Geopolitics is a key factor in the uranium market. In the US uranium inventories are low, and the new utility contracting cycle is coming at a time of heightened geopolitical tension. This is a headache for nuclear utilities, but a bonanza for uranium investors.
US Dependence on Foreign Sources
US has long been dependent on uranium from other countries. Prices have been too low, and political resistance too strong to allow for domestic production. This chart shows the long run changes in the US reliance on foreign uranium.
Global Uranium Supply
Global uranium supply is concentrated. There are only 30-40 mining assets around the world that are capable of producing. There are few key mines in Canada , Kazakhstan, Uzbekistan, and Australia. If there is a problem at any one of them, nuclear utilities could have difficulty finding supply. Complicating matters is the increasing importance of states sponsored fuel buyers, especially those in China, India, and the Middle East. China in particular has made a top priority of increasing its nuclear capability. China is also using its nuclear industry as a tool to gain influence in other emerging marketsthrough the one belt one road program. These buyers have basically unlimited access to capital and do not have the short time constraints of US utilities. Consequently they can pay higher prices for uranium.
Current prices are below marginal costs, so many mines are shutting down. Additionally, there are only a few existing mines capable of ramping up production as prices rise. A likely scenario is ~10% of electricity in the developed world will become dependent on a handful of eastern block producers. This leaves the west extremely vulnerable.
This chart shows where uranium production is located. Note the different shading to reflect geopolitical influence.
The Athabasca Region in Canada is likely critical to future US supply. China has investments there, but generally only minority stakes in listed companies. Russia is ready and willing to influence Kazakhstan’s production, so its not really reliable for the US. There is an ongoing “chess game” between the US and Russia on this issue. Surprisingly, Namibia is one of the few uranium rich countries with reasonably stable politics and friendly trade links with the west, as Brandon Munro, CEO of Bannerman Resources highlighted.
The coming years will likely feature shifting alliances around access to uranium supplies and nuclear technology. The Trump Administration has made it clear that access to uranium is a national security concern. In a previous article, we highlighted how the US and Canada are working together to secure uranium supplies. China has invested heavily in Africa. China takes an extremely long term approach to building influence in the region. As Capitalist Exploits has pointed out, many of Africa’s future leaders have studied in China. In the future they will be more friendly to China when they are trying to access resources, including Uranium.
Uranium and geopolitics are intertwined. Investors need to pay close attention to developments in this area.