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Yellow Cake: The Future of Uranium and Nuclear Power

Uranium prices have declined this year but recently hit a two-month high of $83 per pound in October, reflecting renewed interest in the commodity that plays a critical role in powering small modular reactors (SMRs). Several recent developments have sparked this resurgence, including tech giants like Amazon, Microsoft, and Alphabet (Google’s parent company) turning toward nuclear energy.

One significant example is Microsoft’s power purchase agreement to reengineer the Three Mile Island Nuclear Station, marking a pivotal shift toward nuclear energy to meet the growing power demands of AI. Additionally, partnerships with Energy Northwest, Dominion Energy, and X-energy in exploring SMR development have further strengthened investor confidence in the sector. Alphabet’s $10 million investment in Kairos Power to develop a 500MW advanced SMR facility underscores the broader shift toward compact, environmentally friendly nuclear technology.

At the core of SMRs is uranium concentrate, commonly referred to as U3O8 or “yellow cake.” This concentrate undergoes a process where it is first converted into uranium hexafluoride (UF6) gas, enriched to increase the concentration of U-235—the fissile isotope necessary for nuclear reactions—and then processed into fuel pellets. These pellets are assembled into fuel rods, which generate power in nuclear reactors as shown in the figure below.

The United States, the global leader in nuclear energy production, has ramped up U3O8 production as demand continues to rise. U.S. uranium concentrate production saw a dramatic increase in Q2 2024, jumping from 7,400 lbs in mid-2023 to nearly 98,000 lbs in mid-2024. SMRs are increasingly seen as flexible solutions for stabilizing electrical grids by integrating nuclear energy with renewables and energy storage.

Currently, there are over 80 SMR designs in various stages of development worldwide. The IAEA has hailed SMRs as one of the most promising technological advancements, with Director General Rafael Mariano Grossi emphasizing their importance at the agency’s first international SMR conference. Global nuclear power generation has grown steadily from just over 700 TWh in 1980 to more than 2,600 TWh in 2023, though growth has recently plateaued. Nuclear now provides just over 4% of global primary energy, with China leading the way by building 22 of the expected 58 new reactors globally.

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Supply and Demand Considerations

Recent Supply Woes

While China and the U.S. may be leading the charge in nuclear energy production, Kazakhstan remains the world’s major supplier of mined uranium, accounting for over 37.3% of the global supply as of 2023. 2024 forecasts for Kazak uranium stands at of 23.2 kilotons. Despite being the leading supplier, the country has faced production challenges and recently cut its 2024 guidance by 14%, representing a 6% reduction in global mine output. According to the state owned Kazatomprom’s most recent annual report, 49% of the company’s mined uranium, was sent to Asian markets, with 32% going to Europe and 19% to the U.S.

The firm recently cited significant upcoming supply impacts, noting that from 2017 to 2023, a total of over 42,800 tonnes of uranium (tU) was reduced. For 2024, an estimated reduction of approximately 6,000 tU is expected compared to supply under agreements (SUAs). Looking ahead to 2025, the firm projects a further reduction in the range of 25,000 to 26,500 tU on a 100% basis. The disruptions contributing to tighter supply include limited access to sulfuric acid, construction delays at newly developed deposits, and production schedule adjustments at the SUAs for JV Budenovskoye and other mining entities.

Sulfuric Acid In Short Supply

Sulfuric acid is essential in uranium mining, serving as a leaching agent in the in-situ leaching (ISL) process, which enables 85-95% recovery of uranium from ore deposits. It also acts as a complexing agent when combined with an oxidant to dissolve uranium minerals. A projected annual supply shortfall of 40-130% compared to current supply levels is expected. Recent Suez Canal delays due to conflicts in the Middle East have also made it harder to source the chemical, as the majority of it originates in Asian nation such as India and China.

Crux Investor conducted an interesting interview earlier this year with Brandon Munro, CEO of Bannerman Energy (OTC: BNNLF), discussing the anticipated 2024 sulfuric acid shortages in Kazakhstan. Munro emphasized that the risks to acid supply are “firmly to the downside” moving forward. Without domestic expansion through metals mining—an unlikely prospect given current copper and nickel economics—acid availability remains uncertain. Kazakhstan is thus heavily reliant on a long-term solution: a $300 million acid plant scheduled to start up in 2026. As a result of these shortages, U3O8 production volume expected into 2025 was revised lower last month.

Enrichment Capacity and Supply

This tightening of sulfuric acid supply, coupled with geopolitical disruptions, highlights broader challenges in the uranium supply chain. While sulfuric acid plays a critical role in extracting uranium, the total supply is further constrained by the enrichment process, which determines the usable proportion of uranium for nuclear energy production. Understanding the balance between raw uranium supply and the enrichment capacity is essential to grasp the full extent of current and future supply pressures.

Geopolitical tensions are also adding to the revisions in expected supply, with Russia considering potential uranium export bans. Russia controls approximately 44% of the world’s uranium enrichment capacity and currently supplies around 35% of the U.S.’s nuclear fuel imports. A transition away from Russian-sourced fuel will be a gradual process and cannot happen overnight. In addition to this Alexander Kozlov the Russian Natural Resources Minister recently noted that only 35% of Russia's Far East and 45% of Siberia had been geologically studied emphasizing the need for further geological exploration from the country.

There are an abundance of secondary sources in which uranium can be acquired, a brief discussion of those are laid out below.

Despite the ability to source the commodity through various secondary sources the tight supply may continue into 2025 especially considering the cost of sulfuric acid has not retreated from its 33% price rise in 2023. The unrelenting growth in SMR demand growth has pushed prices of uranium higher in recent months likely why there is a lot of talk of bringing idle capacity back online.

Demand Outlook

Demand for nuclear energy is set to rise significantly, driven by key developments around the world. China is at the forefront of this expansion, with 28 reactors currently under construction and investments totaling $31 billion this in addition to several reactors currently under development in India. Overall, nuclear generation capacity is projected to increase from 391 GWe in 2023 to 686 GWe by 2040. This surge in capacity will lead to a corresponding rise in uranium requirements, which are expected to grow from 65,650 metric tons (MT) in 2023 to 83,840 MT by 2030 and nearly 130,000 MT by 2040.

To get an overall sense of the growing demand for uranium → SMRs and → nuclear energy the World Nuclear Association has a complete list of about 60 power reactors that are currently being constructed in 16 countries, the majority of which are situated in Asia. The data which can be found at the link above as last updated on September 27th 2024. The demand for reactors is just one proponent of the need for increased capacity. Citi is forecasting an average uranium price of $94/lb in 2024 and $110/lb in 2025. The disconnect between the demand and supply remains evident as production levels are unlikely to meet the projected demand of 65,650 MT in 2023.

The 2023 Nuclear Fuel Report: Global Scenarios for Demand and Supply Availability 2023-2040 cited the lag in discovering a resource and the production stage. This lag in being able to secure supply also contributes to the gap widening. The reason many reactors which were dormant are now recently coming online is in an effort to close that supply gap or at least minimize it heading into 2025 and 2026.

Carbon Switching

A primary reason nuclear energy has gained traction is its low carbon emissions. Nuclear power accounts for nearly 30% of the world’s low-carbon electricity, which is equivalent to removing 100 million passenger vehicles from the roads. Nuclear power plays a critical role in decarbonization efforts, providing 9% of global electricity while accounting for 25% of low-carbon power generation. Nuclear plants also operate at a 90% capacity factor, far surpassing other clean energy sources, and can effectively replace baseload fossil fuel generation without compromising grid stability. Importantly, nuclear energy produces zero direct carbon emissions during operation. As energy markets transition, over 30 countries are either considering or planning nuclear power programs, with global nuclear capacity projected to grow from 390 GWe to 686 GWe by 2040.

Economic factors are also becoming more favorable for nuclear power, with rising carbon prices making it increasingly competitive. Investment in SMR as previously mentioned is on the rise, and an increased focus on energy security is driving nuclear adoption. Additionally, the extended operational lifetimes of existing plants are improving their cost-effectiveness. Governments are backing nuclear energy more strongly, with the EU including nuclear in its sustainable investment taxonomy, the US supporting nuclear projects through the Inflation Reduction Act, and the UK’s Great British Nuclear initiative. Japan has also reversed its post-Fukushima nuclear phase-out.

However, several challenges remain. These include high initial capital costs, long construction timelines, public acceptance issues, and supply chain constraints for uranium and other critical materials. Despite these hurdles, nuclear energy’s potential to contribute to decarbonization and energy security continues to gain traction globally.

Google, Amazon and Microsoft Shift to Alternative Energy

Google, Amazon, and Microsoft are advancing their nuclear energy strategies through significant investments and partnerships focused on small modular reactors (SMRs). Google has partnered with Kairos Power to order 6-7 SMRs, targeting a total capacity of 500 megawatts. The first reactor is set to become operational by 2030, with complete deployment expected by 2035, all strategically located in “relevant service territories” near their data centers.

Amazon has committed over $500 million to nuclear development, initiating three major projects. This includes a partnership with Dominion Energy for SMR development near the North Anna facility and an agreement with Energy Northwest to develop four advanced SMRs. These reactors will have an initial capacity of 320 megawatts, expandable to 960 megawatts, providing power equivalent to 770,000 U.S. homes. Additionally, Amazon is leading a $500 million funding round for X-Energy and has previously collaborated with Talen Energy for data center co-location, emphasizing its focus on SMR technology development.

Meanwhile, Microsoft is reviving the Three Mile Island Nuclear Station through a 20-year power purchase agreement with Constellation Energy. The company plans to invest $1.6 billion to refurbish the reactor, with a planned restart by 2028. This facility will be the first exclusive dedicated nuclear site for a tech company, underscoring the growing importance of nuclear energy in meeting the energy demands of the technology sector.

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