In July, the Canadian uranium miner Cameco stopped producing at its mine in northern Saskatchewan (known as ‘Cigar Lake’) for two weeks.
Cigar Lake itself was fine, nothing was wrong with the mine. The problem was their sulfuric acid plant— a crucial ingredient in processing uranium ore— broke down.
Normally they would have just bought sulfuric acid from somewhere else while they fixed their company-owned acid plant. But this year that’s not so easy.
About half the world’s seaborne sulfur moves through the Strait of Hormuz, and since the war with Iran began, those shipments have almost completely stopped. China, the world’s largest exporter of sulfuric acid, restricted its own exports in May to make sure they had enough.
So a simple mechanical problem at an acid plant caused a two-week shutdown of the world’s largest uranium mine.
Two weeks is a really long time for a huge mine like Cigar Lake to have an unscheduled shutdown; that’s because uranium is already in critical supply— there simply isn’t enough uranium being produced right now to keep up with demand.
The math is easy: miners produced roughly 155 million pounds of uranium in year. Reactors burn about 185 million pounds. So there’s already a significant deficit.
For the past several years, the deficit between uranium production versus reactor demand was covered by stockpiles that had been building up over decades. So the nuclear industry effectively burned through its uranium ‘savings’.
But those stockpiles of uranium are now basically depleted… which means that nuclear power companies will need to rely on uranium production in order to meet their needs.
This is a problem… and one that we can quantify.
Because uranium is literally THE most important resource for a nuclear reactor, the reactor companies tend to line up their uranium supply needs years and years in advance through forward contracts and term agreements.
There’s no black magic here— it’s a pretty predictable quantity. A 2GW nuclear plant, for example, already knows exactly how much electrical capacity they have, so they know how much fuel they need to serve their customers… hence they can forecast their future uranium needs.
For this year at least, US nuclear power companies have more or less the amount of uranium that they anticipate needing. But next year they’ll be in a deficit… and one that grows each year.
By 2030, US nuclear power companies will be short 40% of their anticipated uranium needs. By 2033, they’ll be short 91%. Basically all of it.
Big deal, right? Existing uranium producers can simply mine more.
But that’s not really happening… at least, not at current prices.
Kazatomprom (based in Kazakhstan) is the largest uranium miner in the world. And their management is deliberately pulling back on production right now.
The company believes that it’s simply not worth mining and selling uranium at the current price. Why bother producing at your full potential now when they KNOW the price is going to rise in the future, hence they make a LOT more money in the future if they mine less now.
OK well, the big shortage in the 2030s is still a few years away. So the industry has time to start more mines and bring new uranium production online.
Well, that’s easier said than done.
A company called NexGen Energy discovered a major uranium deposit in Saskatchewan back in 2014. They finally got their construction license this March, started building in August, and expect their first ore in 2030.
In other words, SIXTEEN years from discovery to production— and that’s about average for the industry.
You can’t just turn on uranium production like a light switch; it takes years and years to make most things happen in business, and uranium mining is no different.
This is common across many real assets— there has been years of underinvestment. Very few new uranium mines. Very little oil & gas exploration. Not enough new shipyards, refineries, smelters, etc.
It takes several years… plus a lot of risk capital… to discover a new resource deposit and bring a mine to life. Years.
Demand can grow much more quickly. Just look at the increase in electricity demand (thanks in large part to data centers). When electricity demand surges, but the supply of the fuel required to generate electricity is stagnant, the end result is higher prices.
And not just higher electricity prices— higher prices for the fuel as well, i.e. higher natural gas prices, higher uranium prices, and even higher coal prices.
(Coal is especially interesting— it was basically chased out of town. NO ONE wanted to invest in a new coal mine thanks to Greta Thunberg. Yet the International Energy Agency now expects coal-fired power generation to rise this year to make up for energy imbalances. Stagnant supply meets rising demand.)
That’s tough news for anyone with an electricity bill. But you can also be on the other side of it and make money from this trend.
When supply and demand is so fundamentally unbalanced, the companies that produce these scarce resources tend to perform extremely well.
This is the primary investment ethos for our investment research newsletter, Strategic Assets.
We look for the most critical resources that the economy runs on; we find sectors where there has been chronic underinvestment and focus on undervalued yet successful companies with great management and balance sheets.
Energy has been good to us. Two oil tanker owners we featured when nobody wanted them are up more than 150% and 110%.
A small South American oil producer we featured last month has no debt and sells every barrel at the wellhead to one of the largest oil companies on earth— so shipping is someone else’s problem. A typical new well takes years to pay for itself. This company’s fastest did it in 37 days.
