A U-turn for Uranium

Keith Watson and Rob Crayfourd, managers of Geiger Counter at New City Investment Managers have provided their latest outlook for investing in uranium and how there is a significant growing interest in the product following recent events, including:

Chinese demand growth remains the largest driver

As of January 2017 China still had 22 nuclear power reactors under construction, 40 planned for construction, and 136 under proposal, all alongside the 35 already in operation. This huge undertaking creates a clear pathway for future uranium demand, and is a function of China’s desire for increased energy independence and reduced reliance on fossil fuels in the on-going fight against pollution, particularly the smog that plagues areas of the country.
Kazakhstan, the world’s largest producer, to cut output

Kazakhstan announced earlier this year that it would be cutting 2017 production by an estimated 10% which marks a significant step in the right direction for helping uranium prices recover. As the world’s lowest cost producer, Kazakhstan played a substantial role in suppressing prices, having grown production over recent years despite rock bottom prices.
Trump : The climate change sceptic expected to level renewables vs. nuclear playing field

Renewable subsidies favoured under the Obama administration are expected to be pared back under the new US government, which should see nuclear’s position as a cost-competitive base load energy source reaffirmed.

Outlook for 2017
Estimated marginal production cost sits above current price

A uranium price of $40-50/lb is necessary before the industry begins to reinstate capacity, with many of the global producers having cut capex and shut higher-cost production sites. The cut to Kazakhstan’s production will likely accelerate consumption of global inventory levels which was previously expected to take up to 12 months before spot prices fully react to insufficient supply levels.

Positioned away from selling into the spot market

This has led the managers to have a balance of explorer/developers and low-cost producers. This position provides exposure to projects with the near-term responsiveness to increase production when uranium spot prices recover, and also scale to supply into longer term demand needs without the need to sell into the spot market.
Ready to benefit from rising prices or Chinese appetite for securing future supply

Although explorers/developers are more difficult to value than producers, it is likely that the valuation of these assets will be leveraged to upward movements in the uranium price. Additionally, valuations are supported by underlying demand from China seeking to secure future uranium supply for their reactor pipeline.