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Uranium rally: Sprott sees short supply supporting prices above US$100 per pound

Uranium prices have recently climbed as high as US$106 per pound.
Uranium prices have recently climbed as high as US$106 per pound.(AP Photo/Petr David Josek, File) (The Associated Press)

After soaring more than 250 per cent over the past five years, Sprott Asset Management says the spot price of uranium still has room to run.

Sprott buys the nuclear fuel through its TSX-listed Physical Uranium Trust Fund (U-UN.TO). The Toronto-based firm also owns stock in producing companies through its Uranium Miners ETF (URNM). In February, it launched a new junior uranium miners-focused ETF.

Performance has been brisk. The physical fund started with US$630 million in assets when it was launched in July 2021. Today, Sprott says its 63.6 million pounds of U3O8 are worth US$5.9 billion. Meanwhile, units of the uranium miners ETF have climbed nearly 270 per cent since the fund's inception in 2019.

Uranium prices climbed above US$106 per pound in early 2024, and have since settled near US$95, according to market research firm UxC.

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Prices hit an all-time high above US$136 per pound in 2007. They tumbled to the US$30-range after Japan’s Fukushima accident in 2011 prompted several nations to shift major infrastructure plans away from nuclear power.

The current run-up is fuelled by a resurgence in demand as governments around the world embrace nuclear power to grow electricity grids and reduce reliance on fossil fuels.

Jacob White, an ETF product manager at Sprott, says uranium's return to triple-digit prices is only the beginning, given the current 25 million to 30 million pound shortfall between supply and demand. He also points to the long lead times and high costs for new mines to come online.

“What kills commodity markets is supply,” White told Yahoo Finance Canada.

“Even at US$100 per pound, there aren’t meaningful production increases that are going to close this supply-demand deficit,” he added. “Now, the incentive price, who knows where it’s at? Some people say US$120 a pound. Some people say much, much higher.”

Adding to the tight supply situation, White notes Kazatomprom’s recent production warnings.

The world’s largest uranium miner signalled production issues on Jan. 12, and gave an operational update on Feb. 1. The U3O8 spot price spiked 8.33 per cent and 5.37 per cent, respectively, in response.

The company, controlled by Kazakhstan’s government, says shortages of sulfuric acid and construction delays could impact its output into 2025.

“It was a shock to the market, especially considering that uranium supply is already in a deficit,” White said. “The primary mine supply already does not meet how much is used in reactors every year.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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