into it, they tend not to leave. It feels like it's been attacked from so many different directions that once you're in there, there is a sense of community, even between competitors. We all know that we all need each other. There's enough room for everybody, and the future is looking very good.
Whether you get into it via utility or via a trader or a mining company, it doesn't matter because you'll find your way in there eventually. It's a great place to be. I would highly encourage anyone who thinks it sounds fun just to have a look at it for sure.
Jesse Day: Well, thank you for joining us today, Per. A ton of knowledge was shared. For those who want to hear more from you, where is the best place to go online?
Per Jander: Obviously, we have a fair bit of info on Sprott Radio podcast. That's on there on the Sprott website. Then I do a fair bit of interviews with Bloor Street Capital and Jimmy Connor. Other than that, because there's so much hype around uranium now, you can just search via Google. I think my name even and then a bunch of things will come up.
That was never where I saw things going, but I think it's a fantastic field and I'll be happy to talk about it as much as possible. I love having opportunities such as this, to just inform as much as I can about it because it's a very interesting field.
Jesse Day: You have a unique perspective on the uranium industry, and we love talking about uranium on this show. It's been a very fun and enlightening conversation. Thank you again for joining us, Per, and sharing your knowledge with our audience.
Per Jander: Thanks, Jesse, anytime. I enjoyed it.
Jesse Day: Commodity Culture is a series on commodities and natural resources. If you would like to see more, be sure to subscribe and hit the bell notification, so you're always up to date with the latest episodes.
This video is posted on the Sprott.com website with permission from Jesse Day, creator and producer of Commodity Culture.
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