I’ve seen the uranium sector mentioned a few times so I thought I’d summarize some of my thoughts after finally going through some primers.
-The element is extremely common around the world, although it’s particularly concentrated in Kazakhstan and Australia with the majority of global production coming from Kazakhstan. It is also produced as a byproduct to other mining. This to me acts a cap to pricing and leaves the door open to periods of significant oversupply should demand build within the sector.
-Unknown stockpiles are held by sovereign entities, primarily the US and Russia. Recently the US has been reducing stockpiles, this weighs on the near to mid term outlook given that the market is already in surplus and projected to reach a deficit by 2020.
-Those supply / demand projections face significant risks tied to the substantial lead times associated with reactor construction while more stringent regulations following Fukushima have created additional unexpected delays and setbacks.
-Costs are front loaded with high initial capex and low fuel (uranium) costs with no real substitutes, creating inelastic demand. While this is a positive, it negatively impactcs the decision to pursue nuclear power, particularly under budgetary stress due to front loading of costs and inability to meaningfully take advantages of technological advances that occur over the long asset life.
-Politically, Europe has closed the door on nuclear power while India and China have shown interest.
-The benefits to nuclear power lie in the power stability and reduced carbon emissions. On a levelized cost basis over the life of the asset including CAPEX and operational costs, nuclear power has been shown to have the highest USD cost per megawatt hour over the life of the asset, even relative to solar and wind power. This is a major downside that is hard to get around, particularly when combined with the inflexibility of the technology, high initial CAPEX and long service life that you are essentially married to.
-Lastly, the sector is not particularly investable on the producer side as many of the largest producers are foreign and / or state owned.
The bull case focuses on growth of electricity demand over hte next 10 years, highlighting the stbaility and carbon friendly status of nuclear power.
The bear case as I see it focuses on abundant supply, risk, capital requirements and lead time, high relative cost, inflexibility with respect to immediate fuel substitutes, unknown stockpiles and possibly weaker than expected demand.