Hi Berger,
You're right ... it's like the lava flows on Hawaii currently. You can see that the various houses etc are buggered with the lava is taking a slow but inevitable path onwards and eventually destroys everything in their path ... but this is taking its time.
Yeah ... I know, there have been so many false dawns in this sector and the supply wave has been relentless. All the while little catalysts have been occuring that have been adding straws to the proverbial spot-price camel's back.
I do think that we are close now to this actually mattering.
I have been following the breadcrumbs for some time and have participated in U a couple of times over the last few years only to exit, recognizing that I have been too early. To me, this time seems more robust.
A few interesting pieces to the puzzle IMO on the supply side are emerging (we know the demand side and that will slowly grind onward):
- Cameco has indicated that it will source U from the Spot market after it shut in McArthur River for 10 months. This, however, has not yet happened as Cameco has been sourcing U from its own inventories and not the Spot market. If DM is correct, this 8-9m lb that Cameco disclosed in their last QR for 2018 will be a 2H 2018 phenomena.
- I have heard/ read from a few industry sources (all public) in recent weeks that Cameco needs to make a decision in the very ST about whether to restart McArthur River or take it offline for a much longer period (due to North American labour laws). People who should know are saying that it is PROBABLE that Cameco will shutter McArthur River as spot prices have not responded as anticipated to the temporary shut in ... this would be a huge and possibly unexpected outcome for generalist investors/ utilities.
- Just as Cameco is entering the Spot Market, PDN is cutting c. 3.4m lb p.a. from this market.
- Special Purpose Vehicles are active in buying U from the Spot market
- An already established SPV (UPC) just raised $23m to buy c. 1m lb of U
- A new SPV (Yellowcake) is raising c. $200m to buy 8m lb of U off Kazatomprom, which formerly sold all its U in the Spot Market
- The DoE has curtailed supplying U into the Spot Market
- Peninsula Energy has also announced that it will partially source its LT obligations via the Spot Market
- Uranium Enrichers, through capacity destruction, are starting to supply less underfed U into the market
- Kazatomprom is also consistently lowering its actual and planned U production too from its ISR fields. Potentially this is through a lack of sustaining capex which means until U prices recover they will be reluctant to (unable to?) expand/ maintain production.
Collectively, what this does is draw down the inventory overhang that has built up since the Fukushima disaster which coincided with Kazatomprom's aggressive supply ramp up (just at the wrong time).
We know that for some years primary mine supply has not meet U reactor demand. Secondary sources are now nearly exhausted and inventory levels (optically high, but likely less so in reality) are dropping.
From the interview, and in referencing a UxC report, DM states that there is likely less than 30m lb of U available on the Spot Market currently as all other U is either not suitable, held for strategic reasons, or held as inventory by utilities.
Whilst a Utility with high inventory doesn't need to enter the market soon, these inventory levels are reducing and with a steady flow of new reactor commissionings and the grindingly slow (like lava) restarts of the Japanese reactor fleet this overhang is diminishing.
With nuclear generation now exceeding that of prior to 2011 (Fukushima) and with what looks like imminent US protection for both U Utilities (subsidies to compete with shale gas) and for domestic U miners (tariffs on the grounds of national security) these players will have LT confidence to rebuild their inventories which, due to economic risks and a lack of competitiveness with shale gas/ foreign imports were not buying U/ mining U.
IMO, whilst there have been many head fakes, I think we are closer to a normalisation of U prices and utilities starting to enter the contract cycle than at any time post 2011.
The number of investable vehicles remaining and the potentially VERY shallow spot market could lead to a rather rapid reassessment of the sector by investors and utilities.
Grant Williams quote comes to mind: "It doesn't matter to anybody until it suddenly matters to everybody."
Cheers
John
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