Uranium 2025 The Year Ahead

Podcast Transcript

Ed Coyne: Hello and welcome to Sprott Radio. I'm your host Ed Coyne, Senior Managing Partner at Sprott Asset Management. I'm happy to welcome back two returning guests, John Ciampaglia of Sprott and Per Jander at WMC. Gentlemen, thank you for joining me towards the end of the year this year on Sprott Radio.

John Ciampaglia: Thanks, Ed. It's great to be back.

Per Jander: Yes, thanks, Ed.

Ed Coyne: 2024 has seen a bit of volatility or a pause in the price of uranium. John, let's start with you and talk a bit about what happened this year, why the pause, and where we're going with the price going into 2025.

John Ciampaglia: I would describe 2024 as a confusing and somewhat frustrating year in uranium land. We had a real big breakout in 2023 where the price was up 89%, and that was a powerful price signal that everybody felt like, "It's lifting off; we're going here." That obviously spiked up even further in January and has since petered out, going from 91 to 106, and now we're floating in the high 70s per pound, which I think a lot of people find very frustrating, including ourselves. I think a number of things have taken some of the momentum out of the trade.

Utilities are not buying uranium in the same quantities that the market expected them to, partly because they're focused on other things and partly because they've been distracted by all the geopolitics, sanctions, and waivers. I think partly because they have the ability and the luxury to step aside if they think the price is too high. I think the messaging we hear from some of the industry bellwethers is, I believe, affirming that belief that utilities have not been as active this year, largely in response to the big price move last year, which upset their procurement and capital budgeting strategy. That's, I think, led to a little bit of a vacuum, and the price has softened as a result.

Ed Coyne: Per, anything to add to that? You would think utilities don't have an unending stockpile. At some point, they have to reenter the market. What's your view on that?

Per Jander: You're right. Even though I would say a utility's natural pipeline of products makes it a two- to three-year process. They can oftentimes wait longer than necessary for the patience of investors, which is not necessarily long all the time. To reiterate, it is a very slow process, and they have flexibility when they want to enter the market and buy. This is something that I think is very important to point out as we look back on 2024, and just like John said, the spot price first spiked up, then it's been coming down, and it's a bit of a disappointing year.

You look back at the term price, which is a bellwether on the environment where utilities contract. We started the year at $68 a pound and now we’re at $83. We've had a 25% increase or around thereabouts. These terms have gone nothing but up all year, which means that it is not utilities that haven't completely stepped away; they are contracting, but the terms are going in one direction only. There is no flexibility anymore; the ceilings keep going up. This indicator we're talking about is up 25%; if any firm prices exist, they have gone only in one direction. That, to me, is a strong signal easily overlooked because of the noise in the spot market.

Ed Coyne: Per, if you don't mind, spend a few more minutes on “spot” vs. “term”. We have reoccurring listeners who are, at this point, familiar with the two, but we also have new listeners coming in. Talk a little bit more about spot vs. term and what that means as you see the term price higher than the current spot price.

Per Jander: Sure. The term price in uranium land is defined as delivery or under a contract that is three to four years long, and the first delivery under that contract starts at least two years out. Say the term of it is five years or so. That's the ideal construct of that. Now, all contracts aren't like that. They can be 10 to 15 years long. They can be two years long. They can start five years out; they can start in one year. They're not perfect, but at least it’s an indication of, “This is what we use to define the term price.”

That contract under these terms, they have-- one portion normally is the base escalated price, so that's a fixed portion. It doesn't move at all, depending on what the market does. That's escalated by some escalator that normally is inflation-based. Then, the other portion under this contract would be index-related. That would vary with the spot price at the delivery time, which will govern what this price indicator does. It could be a 50-50 split, they could sometimes be a 10-90, it can even be an all index or all base, but most of the time, it's about a 50-50.

The index-related side also has floors and ceilings related to it. About a year ago, I can't remember where we were, probably around 50-floor/ 80-ceiling for the spot price. Today, we're looking at the high 70s in floor and at least 130 in ceiling price. Those terms have also only gone in one direction. They have not come down despite the fact that the spot price has come down from 107 to the high 70s John mentioned. Taking a step back and looking at these factors, I would say the market has only gone in one direction.

Ed Coyne: Thank you, Per, for that. John that speaks to what I've heard you say many times: a longer-term narrative for uranium is supply-demand. I guess it seems to me that that term price is confirming that. Has that changed at all? What's going on with the long-term narrative of the need for more uranium as feedstock for nuclear power?

John Ciampaglia: The most positive thing we can share with the audience is the profound institutional interest in all things nuclear energy over the last six months or so. I think it's on the back of continuing acknowledgment and realization that nuclear energy needs to be part of the energy mix. Then, more recently, the number of big tech announcements that we've had between nuclear energy companies, existing ones, and startups developing next-generation reactors, I think has really highlighted and broadened tremendous awareness to people.

I think it's fair to say that nuclear is now included as part of this AI ecosystem. Like copper was earlier in the year, people are starting to connect the dots and trying to figure out all the key parts of this ecosystem to make this AI race happen. Energy is the one piece that everyone is now focused on. It's not the code; it's not the chips, it's not the data center; it's the electricity that I think big tech companies have validated this technology by signing these long-term agreements, whether it's restarting Three Mile Island or some of the equity investments they're making in some of these startup technology companies.

I think it highlights the issue that the world is facing, specifically in the U.S., which is that low growth is starting to increase. It's not just AI. It's a lot of manufacturing reshoring. This is something that the grid has not been forced to deal with for 20-plus years. Low growth in the U.S. has been flat, and suddenly, you're seeing consumers and businesses saying they want more electricity. The world's also getting a lot hotter. That requires a lot more air conditioning. That puts incredible strain on the grid. Whether climate-driven, AI-driven, or reshoring-driven, I think all roads point to one thing: we need more electricity.

Ed Coyne: The price decreased slightly in 2024, yet the term price is still positive. What's that doing to the stocks themselves? How are they participating in this? Are there any concerns, or is that still looking as attractive as ever?

John Ciampaglia: It's still largely a bifurcated market whereby you've got a couple of big incumbent producers. One is performing very well, the other is struggling a little bit with its supply chain and management issues and geopolitical risks, and then the rest of the group is all trying to become producers or resume production after many years of being in care and maintenance mode. I think one thing we've seen, whether you're a chemical or a smaller producer, is everybody's had challenges restarting mine production after being idle for a number of years.

The supply challenges remain, while demand looks increasingly rosy with all the announcements in the pipeline. It's not easy. Uranium mining is very challenging. Everyone has some challenges in investing in these plants and mines, turning them back on, and finding and training labor forces to operate them.

The good news is that many of those are just short-term growing pains. Most of these companies will iron out their production kinks and return to business. It is very helpful to get back into a revenue and cash-flow-generating position after having a mine costing you money to maintain and care for. One of the undertones you're hearing from these companies is that even though the uranium price is at multi-year highs, they're still very focused on supply discipline.

They do not want this bull market to fizzle out early in its term. They want to remain very focused on ensuring prices remain elevated for a prolonged period of time. That's exactly what the industry needs. The industry needs to recapitalize itself and get back to production. Whether you're one of the incumbents or a mid-tier producer, everybody's focusing on optimizing their revenue and production and ensuring that the market does not get flooded with a lot of uranium, putting more downward pressure on that term price.

Ed Coyne: Let's stay with that for a second. We've had you guys on for multiple years now talking about this. If I remember correctly, we used to refer to $70 or $80 a pound as breakeven for an existing mine restarting and maybe around $100 a pound for a new mine coming online. Are those numbers still accurate? Are we seeing those numbers go up or go down? What's that looking like right now?

John Ciampaglia: I think the current pricing environment supports all the existing operations and brownfield projects turning back on. When you've seen these mines coming back into production that have been on care and maintenance for 8 or 10 or even more years, I think that's a strong signal that their cost curve's sufficiently below the current term price.

I think what's interesting is some of the new projects that are coming to market. I think we got an interesting signal for the last couple of weeks around where NexGen has sold some of its production forward to help finance the construction of its project. What caught my attention is that the ceilings on some of the offtakes they've signed were as high as $150. Now, that's almost double where we are in the spot price and higher than where we've heard other companies signal that their ceilings are.

I don't know if we should read too much into it, but it signals a price point that utilities are willing to pay to get another Western mine built and into production. I think the world is bifurcating between East and West. Uranium is entangled in that, given how significant of a producer Kazakhstan is. The West wants to build and finance more projects in friendly jurisdictions. I think it's a very interesting signal that I think the market glazed over a bit.

Ed Coyne: Speaking of friendly jurisdictions, the war seems to be ongoing with Russia and Ukraine. What has that done to the market? Has that had a big impact on the pricing of physical uranium? Do you see it as an ongoing issue going into '25?

Per Jander: The talk of sanctions and Russia's response to it has impacted utility contracting and the uranium market. It started about a year ago when the U.S. government started hinting that it would impose sanctions. There was some uncertainty about their shape and when they would come into place. Then, in May, it finally passed the Senate as it was held up by a senator there. It passed in May, came into effect in August, and said there was an immediate halt on imports of Russian uranium products. Russia is not so big in producing uranium, but very big in the world percentage of conversion and enrichment services.

U.S. utilities and other trading organizations getting deliveries from Russia had to apply for waivers. These waivers would be granted by the Department of Energy (DOE). It took a couple of months to figure out what that process looked like. It was clear that the DOE said it would be okay with immediate deliveries, so for '24 or '25, but as we go into a complete ban by January 1 of '28, '26 and '27 applications were denied. It was a clear signal that DOE will not consider this a uniform period. The DOE will be a little more lenient in the first couple of years, but it will be a different application process or at least a different way of looking at it in '26 or '27.

This all came into place around September. We got some clarity on which waivers were given and what the requirements were. Not shortly after, Russia's response was then, "We're going to do the same thing. We're putting the same framework in place, but it's an immediate ban right away. We decide when you get waivers." Now, if you're a U.S. utility, you would hope that you have a fairly clear line of sight to your government and that you have government organizations that discuss with them. The U.S. government is engaging with U.S. utilities to inform these rules and the waiver process, but you have no line-of-sight into what happens in Russia.

This happened a couple of months ago. A big shipment of low-enriched uranium was supposed to leave Russia at the end of November and arrive in the U.S. Several utilities had material on this ship. The ship was held up for about a week or so. When it finally left, it had nothing of the scheduled lower-risk uranium on board.

This had an impact. People thought, "Oh, it'll just be a negotiating position before you sit down with the new government," but it was halted. I think that took people by surprise. The immediate impact, I would say, is a spike in conversion price. We'll certainly get there eventually with enrichment, but the connection between uranium and enrichment is conversion. As a utility, you will rush to make sure that you have conversion. You can create more enrichment by overfeeding, but to overfeed, you need access to conversion.

We saw conversion prices go up by 20%, essentially overnight. We're looking at it now, whereas, at the beginning of the year, the spot price was $46 per kilogram; at the end of November, it was $89, and now we're seeing bid prices just under $100. If you buy the bundled product of uranium and conversion called UF6, the bid price of conversion implied in that product would be over $100. No sign of this stopping exists because we don't know when the relief is. That's something utilities are focused on very much right now, and it's clear that the rest of the market is also looking at this. Uranium is in the background, but more urgency is about the conversion, and we see that reflected in the price.

Ed Coyne: To me, I guess, from what I'm hearing, it seems like the directional move in the long term is going in the right direction. Higher and short-term pauses are just that: short-term pauses, but the longer-term outlook continues to look robust. Speaking of the longer-term outlook, we have a new president coming into office here in the U.S. John, I know you spoke about some potential talking points as the new administration comes into the U.S. market recently. Can you expand on that? What are we looking at? What are we concerned about? What are we excited about as that transition happens? What does that do to the uranium marketplace in general?

John Ciampaglia: There's been a ton of speculation about how the incoming administration will tweak energy policy and whether nuclear will be a beneficiary. I keep reminding everybody that the current administration has been incredibly pronuclear, which is not characteristic of a Democratic administration. We think it's more of the same. All of the major energy-related bills that have benefited nuclear over the last few years, like the Bipartisan Infrastructure Law (BIL), the Inflation Reduction Act (IRA), and the ADVANCE Act, are all bipartisan-supported, and we would expect continued support from the incoming Republican administration.

I think people sometimes get a little bit lost in that it's somehow oil and gas with the "drill, baby, drill" that is going to be the priority, but nuclear power is the backbone of baseload power and will continue to remain so. There has been a lot of speculation in the market about whether Trump will somehow cut a deal with Putin and whether the relationship will thaw. This ban on Russian-enriched uranium will be canceled, and then everything will be back to normal. We think that's a naïve view.

The U.S. is focused on energy security, national security, and energy dominance. I think to achieve those things, you need to restore this critical nuclear fuel supply chain, which Russia continues to be a key player in. You also need to revive and resuscitate uranium mining in the U.S. It has essentially collapsed over the last few decades when we used to be a huge producer. This year, we'll be lucky to produce maybe a million pounds against annual needs closer to 50 million pounds.

We think energy policy related to nuclear will be improved with respect to things like permitting, streamlining, and regulatory approvals. That's been a big obstacle. Whether you're trying to develop a new mine or get a new design approved, these approval processes can take a long time. We're not advocating you cut corners and reduce safety, but there is a lot of government red tape across multiple layers of government. We see that in Canada as well.

It takes three years to get environmental permits for new uranium mines. That's a long time through multiple layers of government. I think there's an acknowledgment that the permitting process has become too bogged down, whether you're trying to build a new mine or a high-voltage transmission line. We would expect some improvements on all of those fronts. Things related to the Inflation Reduction Act. Could they come under attack? Could they be dialed back?

I think the probability is quite high. He has a few things in his crosshairs. At the end of the day, markets work well. Governments are intervening at times to try to accelerate some of the uptake or stand up nascent industries, but at the end of the day, solar is going to win or lose on its own economics, whether there are government incentives there or not. If you look at the deployment of some of these technologies over the last few administrations, it's almost impossible to look at the charts and say, "Ah, there's where administration changed." The trajectory is generally up because everybody needs more electricity, preferably clean.

Ed Coyne: I think that's the punchline. We need more of everything. I think it's why you see both sides of the aisle agree that we need this. It'll be interesting to see how the first quarter evolves over time. Speaking of the first quarter, Per, you’re always coming from different parts of the world. You're always participating in these cool conferences and unique spots worldwide. What do we have to look forward to in 2025? What are some of the things circled on your calendar already that will give us some insight into the directional moves related to uranium and nuclear overall?

Per Jander: Actually, I was reading the news here, as I've been over in Europe now for about a week-and-a-half, and a funny anecdote was there were some extremely high electricity prices in Germany and Sweden just over last week that were 10, 20 times the regular price. That can be pinpointed to the policy decisions that Germany has taken in shutting down their base load nuclear and relying too much on wind. There was no wind whatsoever and high demand. Because of the connections between Scandinavia and Europe, there are quite a few of them now, which drives up the price in the Scandinavian markets.

Different regions have different prices, but suddenly, Norway and Sweden saw extremely high electricity prices. Now, voices are calling for—Norway said they should shut the cables down. Some people in Sweden, too, said that you need to do something. The Swedish environmental minister is going to talk to the German counterparty today.

I was reading an interview with her in which she said, "You need to do something. We're not accepting this anymore. You need to take responsibility for your electricity system and not rely on us for your base load." This is anything but bipartisan or multilateral support inside Europe, but I guess it's nothing new. That is something we're looking at, too, where it's starting to crack slightly in the solid view that Germany's position on energy is spilling outside of its borders.

Focusing a bit more on nuclear and uranium in general, I think it's very much like last year when we were expecting some announcements from the big producers in early February. Both Cameco and, more importantly, Kazatomprom are going to give some guidance to their 2025 numbers. Whereas they met their goals for 2024, I think there is a fairly large degree of skepticism in seeing that they will do the same thing for '25. They've been flagging that they might need to renegotiate their subsoil use agreements with the lower end of them, indicating that they may not meet the minus 20% threshold for years to come in that case.

To retain their license, they need to renegotiate the entire agreement. That is a very large deal if they have to do it. It will be very interesting to see because 40% of the world's uranium, and even more than before, is still going to China. The Russians are not getting their natural uranium feed from their Western customers anymore because the Western customers are moving away from the Russian contract. Russia is short on natural uranium. The Chinese are buying more, and Kazakhstan is having production issues.

Add all those things up, and the Western world, to John's point, will have to come up with its own supply. They will be looking at Canada. They will be looking at Australia. Africa is a very interesting playground where it's going to go both sides. It can go to the West, but China and Russia are already in there in Niger on the ground and trying to fill the vacuum left by the French. We're going to have to look at the U.S. as well on some of their domestic production there.

A lot's happening in the world today. Then last but not least, the big tech entrance into the market is unlike anything I've ever seen. I've been in the nuclear industry for 20 years. The negative side is that I'm set in my ways, and things take time and patience, but these guys don't have that mindset. They say, "Hey, this is a problem we must solve." They're extremely capable. Their resources are on a level I've never seen before. I'm very, very excited about that.

Ed Coyne: As far as some of those news flows coming out, is that typically in January or February? I know you have some very specific calendar dates where a lot of this news flow comes out. We saw that last year. We saw that move the price around. What things should we be paying attention to in the first half of next year?

John Ciampaglia: In the short term, everyone's fixated on Trump's inauguration and exactly what rhetoric will turn into policy. Everybody seems to be focused on that. I'll bring up uranium as a good case study there. Trump is threatening 25% tariffs on all imports from Canada. That would include 25% of the nuclear fuel supply requirements in the U.S., which would be subject to this tariff if it were to happen. We think it's unlikely. We think it's more of a negotiating tactic. The producers aren't taking any price discounts. They're just going to pass these costs to the U.S. utilities. We know the cost will then get transferred to consumers and businesses.

I know there's a lot of noise in the market about the tariffs, but when you look at how dependent the U.S. is on other countries for a number of critical minerals, not just uranium but other critical minerals related to defense industries and other manufacturing, Canada and other countries are key suppliers. You've seen the Canadians coming back swinging hard on counter-retaliatory actions.

Again, there's a lot of huffing and puffing going on right now. It's unlikely that this is going to play out. I'm sure there will be some compromise. It reinforces that the U.S. is very dependent on other countries for critical materials. Instead of trying to slap tariffs on its neighbors and partners, it should focus more on dealing with China, which is the greater priority.

Ed Coyne: Thanks, John. As it relates to that, then, Per, let's start with you. Are there any other talking points or things that our listeners should be watching out for going into the new year that maybe I didn't ask for and worth highlighting?

Per Jander: I think I touched on most of them again, but I would say in early February, keep your eyes out for any news from Kazakhstan and Kazatomprom because that will have a big impact on the market. As I mentioned, I'm becoming an expert on it, but I haven't been so far as the big tech. The pace they're moving at is unparalleled and very exciting for our space. I'm learning every day as well. It's just mind-boggling to me. I'm also very excited about the potential change they can bring into our field. That's something that I'm keeping an eye on, for sure.

Ed Coyne: You're right. A lot of different things are happening right now, which will continue to spark some interest. I suspect we'll be on post-February to get your take on announcements on what that looks like for the rest of 2025. As always, Per, thank you for joining us on Sprott Radio. John C., how about on your side? What other points would you like to make before we sign off today?

John Ciampaglia: I think it's important to reiterate that we clearly had some noise in the market. Some of it's been geopolitical with the election. That obviously can weigh on investor sentiment, which can really move prices around in the short term. I think that's what we've experienced. Medium-term and longer-term fundamentals, I think, really drive the market. From our perspective, everything is getting better. We still see a challenging supply pipeline and a number of challenges there. We still see greenfield projects being years out to plug the structural supply deficit.

We still have a lot of geopolitical risks in the supply chains. It's hard to know how it will go, but it could immediately impact the whole pricing continuum. We saw that last year was like 2022 when the price of uranium didn't move as much as the other two elements and finally caught up last year; it does feel to us that 2025 could be a catch-up year where it springs ahead. Finally, I would say let's look at contracting. We're watching it very closely to see if utilities other than China are stepping back into the market and procuring for, not today, but for many years in the future. That's what they should be most focused about.

Ed Coyne: I think as we continue to see things like the small modular reactors, other things come into the marketplace that will put more strain on demand, and supply will have to catch up. Typically, we've seen price reactions to that, at least so far. I think you're right, too, when you say about price versus value of the asset. The value looks very promising.

Price is going to bounce around for many reasons, but the long-term value of this continues to be attractive. Gentlemen, I appreciate you taking the time today to engage and educate our listeners. I am looking forward to catching up to host February announcements and get a sense of where we are. We'll check back in. Once again, I'm Ed Coyne, and you're listening to Sprott Radio.