Benzinga - by Matt Whittaker, .
Uranium prices have more support now than they did when the nuclear fuel hit its all-time high in 2007, according to the chief executive of uranium explorer Madison Metals Inc. (OTC:MMTLF).
Back then, when uranium reached a record high above $130 per pound, physical supply was tight because of flooding at two major mines, falling recoveries from old nuclear warheads, expectations of a nuclear renaissance and the launch of uranium futures in New York.
But the high price proved to be a bubble, quickly falling as end users stopped buying and financial services companies sold the metal. Later, in 2011, a disaster at a Japanese nuclear reactor sent the uranium market into a deep slump for years as nations shut down nuclear reactors.
The underlying fundamentals are "dramatically different" now, CEO Duane Parnham told Benzinga.
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The tables have indeed turned. Around 60 reactors are under construction around the world, and an additional 110 are planned, according to the World Nuclear Association. That's in sharp contrast to the 65 reactors that, according to the International Atomic Energy Agency, were shut down or didn't have their life spans extended between 2011 and 2020.
The threat of climate change has helped temper opposition from environmentalists concerned about safety and waste. At the United Nations climate conference last year, 22 nations pledged to triple nuclear generation by 2050 from a 2020 baseline.
The energy transition away from fossil fuels toward net zero emissions though electrification means there will be a much greater need for carbon-free power generation, and wind and solar currently aren't able to meet base load power generation requirements.
"Nuclear really became the solution to that," Parnham said. "It's becoming more accepted."
According to a base case scenario from the World Nuclear Association, global demand from reactors could hit almost 130,000 metric tons by 2040, up substantially from the estimated demand of about 65,650 metric tons this year. But by 2040 supply from existing, prospective or planned mines or those now under development may total less than 80,000 metric tons, the group said.
"We've really got to start developing mines now," Parnham said.
Mine development and exploration has been underfunded because of the longtime slump in uranium prices, which dipped below $20 a pound in 2016.
Meanwhile, uranium purchases from investors and trading firms have become "significant," Parnham said.
On top of utilities buying uranium for reactors and governments making purchases for strategic stockpiles, demand from financial services companies "dries up what little supply is out there," he said.
One of the most prominent examples is the Sprott Physical Uranium Trust (OTC:SRUUF), which is an exchange traded fund that sells shares backed by physical uranium held in storage. Since its inception in 2021, the fund has amassed nearly 64 million pounds of uranium.
The buying from the financial market creates price volatility because the financial players will "flood the market" when prices start to come down, he said.
There may come a time when so much financial services money is entering the uranium market that governments will have to step in with regulation, but "we're a ways away from that," he said.
In the meantime, the higher uranium price is spurring merger and acquisition activity among uranium miners, as acquisitions offer the quickest way to grow, he said.
Indeed, recent merger and acquisition activity in the uranium space has included Premier American Uranium Inc. (OCT: PAUIF) and American Future Fuel Corp. (OTC:AFFCF); Boss Energy Ltd. (BQSSF) and enCore Energy Corp. (NASDAQ:EU); ATHA Energy Corp. (OTC:SASKF) and Latitude Uranium Inc. and 92 Energy; and IsoEnergy Ltd. (OTC:ISENF) and Consolidated Uranium Inc.
"Pricing does motivate M and A," Parnham said.
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