With Brandon Munro, CEO/MD of Bannerman Energy
Recording date: 12th January 2024
Kazatomprom, the globe’s largest uranium miner supplying 40% of output, stunned markets this week by announcing it will undershoot 2023 production guidance by 10% due to persistent acid supply shortages hampering its operations. The Kazakh state-owned company said it will maintain a reduced capacity utilization of 80%, rather than increasing output to 90% of planned levels as previously targeted. This news of significant additional supply constraints from the industry’s dominant player ignited fierce buying that propelled uranium prices above $100 a pound for the first time in over a decade.
For investors, the latest shock underscores mining complexity risks even for seasoned incumbents but also showcases the worsening supply-demand imbalance as new reactor demand growth increasingly outpaces what existing mines can provide. With primary production already under pressure, any further losses from leading suppliers like Kazatomprom will only tighten the alarming supply deficit opening in front of the market-fanning the flames for continued price increases according to textbook fundamentals.
In fact, rather than distressed at its shortfalls, some analysts speculate Kazatomprom may need to become a net buyer of uranium if issues extend. And with its overt struggles to source adequate pounds, utilities reliant on its contracts are already likely paying maximum contract escalation rates to secure available volumes. So despite its downgrade, its sales remain solid for now. But shortages loom on whether alternative mines can backfill any significant production losses.
And beyond just the Kazatomprom cut impacting available supply in front of rising utility procurers, several other imminent catalysts lend further upside potential. These include the Russian sanctions bill working through US Congress that may soon restrict western access to Russian-origin uranium when signed into law. Though diluted from initially proposed outright bans, its public company waiver process still presents a formidable deterrent effect likely shrinking accessible supply by chilling buyer willingness.
Adding fuel, the sanctions risks sparking financial entities to begin building strategic inventory positions in the metal to aid SMR fuel needs. And with primary production mostly stagnant despite demand forecasts showing massive growth from expanding global reactor fleets, the investment case looks increasingly robust for developers able to help plug the upcoming supply shortfall from constrained incumbents like Kazatomprom struggling to play catchup. So while sector hype builds, investors should carefully vet projects on execution ability and production likelihood rather than promoters’ flashy claims alone.
-
Learn more: cruxinvestor.com/categories/c...
Sign up for Crux Investor: cruxinvestor.com