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#UraniumSqueeze Explained

They say a broken clock is right twice day. And oh baby, we may have reached that time of the day for Uranium…

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This article was originally published by The Deep Dive

Ever notice how Michael Buble pops his head out of the ground like a hedgehog every December to sell Christmas albums? Well Uranium bulls do the same thing every year in January,  and are relentless in telling us that “This year is the year! Uranium is going to come back!”

They say a broken clock is right twice day. And oh baby, we may have reached that time of the day for Uranium. It’s time we start snorting that yellow cake, because Uranium is back baby!

 

In case you’re new to Uranium, here’s what you need to know:

  • Uranium is a heavy metal, so heavy it sometimes gets used in keels of yachts and as counterweights for aircraft control surfaces.
  • It is the key to nuclear power generation.
  • It’s 18.7 times as dense as water, has a melting point of 1132 degrees celsius, and is primarily found in Australia, Kazakhstan, and Canada. 

The big takeaway if you’re looking at investing in uranium and nuclear power is that it could be our ticket to a carbon neutral future. Don’t believe me, just ask Bill Gates or Elon Musk.

 

Uranium is beloved by retail investors for the simple reason that it has the ability to go parabolic. The annual production sits at around 125M pounds of uranium with annual demand around 190M pounds. Priced in today’s dollars of $50/lb it puts annual demand around $8.5B.

We can find articles dating back to the early 50s of Uranium investors holding the metal with expectations of massive returns. Over the last 70 years we have seen various booms and busts; with the most recent bull cycle occurring from 2004 to mid 2007 where we saw the price rally from around $15 to a high of $136. 

The price then settled in nicely around $40-50, which was followed by the Fukushima Da-ii-chi nuclear disaster in March 2011, which saw Japan who at the time had 54 nuclear reactors operating, electing to shut down the vast majority of them with only 10 reactors active today.  The price of uranium then sank to a low of just under $20 in 2016.

With only 443 nuclear reactors active today around the world, we can see how a country with just 50 reactors can have a massive impact on the supply and demand balance for  the uranium market.

But, after fourteen years of endless hoping, it appears the uranium bulls time may have finally come again.

At the time of filming, the yellow metal is currently trading at $50 and change. Up over 80% since a 1 year low of $27.60, and it appears things are just beginning. 

The largest piece of the global nuclear power demand is the United States who has 94 nuclear reactors operating with 2 more under construction and 3 more planned. Second place is China with 49 operating reactors,16 under construction, 39 more planned.

And of course, let’s flip back to Japan where Prime Minister candidate Tara Kono, who leads polling to win the popular vote generally wants Japan off nuclear power, but seemingly wants to ramp it up in the short run… Creating some medium term demand for the yellow powdery stuff.

What I’ve been saying about an exit from nuclear power is decommissioning quickly nuclear power plants that are reaching retirement and gradually exiting nuclear energy…. As I explained before, we should stop the use of coal, increase energy conservation and renewable energy and nuclear power can be used to fill the gap.

Fundamentally, things are shaping up nicely for Uranium, but what’s behind the sudden squeeze?

It started in March 2021 when Denison Mines, operator of the under-development Wheeler River project in Saskatchewan’s Athabasca basin, announced that they planned to raise US$75 million in a bought deal financing, the proceeds of which would be used to purchase uranium from the spot market for keeping in a strategic reserve. 

As Deep Dive Contributor Braden Maccke tells us at the time, “A mining company purchasing reserves of its main product is rare, the object of the mining business being, generally, to turn the commodity into cash, and not the other way around. But Denison clearly knows its audience, who responded favorably with an over-subscription to the deal, which was closed this past Monday, March 22nd bringing gross proceeds of $86.27 million.”

And then the bat signal suddenly went off at Sprott Asset Management headquarters in July, when they announced the creation of the first ever Physical Uranium Trust allowing retail investors an opportunity to directly drive investment demand in physical uranium via the stock market.

Now our old friend WallStreetBets catches on and suddenly we got ourselves an ole fashioned rally. The annual spot market volume of around 100M lbs or around $3B USD, wouldn’t take much buying beyond what Dennison pulled earlier to make sparks start flying in the spot market.

The Sprott Physical Uranium Trust started in July when uranium was priced at $32.30. As its name suggests, the fund was established to hold physical uranium, specifically U3O8, providing investors direct exposure to the physical asset. The fund is listed on the TSX under the symbol “U.UN”, and it’s expected to get a US big board listing at a later date.

The trust was established as a closed-ended trust. What this means, is that unlike an ETF, when investors sell off the fund, Sprott does not have to sell uranium to fund the outflows – meaning it stays in the vaults, and does not hit markets. As one Reddit user puts it, it makes the fund “structurally diamond handed.”

The fund started out at a relatively decent size – $600 million, not bad for a new trust. But they wanted more. Much, much more.

So, how do they grow their assets under management?

The trust has taken the easy path for this. To enable new unit creation they use something called an ATM or an “at the market financing.” Meaning, they sell new units on the open market, in this case, whenever the value of the unit is above the NAV for current units.

Any proceeds raised from the ATM financing goes directly to the purchase of more physical uranium. 

Here’s where it gets interesting. The first ATM announced by the trust began on August 17 – the most recent low for uranium. At the time, Sprott announced that the trust would be conducting a US$300 million financing to fund further uranium purchases. By the end of August, AUM had grown from $600 million to $754 million, with the trust holding $741 million worth of uranium – or roughly enough uranium to power all of France for 10 months.

So as the momentum continues.. well the ATM suddenly fills. 

So what does Sprott do? They go back for more. Announcing a second ATM financing – this time to the tune of US$1 billion.

Why is this substantial, other than for the fact its a BILLION dollars? As of the day of the announcement, the entire fund itself had assets under management of US$1.13 billion – that means they are looking to very quickly DOUBLE the value of all uranium it holds in physical trusts. A billion dollars at $50 per pound represents around 20% of the world’s annual production. And at this rate, Sprott appears to be filling these ATMs in a matter of weeks. 

So could we get to the point where Sprott is buying up uranium to the tune of over 100M lbs a year? If that happens, there goes annual supply and who knows where the price ends up.

So if you’re catching on here, you’re realizing the Uranium market is small. Very small. Current production is estimated at a little over 125 million pounds per year, while demand is estimated at being 190 million pounds for 2021. At $30 uranium, that’s roughly a $5.7 billion market. Which is wild, given the supply / demand imbalance. There are literally cannabis stocks valued higher than the entire uranium market right now.

What’s also valued higher? Why, GameStop of course. And look at the number WallStreetBets did to them.

On that topic, roughly two months ago, uranium had its “RoaringKitty” moment on WSB – in the form of a user named “RadTheReptile”. The user published a post, titled “The Uranium Thesis: have your cake (but don’t eat it),” which is viewed as one of the origins of the rising demand for the metal.

The post outlined many facets of the market, including the rising demand for clean nuclear energy, how its used, and the commodity market behind the metal, including the involvement of hedge funds. One key point, is that until we reach $50-60 per pound, mines are unlikely to start up – causing a further supply glut. While specific stocks were not mentioned, it began a chain of events.

As small cap investors know, sentiment is everything.

So where is uranium headed? Well, if Sprott’s activities are any indication, it’s higher. One twitter user who has been notably on the money with several uranium price calls, @BambroughKevin, was expecting the metal to hit $55 per pound by year end – however earlier last week he said this target “will likely get blown away.” He’s also suggested that $180 per pound might be achieved by March 2022.

And of course, as one would expect, buying begets buying, and we are now seeing copycat funds partake in the Uranium squeeze, with Uranium Royalty Corp announcing they acquired an additional 648k pounds of physical uranium. 

The keys takeaways if you’re reading this:

  • Nuclear is the key to a carbon neutral future.
  • Nuclear requires uranium.
  • The uranium market is very small.
  • Uranium had the introduction of it’s first physical ETF in July 2021.
  • This event has made the price of the commodity increase by 80%.
  • And it appears the momentum is getting stronger.

What happens next is anyone’s guess, but my god, we may have an ole fashion squeeze. And this time instead of squeezing the hedgies, we’re squeezin’ the utilities.


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Uranium: The Squeeze, Explained appeared first on the deep dive.

Energy & Critical Metals

New joint venture to boost UK’s energy storage pipeline by 3GWh

A new partnership will enable the UK to expand its portfolio of energy storage capacity, a vital ingredient to accelerate the energy transition.
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A new partnership will enable the UK to expand its portfolio of energy storage capacity, a vital ingredient to accelerate the energy transition.

A joint venture between battery storage projects developer Penso Power and maritime company BW Group will build 3GWh of energy storage capacity in the next three to five years.

BW Group will provide the capital required to implement the projects as well as acquire a stake in Penso Power.

Richard Thwaites, CEO of Penso Power, said: “We consider energy storage to be a key enabler of the energy transition. We view the deal – considerably larger than anything else seen in the UK to date – as transformational for ourselves and indeed the UK market.”  

Have you read?
Global Energy Storage Outlook: Demand to reach 1TWh by 2030
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The development comes at a time the UK is exploring various avenues to expand its energy storage deployment, a development that will help accelerate the use of renewable energy and unlock the benefits of demand-side management and flexible energy for grid reliability and a carbon-neutral energy system.

During the Global Investment Summit, Boris Johnson, the UK’s prime minister struck a deal with billionaire Bill Gates which will see £400 million ($551.1 million) being invested in technologies including energy storage and hydrogen to speed up the energy transition.

Johnson, said such technologies “have massive potential but are currently underinvested in, by comparison with some others.”

Partnerships such as the one between the UK government and Bill Gates and between BW Group and Penso Power are vital to speed up the shift from traditional energy technologies to modern and smart solutions to mitigate climate change.

According to research firm Deloitte, increasing the availability of financial incentives for storage projects will help boost deployment.

In its Net Zero Strategy launched this week, the UK government committed an extra £500 million ($689.1 million) in incentives towards innovation projects that aim to develop green technologies such as energy storage.

However, Deloitte states that factors including lack of standardisation, incomplete definition of energy storage and outdated regulatory policy and market design will hinder the growth of the energy storage market.

We can’t wait to see you in Milan

Enlit Europe will bring the energy community together during the live event in Milan (30 November – 2 December 2021). Register here

The post New joint venture to boost UK’s energy storage pipeline by 3GWh appeared first on Power Engineering International.

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Energy & Critical Metals

Firefinch powers ahead with Goulamina DFS update and demerger plans for Leo Lithium

Special Report: Firefinch has received all regulatory approvals for its Goulamina JV lithium project in Mali with Jiangxi Ganfeng Lithium … Read More
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Firefinch has received all regulatory approvals for its Goulamina JV lithium project in Mali with Jiangxi Ganfeng Lithium and is ready to kick off a major drilling program to support its expansion plans.

A definitive feasibility study (DFS) update is on track for later this year which will consider a 75% increase in production capacity from 2.3 million to 4 million tonnes per annum in a phase 2 expansion.

This would mean spodumene concentrate production would increase from 450,000 tonnes per annum in line with throughput upgrade – placing Goulamina among the largest producers globally.

Firefinch (ASX:FFX) is planning a major drilling program to support its expansion plans – as well as expanding resources and reserves – and expects a final investment decision (FID) for the project to be made in late 2021.

 

Proposed demerger of Leo Lithium

The company is planning to demerge Leo Lithium Pty Ltd into Leo Lithium Ltd – a standalone company which will hold a 50% interest in the JV with Ganfeng.

It’s all part of Firefinch’s strategy to advance Goulamina by completing all commercial, technical and regulatory work so that Leo can seek a listing on the ASX in the March 2022 quarter with an updated DFS complete, FID made and all funding received from Ganfeng.

“Considerable progress has been made advancing Goulamina over the past few months,” Firefinch managing director Dr Michael Anderson said.

“The key takeaway is that following the proposed demerger in 2022, Goulamina will be substantially funded, with engineering and procurement well progressed and 50km of drilling already underway.

“Importantly, Goulamina will be on a quick path to production, expected in 2023, and in an enviable position to take advantage of prevailing very strong lithium market conditions.”

The company is also undertaking an entitlement offer to existing shareholders to fund working capital, costs of the demerger and permit flexibility to accelerate expenditure at Goulamina.

 

 

Major drilling program planned

Ganfeng and Firefinch will undertake a major, two-year, US$6 million RC and diamond program comprising almost 50km of drilling at the project.

The drilling will target:

  • Converting inferred mineral resources to indicated mineral resources;
  • Defining extensions to Sangar at depth and to Danaya along strike and down dip;
  • Testing the gap between the Danaya and Sangar Zones;
  • Sterilisation of planned infrastructure areas; and
  • Reviewing other exploration opportunities within the tenement.

The inferred mineral resources at the project total 43.7 million tonnes at 1.35% lithium and the company expects significant conversion to indicated resources and ore reserves – which would rank Goulamina even higher among the largest global lithium projects and is expected to support a multi-decade mine at a higher rate of production.

 

Final investment decision by year-end

Ganfeng will contribute US$130 million in cash to the JV and the first tranche of equity – US$39 million – is expected to be deposited into an escrow account shortly.

Once the JV subsidiaries have been restructured and the exploitation licence transferred, the cash will be released from escrow.

And when the DFS update is finalised, the companies will consider a FID for the project.

The FID is one of the pre-conditions for Ganfeng to make its second tranche of cash investment of US$91 million, and assistance with up to US$64 million of debt funding.

 

Firefinch share price today:


 

This article was developed in collaboration with Firefinch Limited, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Firefinch powers ahead with Goulamina DFS update and demerger plans for Leo Lithium appeared first on Stockhead.

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Energy & Critical Metals

China’s Magnesium Shortage Could Spell More Trouble For Global Car Industry 

China’s Magnesium Shortage Could Spell More Trouble For Global Car Industry 

While a shortage of semiconductors has plagued the global auto…

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China's Magnesium Shortage Could Spell More Trouble For Global Car Industry 

While a shortage of semiconductors has plagued the global auto automotive industry this year, the market is now turning its focus to magnesium, a hardening agent of aluminum. Such a shortage could paralyze the aluminum billet production used to make engine blocks, gearboxes, frames, body panels, and rims, among other critical items for automobiles in Europe and the Americas. 

 "A magnesium shortage could trigger a shortage of aluminum, which in turn could also hit car production.

"We stress at this point that such a scenario is not yet included in our estimates. The issue has just emerged and no carmaker has yet warned about it," BofA Securities analyst told clients in a note. 

The source of the shortage is China's monopoly on global magnesium production. Production curbs of energy-intensive smelters have reduced the industrial metal's output, resulting in dwindling stockpiles in Europe and North America. 

Barclays analyst Amos Fletcher told clients in a note that "there are no substitutes for magnesium in aluminum sheet and billet production." He warned if "magnesium supply stops," the entire auto industry will grind to a halt. 

The latest warning of magnesium shortages materializing was last week's warning from S&P Global Platts who obtained a letter from Matalco Inc. President Tom Horter warning customers, "in the last few weeks, magnesium availability has dried up, and we have not been able to purchase our required magnesium units for all of 2022." 

Matalco is North America's largest producer of aluminum billet. Horter's warning continued: 

"The purpose of this note is to provide this advanced warning that, if the scarcity continues, and especially if it becomes worse, Matalco may need to curtail production in 2022, resulting in allocations to our customers." 

For a stunning wake-up call to just how concentrated the complex global supply chain is, 85% of the world's magnesium production comes from China. Much of it comes from one town in Shaanxi province, Yulin, where the government has curbed output at 70% of all magnesium smelters this year due to energy conservation ahead of the Northern Hemisphere winter. 

European industry groups have sounded the alarm. WV Metalle, Germany's non-ferrous metal trade association, warned:

"It is expected that the current magnesium reserves in Germany and throughout Europe will be exhausted in a few weeks at the end of November 2021 at the latest," the group said. "In the event of a supply bottleneck of this magnitude, there is a risk of massive production losses."

European Aluminium, whose members include Norsk Hydro, Rio Tinto, and Alcoa, said, "the current magnesium supply shortage is a clear example of the risk the EU is taking by making its domestic economy dependent on Chinese imports. The EU's industrial metals strategy must be strengthened." 

Aluminum futures on the London Metal Exchange have broken out to a new high as concerns of magnesium supply mount. 

The critical question is if Beijing will allow magnesium smelters to restart operations by the end of the year or early next year to replenish supplies. If that's not the case, expect the automotive industry to be dealing with a twin crisis of not just a lack of semiconductors but also crucial aluminum.  

Tyler Durden Tue, 10/19/2021 - 21:05
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