Canada-India Deal to Boost Uranium Prices
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Canada-India Deal to Boost Uranium Prices
By Tim Maverick, Commodities Correspondent
“This contract opens the door to a dynamic and expanding uranium market.” Cameco’s (CCJ) CEO, Tim Gitzel, said that about his company’s new five-year deal with India.
On April 15, the Canadian uranium supplier solidified a deal to sell 7.1 million pounds of uranium concentrate to India through 2020.
Canada is the world’s second-largest producer of uranium, trailing only Kazakhstan.
This deal is just one of the many signs that Asia’s growing population is looking more and more to nuclear power as a viable source of energy to feed the region’s rapidly expanding economies and populations.
This trend has been reflected in the market. So far, the uranium spot price has outperformed the S&P 500 Index this year. It’s near $40 per pound – an 11% increase this year and well above its low of $28 per pound, which it hit in mid-2014.
India, in particular, is desperately in need of power. It has one-sixth of the world’s population, and Prime Minister Narendra Modi is focused on nuclear power as a solution for India’s growing needs.
India already has 21 active nuclear power plants, but it only supplies 3% of the nation’s power needs.
Six new reactors are due to come online by 2017, and another 22 are in the planning stage. By 2032, India says its nuclear power capacity will rise from just 6,000 megawatts to 45,000 megawatts per year.
The six reactors under construction are known as the Jaitapur Nuclear Power Project. Once built, the 9,900-megawatt facility will be the largest nuclear power-generating station in the world.
This focus has pushed the country to the second-fastest-growing market for nuclear fuel, behind only China.
China Nuclear Power Capacity Still Expanding
China’s nuclear power program is moving full speed ahead, as well. Even with its economic slowdown, the country’s total power consumption rose by 4% in 2014.
He Yu, Chairman of the China General Nuclear Power Corporation, recently said that the country may need to construct as many as 100 new nuclear reactors over the next decade alone. This would meet China’s stated goal of bringing nuclear power’s share of the country’s total generating capacity to 6% by 2030.
That would translate to 150 to 200 gigawatts of installed nuclear capacity by 2030, up from just 20 gigawatts at the end of 2014.
China currently has 22 reactors in operation and another 26 under construction. It’ll need to approve at least 10 more units in the next two years in order to reach its 58-gigawatt-capacity target for 2020.
The China Nuclear Industry Association (CNIA) said in its annual report, released April 22, that the government will approve six to eight reactors this year.
And the country is wasting no time. In March, China approved the construction of two reactors – the first such approval since the meltdown at Fukushima.
The CNIA also said eight reactors would come online in 2015, the largest annual rise in China’s history.
Investments Going Nuclear
According to Cameco, there could be 81 net new reactors online by 2024, with 61 of these in China.
One way investors can play the Asian buildout of nuclear power capacity is through the aforementioned Cameco. The deal with India was a landmark agreement.
According to Rob Chang at Cantor Fitzgerald, “The long-term supply agreement will provide revenue security at profitable prices for the company that could underpin its financial position, possible acquisitions, or even a dividend increase.”
Just the reactors being built will increase uranium demand by 4% annually through 2023, says Cameco. The company says the number of operational reactors will rise from 430 at the start of 2014 to 526 by 2023.
But the agreement – and others like it – is also a factor in uranium investments…
Cameco, which is one of the world’s most reliable suppliers, is going to have more and more of its supplies tied up in long-term agreements, such as the one with India.
This should give a boost to the sector in general as supplies become more limited. Exchange-traded funds – including the Global X Uranium ETF (URA) – are sure to benefit.
For investors looking to avoid company risk and just wanting to win as uranium prices rise, a Toronto-based instrument may be an ideal option.
It’s called Uranium Participation Corp. (URPTF). And it’s a holding company that has most of its assets in uranium concentrates, either in the form of uranium oxide or uranium hexafluoride.
Either way, this commodity is sure to continue to glow.
And the chase continues,
Tim Maverick
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By Tim Maverick