Uranium Volatility Within Broader Downtrend

Gold jumps as geopolitical risk makes surprise comeback

Gold rebounded 5.9% to US$2,718/oz, recovering most of last week’s -4.5% slump as a perceived decline in geopolitical risk in the two weeks after Trump’s win reversed dramatically with Russia responding to Ukraine missile strikes with nuclear threats.

Short-term uranium volatility within overall downtrend

Uranium has been volatile, jumping on Russia’s restriction of enriched exports of the metal to the US last week but then losing most of these gains, as a downtrend this year continues as markets look to a large potential supply increase next year.

Gold stocks rebound on metal bounce and equity rise

Gold stocks regained most of the ground lost last week, with the GDX and GDXJ jumping 7.8% and 7.2%, mainly from the rise in the metal price, but also from a boost in equity markets, with the S&P 500 up 1.6%, Nasdaq 1.5% and Russell 2000 4.3%.

Uranium Volatility Within Broader Downtrend

The gold price rose 5.9% to US$2,718/oz, recovering most of the -4.5% plunge from last week on a dramatic reversal of the perceived decline in geopolitical risk that had weighed on the metal in the two weeks following Trump’s win. This was driven by Ukraine’s firing of US supplied long-range missiles into Russia after approval from the Biden administration. Russia responded with threats of nuclear escalation, stating that attacks from a non-nuclear state with the participation of a nuclear state would be considered joint aggression. We expect that geopolitical issues will continue to be a major swing factor for gold into 2025, and last week estimated over a US$400/oz premium in the price for the Russia-Ukraine and Middle East conflicts combined.

This potential escalation towards a major global conflagration did not hold back equity markets, with the S&P rising 1.6%, Nasdaq up 1.5%, and Russell 2000 gaining 4.3%, demonstrating that the risk-on move went beyond just large caps and tech. The big gain in the metal and equities boosted gold stocks, with the GDX up 7.8% and GDXJ gaining 7.2%, and recovering most of last week’s losses. Such strong buoyancy in gold and gold stocks indicate that the sentiment for the sector remains strong, with the market viewing risk as high even with a new US political direction.

Uranium volatility after Russia’s US export restrictions

Russia has also been a key factor in recent uranium price volatility after placing restrictions on enriched uranium exports to the US on November 15, 2024. The price jumped on this news from 2024 lows of US$76.6/oz to US$81.9/oz, but then reversed most of this, declining to US$77.8/lb (Figure 4). This quick pullback was in keeping with a broader downtrend this year from over a US$100/lb peak in late January 2024 and has raised the question of whether this is just a pause in a bull market that started in 2018 or marks the beginning of an extended decline (Figure 5).

Russia second largest supplier of global, US enriched uranium exports

Russia is actually a relatively small player for global natural uranium production and exports, but a major player for enriched uranium exports. In 2022, the country accounted for just 5% of uranium mine production, the sixth largest player, with Kazakhstan by far the market leader, at 43%, and Canada second, at 15%, followed by Nambia, Australia and Uzbekistan at 11%, 9% and 7% (Figure 6). Kazakhstan and Canada look set to continue to be major uranium players long-term, with the second and third highest reserves, at 14.7% and 9.2% of the total in 2019 (Figure 7). Australia also could become a large player long-term, given the highest reserves, at 27.5%.

For natural uranium exports, Kazakhstan and Canada dominate the market, with a 60.9% and 32.8% share in 2023 (Figure 8). However, natural uranium must be enriched before use in nuclear reactors, and this export market is also effectively a duopoly between the EU and Russia, with 54.5% and 36.9% shares (Figure 9). This is because neither of the big two natural uranium producers and exporters, Kazakhstan and Canada, have enrichment capacity. Both countries are limited both by international treaties and nuclear non-proliferation agreements and there is also an issue of financing such projects given a long development period of up to a decade.

Enrichment capacity is therefore concentrated in Russia, the EU and China, with China’s output mainly for domestic consumption with limited exports. Russia’s Rosatom has the largest enriched uranium capacity at 27,100k SWU/year, and the EU, between Urenco, with 17,900k SWU/Year, in the US, UK and EU, and Orano, with 7,500k SWU/year in France, is second largest, and China third (Figure 10). The capacity of most of these producers is expected to remain flat in from 2022 to 2025, with only CNNC seeing a significant rise to 10,000k SWU/year from 8,900k, and the smaller combined capacity of Japan and Brazil to rise to 400k from 100k.

Canada’s large opportunity to supply uranium to US

This current global supply structure of uranium puts Canada in a decent position to increase its importance in the huge US market. The country already accounts for 97.3% of the US’s natural uranium imports, with Kazakhstan at just 1.8% (Figure 11). For enriched uranium, while the EU is the number one US source at 43.8% of the total in 2023, Russia is a major supplier, at 30.9% (Figure 12). This heavy reliance on Russia is the reason the recent export restrictions generated the big temporary jump in the uranium price, with the US a major source of global demand for the industry with the largest level of nuclear generated electricity.

However, the US has almost zero domestic production, and nearly all of its uranium comes from foreign imports, with even a large proportion of electric plant purchases from domestic suppliers actually uranium originally from foreign sources (Figure 13). The US may not want to rely on getting over 40% of its uranium from China and Russia, given the risk of geopolitical conflict, and long-term look to diversify towards other sources. There could also potentially be an easing of the conditions in current treaties that prevent the development of uranium enrichment capacity in Canada over time, given rising support globally for nuclear as a part of green energy. These factors could encourage US investment in the uranium sector of Canada, a geographically and politically close neighbor.

Uranium price forecasts cut out to 2026

While the outlook for uranium development globally long-term looks strong, including a major potential role for Canada, there has continued to be pressure on the price short-term. One reason could be that the market is looking ahead to substantial growth in production in 2025E, up 6.4%, outpacing a -2.2% decline in consumption, as forecast by Australia’s Office of the Chief Economist (AOCE) (Figure 14). This is expected to drive a contraction in the market deficit to -16.5k tonnes in 2025E from -23.1k tonnes in 2024E, although it is forecast to again widen to -18.5 tonnes in 2026E (Figure 15). This is also following a substantial boom in uranium in 2023 which saw the price go parabolic, and the market may be viewing this as overdone in the short- term, even given the overall upbeat outlook for the sector longer-term.

The AOCE has only reduced its deficit estimate for 2024E moderately in its most recent Q3/24 forecast to -23k tonnes from -25k tonnes over the first two quarters of the year (Figure 16). However, for the past two quarters, it has lowered its price estimate for 2024, which is a more forward-looking measure than the deficit, from US$99/lb in Q1/24 to US$85/lb in Q3/24. It has also significantly cut back its price expectations for 2025E to US$83.5/lb, indicating a decline year on year, where last quarter it was looking for a rise to US$98.0/lb for next year (Figure 17). The 2026E price forecast has also been lowered, to US$89.0/lb from US$101.4/lb.

Major uranium stocks gain even as metal price declines

The major uranium stocks, Cameco, Kazatomprom, NexGen Energy and Uranium Energy, had been dragged down by the uranium price decline through most of the year (Figures, 18, 19) However, since September there has been a substantial turn around in the stocks, even as the uranium price has continued to struggle. One of the possible drivers of this move was an announcement by fourteen major banks that they supported an initiative to triple nuclear energy by 2050. This occurred at an event that was part of Climate Week in New York in September 2024, with the plan originally announced by major global governments at COP28 in 2023.

The biggest gain has come from Cameco, up 50% year to date, which was also boosted by strong Q3/24 results, although it is now only seen as nearly fully valued by the market, with around only 0.9% upside to its target price. NexGen Energy’s strong 38% rise has also seen it move near its consensus target, with 11.2% upside. However, the market still sees stronger potential gains for Kazatomprom and Uranium Energy, up 2% and 31% year to date, with 16.8% and 28.6% upside to their consensus targets, respectively.

Large gold producers all rise and TSXV gold mixed

All of the large gold producers rose and the TSXV gold stocks were mixed (Figures 20, 21). For the TSXV gold companies operating domestically, Artemis Gold reported an update on Blackwater, with the first ore being processed and Osisko Development received approval of the BC Mines Act permits for Cariboo (Figure 22). For the TSXV gold companies operating internationally, Montage Gold repurchased a 1.0% net smelter royalty on the Kone Project, Lumina Gold reported an extension of the Los Cangrejos concession to 2049, Minera Alamos announced it was near finalizing the Sabre Gold acquisition and a CAD$8.5mn private placement and Lion One highlighted an increased focus on roscoelite-targeting and new management appointments (Figure 23).