Interview with John Cash, CEO of Ur-Energy Inc. and Mark Chalmers, President & CEO of Energy Fuels Inc.

Recording date: 13th May 2024

The uranium market is in the early stages of a powerful resurgence that is capturing the attention of investors globally. The bullish investment thesis is underpinned by two key factors: accelerating demand for carbon-free nuclear energy, and intensifying challenges to scaling up uranium supply. The collision of these two forces sets the stage for a sustained period of higher uranium prices, creating a compelling opportunity for investors to gain exposure to the space.

On the demand side, the growth outlook for nuclear power has rarely been stronger. Governments worldwide are increasingly turning to nuclear energy as a critical tool for meeting ambitious decarbonization targets. The urgency of the climate crisis is overriding longstanding public and political opposition to nuclear power, resulting in a wave of new reactor construction and life extensions for existing fleets.

China is leading the charge, with plans to expand its nuclear capacity from around 50 GW to 120 GW by 2030. India, Russia, and South Korea also have ambitious buildout plans. Even in the U.S. and Europe, where nuclear growth has long been stagnant, there is a growing recognition that reactors will be needed to displace coal and gas generation.

All told the International Atomic Energy Agency expects global nuclear-generating capacity to nearly double by 2050 in its high-case scenario. This translates into substantial demand growth for uranium, which fuels the nuclear reaction process. The World Nuclear Association forecasts annual uranium demand rising from 79.6k tonnes in 2021 to 112.3k tonnes by 2035, a 41% increase.

However, the uranium industry faces daunting challenges in scaling up supply to meet this projected demand growth. The bear market of the past decade saw exploration and development spending plummet as low prices made new projects uneconomic. Now, companies are grappling with chronic labor shortages, cost inflation, heightened regulatory scrutiny, and exorbitant capital requirements that make it exceedingly difficult to bring new production online.

As Ur-Energy CEO John Cash explains, "Everyone's facing challenges post-COVID with manpower shortages, shortages of supplies, that just really tend to draw out the time it takes to get into production. We're seeing them virtually with every producer around the world. Ultimately, that is going to affect price going forward."

Energy Fuels CEO Mark Chalmers echoes this sentiment, noting, "It's a new gear here and unfortunately, in the mining business as a whole, it is hard to deliver projects on time, at capacity, and at costs where you're profitable."

Indeed, most industry estimates suggest the uranium price needs to at least double to incentivize enough new mine supply to close the impending deficit. And even then, permitting and construction timelines stretching out 5-10 years or more mean it will be a long time before those new pounds hit the market in meaningful quantities. The recent U.S. ban on Russian nuclear fuel imports after the Ukraine invasion has only exacerbated the tightening supply picture.

This widening disconnect between rising demand and stagnant supply will likely force utilities to more aggressively compete for the limited uranium available in the market. Ultimately, the clearing price will need to rise to levels that incentivize new production, a process that could take years to play out.

In the meantime, investors will likely reap the benefits as uranium equities rerate higher to reflect the strengthening fundamentals. The key is to focus on companies with proven, low-cost production capacity that can be scaled up quickly. Firms with strong balance sheets, permitted projects, and exposure to rising long-term contract prices are particularly well-positioned.

While risks around global growth, capital availability, and the pace of nuclear energy adoption remain, it's hard to ignore the potency of the uranium bull case. The world needs more carbon-free baseload power, and nuclear is the only answer at scale. As the uranium supply-demand imbalance comes to a head, investors who are along for the ride stand to generate substantial returns in the years to come.

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