Record price highs

Continuing the momentum of 2023 — which saw prices rise 86 percent between January and the end of December — U3O8 spot prices started 2024 at the US$91 per pound level.

The upward trajectory was further fueled by news that uranium mining major Kazatomprom (LSE:KAP,OTC Pink:NATKY) was facing sulphuric acid shortages, a key component of its uranium extraction and production process.

By February 5, prices had risen to US$105.91, marking a nearly two decade high.

The inability to source the acid prompted the Kazakhstan-based major to revise its annual production guidance.

“Supply side fragility continued to be one of the key themes in Q1, especially the news out of Kazakhstan that production would be significantly lower than expected in 2024 than previously thought,” Ben Finegold, associate at Ocean Wall, a London-based investment house said in a Q1 review email.

Kazatomprom’s adjusted 2024 uranium production guidance was projected to range between 21,000 and 22,500 tonnes on a 100 percent basis, and 10,900 to 11,900 tonnes on an attributable basis.

While in line with the output of previous years, the company had to place plans for a production ramp up on the back burner due to the acid shortage and development issues.

“The sulphuric acid issue in Kazakhstan is a systemic problem that we do not believe will go away any time soon,” Finegold added.

Despite the supply side issues, prices were unable to find support at the US$105 level and retracted to US$85 by mid-March.

Prices continued to consolidate through the year and found support around the US$76 per pound level. Although the contraction prompted the energy fuel to shed 27 percent from its January high, the spot U3O8 price remains in historically high territory.

Geopolitical risk

Production challenges out of Kazakhstan in Q1 set the stage for other supply and demand issues in the year. By May The ongoing war in Ukraine intensified discussions around imposing restrictions on Russian uranium imports.

Russia has been a key player in global uranium enrichment, and potential sanctions raised concerns about supply chain disruptions, especially for countries like the U.S. that source uranium from Russia.

As tensions ratcheted up President Biden chose to place a ban on Russian uranium imports in mid-May.

“This new law reestablishes America’s leadership in the nuclear sector. It will help secure our energy sector for generations to come. And — building off the unprecedented US$2.72 billion in federal funding that Congress recently appropriated at the President’s request—it will jumpstart new enrichment capacity in the United States and send a clear message to industry that we are committed to long-term growth in our nuclear sector,” said National Security Advisor Jake Sullivan.

The US has historically relied on Russian uranium, notably through the 1993 Megatons to Megawatts program, which repurposed 500 metric tons of Russian nuclear warhead uranium into reactor fuel.

In 2022, Russian imports still made up 12 percent of the US uranium supply, according to the Energy Information Administration. This dependency highlights a longstanding reliance on Russian materials for domestic energy needs.

While the US works to bolster its domestic uranium production the country will likely look to Canada and Australia to meet its enormous energy needs.

Niger, the seventh largest uranium producing country, also faced geopolitical strife when a military coup upended the country’s uranium sector adding substantial uncertainty in uranium markets.

European utilities, heavily reliant on Nigerien uranium, faced heightened risks, underscoring the vulnerability of supply chains linked to politically unstable regions.

The instability also impacted uranium miners and juniors operating in the region.

In June, French nuclear firm Orano lost its mining permit for Niger’s massive Imouraren uranium deposit, which holds over 174,000 tons of reserves.

While the site’s development was paused in 2015 due to low uranium prices, Niger demanded action as prices surged, warning Orano to begin work by June 19.

Despite submitting a proposal and reopening site infrastructure, Niger revoked the permit, with analysts linking the decision to shift political dynamics following the July 2023 coup.

In mid-July, uranium exploration company GoviEx Uranium (TSXV:GXU,OTCQB:GVXXF) had the military government revoke its rights to the perimeter of the Madaouela mining permit, placing it in the public domain.

In response to the permit withdrawal GoviEx Uranium has initiated arbitration proceedings against the Republic of Niger over the disputed Madaouela uranium project permits.

In a December 9 statement, the company alleged that Niger failed to meet its obligations under the project’s mining agreement, jeopardizing the development of one of Africa’s most significant uranium assets.

GoviEx and its subsidiaries are seeking a resolution through international arbitration, emphasizing the importance of contractual stability in the global uranium industry.

In late November, geopolitical tensions began mounting between the US and Canada as President-elect Donald Trump threatened to levy a 25 percent tariff on services and goods from neighboring countries and USMCA member states Canada and Mexico.

Canadian Prime Minister Justin Trudeau and Ontario Premier Doug Ford quickly responded to the tariff threat underscoring the interconnectedness of both economies, as well as the integrated energy trade between the countries.

According to the US Energy Information Administration (EIA), in 2022 the US purchased 40.5 million pounds of U3O8. Canada was the largest contributor providing 27 percent of the country’s supply.

Fortifying relationships with ally and neighbor states like Canada could prove crucial amid the US ban on Russian uranium imports. If the ban expands to Russian allies, supply from Kazakhstan and Uzbekistan -countries that contributed 25 percent and 11 percent to US supply- could also become precarious.

As pundits debated the potential impact of a tit-for-tat tariff tussle, sector participants forged ahead with deals.

Notably in early December NexGen Energy (TSX:NXE,NYSE:NXE,ASX:NXG) secured its first uranium sales contracts with major US utilities, totaling 5 million pounds.

The agreements cover an initial five-year period, marking a significant milestone as NexGen advances its Rook I project in Saskatchewan, home to the high-grade Arrow uranium deposit.

NexGen Chief Executive Leigh Curyer explained that the agreements marked a key milestone and highlighted the exceptional quality and scalability of its Rook I Project. The newly penned contracts also diversify uranium supply and align with market-based pricing strategies.

“Energy demand from reliable sources is increasing by the week with the need to expand existing nuclear energy infrastructure and the construction of power consuming data centres at a time the security of uranium supply is under significant technical and sovereign risk,” said Curyer.

Tech sector’s energy demands

Aside from high prices, energy security and geopolitical risk powering AI data centers emerged as a key driver in the 2024 uranium market.

According to data from Brightlio, an IT service provider, there are more than 8,000 data centers around the globe, accounting for 4 percent of total energy consumption and 1 percent of global greenhouse gas emissions.

Data center capacity is projected to triple by 2030, making the long term energy demands of the sector immense. It is estimated that one ChatGPT request could power a lightbulb for 20 minutes.

As the energy demands of AI surged, governments and companies turned to nuclear power to ensure a reliable, carbon-free energy supply, and nuclear supply deals began to emerge.

At the end of Q3 Constellation Energy (NASDAQ:CEG) revealed plans to revive the shuttered Three Mile Island Unit 1. The restart is part of a 20 year power purchase agreement with Microsoft (NASDAQ:MSFT).

The supply deal is expected to deliver 835 megawatts of clean energy to the grid, add over US$3 billion in taxes and US$16 billion for Pennsylvania’s economy.

A few weeks later, Amazon (NASDAQ:AMZN) subsidiary Amazon Web Services (AWS) unveiled plans to invest in small modular reactor development. The innovative nuclear technology will be used to power AWS’ data centers.

Under the investment decision AWS will spend US$500 between both Dominion Energy (NYSE:D) and Energy Northwest to advance the innovative nuclear technology. AWS plans to use small modular reactors to power its data centers.

In mid-October, Google (NASDAQ:GOOGL) penned an agreement to purchase power from multiple SMRs that will be developed by Kairos Power. The deal will supply up to 500 megawatts of carbon-free electricity to US grids, aiming to support the rising energy demand driven by AI.

Global data center power consumption is forecast to nearly double from 460 terawatt hours in 2022 to over 800 terawatt hours by 2026. As demand from the tech sector expands, concerns over supply deficits have only intensified.

This supply and demand imbalance was highlighted during the November Annual General Meeting address from Australian uranium company Paladin (ASX:PDN,OTCQX:PALAF).

“With limited investment in new uranium mines, there is a growing supply deficit that is anticipated to increase to over 50 million pounds per annum during the next decade,” said Cliff Lawrenson, non-executive chairman.

“Diversity of supply is also becoming increasingly important as a response to recent geopolitical activities, including the recent US ban on Russian supplies.”

While all the above mentioned themes will continue to impact the uranium market, increased M&A activity is another emerging trend that is likely to play prominently in the year ahead.