The uranium industry is in the early stages of a second act as some countries turn to nuclear power to help reduce their carbon footprints, but skepticism abounds about how long its moment in the sun will last.
Cameco Corp. last week announced plans to ramp up uranium production at its massive McArthur River mine in northern Saskatchewan. The company mothballed the mine in 2018 amid a prolonged uranium slump precipitated by the meltdown of the Fukushima power plant in Japan. In the aftermath of the 2011 accident, the price of uranium went into free fall and some countries, including Germany, vowed to phase out nuclear power entirely.
But over the past few years, nuclear has been touted by politicians as a possible silver bullet to help countries meet ever-stricter emissions standards.
The European Union recently designated nuclear as a “green” fuel, as it generates no carbon dioxide. That means investment managers are likely to increasingly seek out uranium companies for inclusion in environmental, social and governance (ESG) funds.
France announced last week that it intends to build at least six new reactors by 2050, after previously planning to pull back on nuclear. The administration of U.S. President Joe Biden recently tabled tax credits that encourage the construction of nuclear power plants.
“You’ve heard it from many different agencies and countries,” Cameco chief executive officer Tim Gitzel said in an interview. “There’s no path to net zero that doesn’t include nuclear.”
Saskatoon-based Cameco has added 40 million pounds of uranium to its long-term contract commitments so far this year. Its total order book stands at 160 million pounds, or about 14 times its current yearly production.
Mike Kozak, an analyst with Cantor Fitzgerald, wrote in a note to clients that the restart of McArthur River is the beginning of a massive new multiyear cycle in purchases for nuclear utilities worldwide.
“The entire sector, and certainly the uranium equities, have been waiting on this development for years,” he said.
Shares in Cameco rose by 14 per cent after the McArthur river announcement, their biggest move up in about four months.
But scratch beneath the surface, and it’s clear there are reasons to be wary of nuclear’s renaissance. Despite doubling in price since 2018 to trade at about US$43 a pound, uranium is far below the all-time high of approximately US$140 reached in 2007.
And while China, India, Russia and others are building new nuclear plants, the total number worldwide has fallen consistently since 2018, as other countries, including Germany, Belgium, Switzerland and Spain, phase out aging infrastructure.
Cameco itself has been careful about not being too bullish. As McArthur comes back on line over the next few years, its output will be capped at 60-per-cent capacity. Meantime, production at the company’s other big mine, Cigar Lake, will be reduced and by 2024 will be operating 25 per cent below capacity.
The Canadian uranium producer is producing less uranium than its customers need and buying the balance from the secondary “spot” market – a strategy that helps support the commodity price. While Cameco is being diligent about not bringing too much product to market, other major global producers such as Uzbekistan and Namibia haven’t, at times producing more uranium than is needed to satisfy market demand, putting downward pressure on the price.
But one of the biggest factors holding nuclear power back globally is its growing reputation as a money pit. Outside of China, new power-plant construction is renowned for its astronomically long timelines, gargantuan cost overruns and persistent design problems. France’s Flamanville 3 plant took 16 years to build and went €16-billion ($23-billion) over budget. Finland’s Olkiluoto 3 reactor, which is finally scheduled to go into production later this year after more than a decade of delays, will have taken 20 years to build and is about €5-billion over budget.
Nuclear has always had its fair share of skeptics. Its new designation as an environmentally friendly fuel rankles some people because nuclear waste can stay radioactive for thousands of years and must be stored indefinitely. And the chance of a major accident, which can cause not only immediate fatalities but the potential of cancer deaths from exposure to radioactivity decades later, is a continuing risk. Cameco’s Mr. Gitzel acknowledges that as rare as major accidents have been – three in the past 40 years – they cast a long shadow.
While nuclear may never become the preferred energy source for most countries, it will likely act as a stopgap for the foreseeable future to replace coal, the most polluting of traditional fossil fuels.
Treva Klingbiel, president of industry publication TradeTech, says as much as people may want wind and solar to fill the void, alternative power sources have at times proved to be unreliable. For example, calm weather in Britain has reduced the efficacy of wind turbines, and dust storms in Abu Dhabi have rendered solar panels unusable.
“Renewables only work when nature works with them,” she said.
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