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Uranium long-term rationale

Updated: Oct 31, 2023

Everyone now it seems has become a Uranium & Nuclear expert!

A few collated things: Sprott is a buyer of Uranium, UEC owns over 100mm lbs of reserves. UEC is a developer not an exploration company. The only reason they haven’t produced in years is simply a function of price.

UEC also owns 2.5mm lbs of physical uranium and they are also a 30% founding shareholder of the only uranium royalty company, URC. URC in turn owns Yellow Cake in London! (Both Nutstuff Long positions along with CAMECO/CCJ US ). Lastly, operating leverage will always beat a spot uranium fund over time and in an up market.

The uranium production pipeline needs to at least double, as demand rises, and secondary supply diminishes to widen the demand/supply imbalance. As of mid-2021, global nuclear capacity totalled 394 GW from 442 reactors, with 57 reactors currently under construction that will add about 60 GW of capacity.

Uranium demand will total 175 million pounds this year, while primary production by miners is only 127 million pounds, resulting in a 48-million- pound shortfall, calculates nuclear fuel consultant, UxC. This production shortfall is due to COVID-19 restarts offset by the planned shutdown of long- standing production sources. Current uranium prices of around

$40 per pound are still below production costs, resulting in a disincentive to bring new

production capacity online.

Mining companies generally do not have any incentive to expand production via new mines below $60 to $70 per pound. The depressed uranium market caused a sharp decrease in uranium exploration activities in recent years, declining by 77% from $2.12 billion in 2014 to $483 million in 2018.

It has also led to curtailment of uranium production at existing mines, with over 20,500 tons of annual production being idled. Uranium production volumes at existing mines are expected to remain stable until the late 2020s, but then decrease by over 50% from 2030 to 2040.

Opening a new uranium mine typically involves 10 to 15 years of lag time before a mine begins operation. Given the broad labor shortage across the economy and the specialised nature of uranium mining, there is a risk that the expertise required to develop new mines at scale may be a challenge.

Longer-term, uranium demand is on track to jump to 206 million pounds by 2030, and 292

million pounds by 2040, according to the World Nuclear Association. However, pre-COVID

primary production by miners has been steady at around 150 million pounds annually.

The demand/supply imbalance could force utilities to sign new long- term contracts soon.

By 2025, over a third of demand will not be covered by long-term contracts, increasing to 55% by 2027. Nuclear fuel consultant UxC estimates that cumulative uncovered uranium requirements are about 1.4 billion pounds to the end of 2035.

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