Cameco promises patience as uranium market realigns

A not-previously-seen durability in the demand side is largely being driven by accountability for achieving the net-zero carbon targets being set at both country and company levels, with some 90% of the world's economy now covered by net-zero commitments, he said. These targets are turning attention to a triple challenge: lifting one-third of the global population out of energy poverty; replacing the 85% of the current global electricity grid that runs on carbon-emitting thermal power with clean reliable alternative; and expansion of the power grid to support electrification of areas such as transportation and domestic heating.

"If that wasn't challenging enough, we can add to the list solving the energy crisis in some parts of the world while pivoting away from reliance on Russian energy, without jeopardising those net-zero commitments," he said. Nuclear is a clean, reliable and secure way of balancing those needs: "We're seeing countries and companies turn to nuclear with an appetite I've never seen in my four decades in this business," Gitzel said.

However, the supply side presents a different picture, he said, with a uranium market that is vulnerable to supply shock due to persistently low prices, and the resulting lack of investment putting productive capacity - not just uranium production, but also enrichment and conversion - at risk. Secondary supply capacity is declining significantly. Physical uranium investors have also continued to sequester significant amounts of uranium, resulting in a thinning of the spot market.

Against the aftermath of the COVID-19 pandemic, increased ESG (environmental, social, and governance) scrutiny, plus geopolitics - including unrest in Kazakhstan in January this year as well as the Russian action in Ukraine - utilities and also intermediaries and service providers are beginning to shift their attention to securing material for their uncovered requirements, and to derisk some of their origin dependencies, Gitzel said.

Currently, the global nuclear industry relies on Russia for 14% of its supply of uranium concentrates, 27% of conversion supply and 39% of enrichment capacity. "With the continuing conflict, there is growing uncertainty about the ability to continue to rely on nuclear fuel supplies coming out of Russia, whether as a result of sanctions or because of a conflict with company values," he said. "From our perspective, it's not a matter of 'if' Western markets will turn their backs on Russian nuclear fuel supply - but rather, 'when', and how quickly."

Disciplined restart

 
Cameco does not intend to change its production plans despite the current geopolitical uncertainty, Gitzel said. "We will not front-run demand with supply," he said. The company is continuing with its plan, announced in February, to restart uranium production at McArthur River/Key Lake, ramping up to produce 15 million pounds U3O8 (5770 tU) per year starting in 2024, but also reducing production at Cigar Lake to 25% below its licensed capacity. This will remain Cameco's plan until it sees further improvements in the uranium market and can secure "appropriate homes for our unencumbered, in-ground inventory under long-term contracts," he added.

McArthur River/Key Lake - described by Cameco as the world's largest high-grade uranium operation - had been idled since 2018. The number of employees and long-term contractors at the mine and mill have now increased from around 200 when under care-and-maintenance to some 600, with the workforce expected to be around 850 when operations resume later this year, he said.

Transportation risk

The geopolitical situation is also creating regional transportation risks, Gitzel said. Sanctions on Russia and restrictions on and cancellations of some cargo insurance coverage are now creating uncertainty about the ability to ship uranium products from Central Asia, potentially complicating the logistics for deliveries from those areas, including product from the Inkai joint venture in Kazakhstan which is 40% owned by Cameco.

Cameco has decided to delay a near-term delivery for its share of production from Inkai while it is working with joint venture partner Kazatomprom, to secure an alternate shipping route that does not rely on Russian rail lines or ports, Gitzel said, adding that there could be further delays in expected Inkai deliveries this year if securing an alternative route takes longer than anticipated. "To mitigate the risk, we have inventory, long-term purchase agreements and loan arrangements in place that we can draw on," he said.

Speaking at the World Nuclear Fuel Cycle 2022 conference in London last week, Kazatomprom Chief Commercial Officer Askar Batyrbayev said one appropriate route has already been identified, which is through the Caspian Sea, into the Black Sea and then via the Mediterranean Sea. Gitzel acknowledged that the decision to delay the delivery from Inkai was due to risk mitigation rather than hurdles to be overcome: "We've just decided to delay the shipment until we can see a clearer picture."