Uranium price, January to September 2024.

Chart via Cameco.

Gerardo Del Real, co-founder of Digest Publishing and editor of Daily Profit Cycle, also mentioned the significant relationship between the uranium spot price and long-term contract prices.

“We’re starting to see higher contract prices, higher contract prices than the spot price. And anytime you see that (it) is a pretty telling indicator of what’s to come. And I think what’s to come is absolutely higher prices in the uranium space.”

“I think the utilities, being the largest consumer as usual, have been slow to come off the sidelines,” he said.

Uranium production problems constraining supply

Looking forward, production issues in leading uranium producer Kazakhstan may add to price tailwinds.

Early in the year, state miner Kazatomprom (LSE:59OT,OTC Pink:NATKY) reduced its 2024 production guidance to 54 million to 58 million pounds of U3O8, down from its previous forecast of 65 million to 66 million pounds.

The 20 percent cut was the result of difficulties sourcing sulfuric acid and delays in new construction.

The decreased output out of Kazakhstan has impacted supply, and has been further compounded by a coup in Niger, the seventh largest uranium-producing nation. In January of this year, Niger’s military government announced plans to reform the mining sector with the aim of boosting revenues for the country. As part of the overhaul, it temporarily suspended the issuance of new mining licenses and began a review of existing mining licenses.

In June, the African nation revoked French nuclear fuel cycle company Orano’s mining permit for the Imouraren uranium project. Imouraren boasts reserves of over 174,000 metric tons of uranium, making it one of the largest deposits.

A month later, exploration company GoviEx Uranium (TSXV:GXU,OTCQB:GVXXF) suffered a similar fate when the mining permit for its Niger-based Madaouela uranium project was canceled.

Tiggre sees 2024 bringing increased production as companies ramp up output. “My guess is that global production will be net higher in 2024 than 2023, but it won’t matter as fast as demand is piling up,” he said

AI data center demand for uranium piling up

Uranium’s strong demand story is no secret as the world looks to transition to clean energy. But this year artificial intelligence (AI) data centers have emerged as another major demand driver in the space.

AI data centers are specialized facilities designed to handle the intensive computational needs of AI applications like machine learning. They rely on high-performance hardware, including GPUs and CPUs, to process vast amounts of data. These centers are highly energy intensive, requiring significant power for both computing and cooling systems.

As AI workloads increase, energy consumption has become a growing concern, leading to efforts to boost efficiency and integrate renewable energy solutions to manage their substantial carbon footprint.

“One query to ChatGPT uses approximately as much electricity as could light one light bulb for about 20 minutes,” tech researcher Jesse Dodge commented to NPR in July. “So, you can imagine with millions of people using something like that every day, that adds up to a really large amount of electricity.”

To meet the massive energy needs posed by data centers, the tech sector is looking to nuclear energy.

In late September, Constellation Energy (NASDAQ:CEG) announced plans to revive Three Mile Island (TMI) Unit 1 under a 20 year power purchase agreement with Microsoft (NASDAQ:MSFT). The deal will deliver 835 megawatts of clean energy to the grid, create 3,400 jobs and add over US$3 billion in taxes and US$16 billion for Pennsylvania’s economy.

As part of the agreement, Constellation will restart of TMI Unit 1, which closed in 2019. TMI Unit 2, the site of a 1979 nuclear accident, is independently owned and being decommissioned.

“This has made big waves, but the need was already baked in the cake before this announcement,” said Tiggre, noting that he has written about the potential for AI to be a uranium play. “Short version: data centers need lots of 24/7/365 power — just the sort of thing that nuclear is best at (not windmills or solar),” he added.

Less than a month later, Amazon (NASDAQ:AMZN) subsidiary Amazon Web Services (AWS) unveiled partnerships with both Dominion Energy (NYSE:D) and Energy Northwest. Under the agreements, it will spend US$500 million to develop advanced small modular reactors (SMRs) for powering AWS data centers.

In mid-October, Google (NASDAQ:GOOGL) made a move to secure nuclear energy supply when it 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.

The first reactor is expected to go live by 2030, with further expansions planned through 2035.

“I think the Microsofts and the Googles of the world are tipping their hand because they have to,’ said Del Real.

He went on to explain that other companies in the tech space will likely follow suit given the limited resources available. These circumstances are creating a “perfect storm” in the uranium market.

“The trend is absolutely clear as day to me, and that trend is higher prices. Companies that can find uranium, make significant discoveries and produce it at a decent margin are going to do extremely well for a very long time,” he said.

In a report, IDC forecasts that data center electricity consumption will “more than double” between 2023 and 2028. “AI datacenter energy consumption is forecast to grow at a CAGR of 44.7 percent, reaching 146.2 Terawatt hours by 2027 with AI workloads consuming a growing portion of total datacenter electricity use,” it states.

Uranium M&A heats up, experts calling for more

To fuel global energy demand growth, new uranium projects will need to be developed.

Although the approval process can be more cumbersome for uranium than other commodities, one way majors can circumvent the waiting period is by purchasing companies or deposits that are already permitted.

The third quarter of 2024 saw notable uranium-centric deals, a trend Del Real expects to continue. Right now he sees similarities between uranium M&A and the rising number of transactions in the gold and lithium markets.

“I absolutely see the exact same scenario playing out in the uranium space, especially in light of the amount of energy that’s going to be required if we’re going to have this AI revolution, per se,” he said.

Uranium M&A activity ramped up in June, when Blue Sky Uranium (TSXV:BSK,OTCQB:BKUCF) expanded its exploration portfolio through the acquisition of two new projects in Argentina’s Neuquén Basin.

A few days later, the sector saw a mega deal, when Australia’s Paladin Energy (ASX:PDN,OTCQX:PALAF) announced plans to acquire Saskatchewan-focused Fission Uranium (TSX:FCU,OTCQX:FCUUF) in a C$1.14 billion transaction.

In early July, uranium excitement was further piqued when the US Department of Energy announced plans to spend US$2.7 billion on low-enriched uranium from domestic sources. The news sent prices to a Q3 high of US$86.30.

Deals continued when Indigo Exploration (TSXV:IXI,OTCQB:IXIXF) acquired the Hot property, a uranium project located in the Shirley Basin of Wyoming, US. The mid-July purchase was followed by news that US producer Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU) was planning on increasing its annual uranium output.

“We have a long history of producing uranium, (and) we produced approximately two-thirds of uranium in the US over the last six to seven years,’ Mark Chalmers, CEO of Energy Fuels, said during the firm’s earnings call. ‘We’ve also been one of the largest producers of uranium over the last 10 or 15 years.’

On a similar note, Uranium Energy (UEC) (NYSEAMERICAN:UEC) announced in mid-August that it was restarting uranium production at its Christensen Ranch in-situ recovery operations in Wyoming.

Looking to grow it Wyoming portfolio, UEC purchased Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) America’s Wyoming assets, including the Sweetwater plant and a portfolio of uranium-focused projects, in late September.

M&A activity continued into Q4 as IsoEnergy (TSX:ISO,OTCQX:ISENF) started the period with the acquisition of US-focused Anfield Energy (TSXV:AEC,OTCQB:ANLDF). By late October, IsoEnergy had formed a joint venture with Purepoint Uranium (TSXV:PTU,OTCQB:PTUUF) to explore and develop uranium projects in the Athabasca Basin.

Advancing into Q4 and 2025, Del Real expects deals involving production-ready facilities and deposits to continue.

While heightened M&A is good for the news cycle, Tiggre is skeptical that it will address the looming supply shortage. Although he foresees more M&A, noting that it is “almost inevitable,” he also warned, “Just remember that ‘buying isn’t building.’ Consolidating known mine reserves doesn’t bring any new pounds to the table.’

Investor takeaway

As the excitement in the uranium market builds, Del Real offered tips for investors looking to capitalize on projected demand growth for energy. He advised building a solid portfolio by diversifying into companies at various stages — that means a mix of producing companies, along with developers and explorers.

Producers tend to rise first when prices start to increase, while explorers may take longer, but offer greater potential upside if they are successful. In his view, a well-balanced mix of stocks allows for steady gains from established producers and the possibility of significant returns from exploration companies.

“I think triple-digit uranium prices are right around the corner,” he said. “And then I think it’s going to be the kind of party everybody wants to be at. And that’s going to lead to probably the sector overheating for a bit, the way it always does, but it’ll be fun. We have great, great days ahead in the uranium space.”