Financial Services Association, January 3 (Reporter Liang Xiangcai) Against the backdrop of strong demand and weak supply, uranium prices have accelerated to a new high in nearly 17 years. A number of industry insiders told the Financial Federation reporter that at present, global nuclear power development is gradually returning to a high level of prosperity, but the supply of uranium used as fuel for nuclear power has not kept up with the pace of demand, and the gap between supply and demand will gradually widen in the future.

China Nuclear Power (601985.SH) and China General Nuclear Power (003816.SZ), known as the “twin leaders” of nuclear power, are less likely to be impacted by rising uranium prices on the cost side in a short period of time under the 5-10 year long-term cooperation guarantee. CGN Mining (01164.HK), a listed company in the domestic uranium industry, has clearly benefited from the boom in the industry. Not only did its 2022 performance double year-on-year, but its stock price reached a new high since listing.

Uranium prices hit a 17-year high, and the only target has clearly benefited

Since 2016, uranium prices have continued to rise, beginning an accelerated upward model since last year. According to the Chicago Mercantile Exchange data, as of December 30, 2023, the price of uranium (U3O8) rose to 91.6 US dollars/pound, a new high in nearly 17 years.

Import and export uranium prices in the New York International Nuclear Energy Exchange in USD/lb (data source: Choice)

Uranium is a natural radioactive element. Most of it is used as fuel for nuclear power generation, while the remainder is used in medical isotopes and military industries.

At the same time as uranium prices have risen, related companies have clearly benefited. Currently, CGN Mining's stock price hit a new high since listing, with an increase of 112.3% in 2023. In terms of performance, in 2020-2022, the company's net profit to mother was HK$155 million, HK$178 million, and HK$515 million respectively.

As the only listed uranium company in China and the Asia-Pacific region, CGN Mining's main business is the development and trade of natural uranium resources as raw materials for nuclear energy. According to the company's announcement, as of September 30, 2023, the sales volume of natural uranium that the company has signed but has not yet been delivered was 5,495 tU (equivalent to 14.29 million pounds of U3O8), and the weighted average sales price was 52.08 US dollars/pound U3O8. Based on this calculation, the company's on-hand orders reached 744 million US dollars.

CGN's mining business is all over the world. As of the end of June 2023, the company's top five sales regions were mainland China, Europe (excluding the UK), the United Kingdom, the United States and the Czech Republic, accounting for 26.79%, 23.19%, 20.72%, 12.12% and 11.28% respectively.

A CGN reporter called CGN Mining's (registered) investors. After connecting, a Hong Kong-based financial agency staff said, “CGN Mining is no longer our customer.”

Major domestic uranium users are China Nuclear Power and China General Nuclear Power, which are known as the “twin leaders” of nuclear power. Due to the special nature of the industry, the current sharp rise in uranium prices has brought little cost pressure on the company.

“Our fuel contracts are generally signed on a cycle of about 5-10 years, which has little impact on the cost side in the short term; however, if uranium prices maintain a long-term upward trend, the overall cost of the industry will definitely rise in the future.” A CIFA reporter learned from CGN as an investor.

China Nuclear Power told a reporter calling as an investor, “There is very little impact on our recent fuel costs. The fuel comes from China Uranium Corporation, a subsidiary of CNNC. We have now signed the 10-year Long Term Agreement, which was just signed last year.”

Nuclear power picks up, “uranium” supply and demand gap widens

As the nuclear power industry picks up, the gap between supply and demand for uranium as a fuel for nuclear power will gradually widen in the future.

Yuan Shuai, Deputy Secretary General of the Zhongguancun Internet of Things Industry Alliance and executive director of the Project to Promote the High-Quality Development of Specialized and New Enterprises, told the Financial Federation reporter that as global demand for clean energy increases, nuclear energy is a stable and efficient energy source, prompting countries to increase their investment in it and increase demand for uranium. At the same time, global uranium deposits are unevenly distributed and difficult to mine, making uranium supply relatively tight. Furthermore, a combination of factors such as international geopolitical conflicts and rising investment demand and capital has contributed to a strong rise in uranium prices.

“Uranium prices continue to rise, mainly because of the imbalance between supply and demand.” Du Fei, a non-ferrous metals researcher at Huaxin Securities, told the Financial Federation reporter that after the Fukushima nuclear accident in 2011, the price of natural uranium continued to decline, from about 75 US dollars/pound to a low price of 25 US dollars/pound after 2016. Global uranium production has gradually entered a contraction period since then.

With the recovery of nuclear power, industry insiders are generally optimistic about the future of the uranium industry.

Du Fei said that from the demand side, the nuclear power industry is gradually recovering from the slump in the previous Fukushima nuclear accident in Japan. Due to high traditional energy prices in the past two years, mainstream countries have begun to restart nuclear power programs, and global demand for uranium is returning to a high boom.

At the first International Natural Uranium Industry Development Forum held in October last year, Shen Yanfeng, deputy general manager of CNNC, said that China is actively developing the nuclear power business in a safe and orderly manner. Currently, mainland China ranks first in the world in terms of scale of nuclear power under construction, which will provide huge market demand for the natural uranium industry.

Research reports from a number of brokerage firms, including Huaxin Securities and China Post Securities, show that the overall supply and demand gap for uranium resources will continue to expand in the future under the influence of factors such as limited mining side growth, global nuclear power recovery, and geopolitical conflicts.

According to Huaxin Securities Research Report, in addition to resuming production in 2024 and increasing production capacity in 2025, the gap between uranium supply and demand will gradually expand in the future. The supply and demand gap is expected to be -2,088 tons, 1,052 tons, and -4399 tons respectively in 2024-2026.

CGN Mining mentioned in last year's interim results announcement that the long-standing gap between demand and supply in the natural uranium market has now been completely solved through secondary supply and inventory; however, in recent years, with the gradual end of nuclear warhead dismantling after the Cold War, it will gradually lose an important source of secondary supply. Furthermore, nuclear power owners have begun to actively build up inventories, shifting from releasing secondary supply to generating secondary demand; therefore, the gap between supply and demand is difficult to resolve in the short term.