The exploration budgets of uranium companies had been steadily declining since 2011, but the recent rosy outlook of the metal has caused a reversal of this trend. According to S&P Global Capital, exploration budgets for uranium increased by 10.7% year-on-year in 2021. When that increase is broken down by country, Canada emerges as the leader of the pack with an investment of $67 million being budgeted for exploratory work by Canadian-based companies. The United States comes in second with $10.1 million earmarked for uranium exploration.
While these exploration budgets recorded in 2021 are a far cry from the massive investment sunk into exploring for uranium as the 2000s came to an end, the fact that money is being set aside for exploration is good news, since this is an industry that had fallen out of favor. The recent price increases also paint an encouraging picture of yellowcake. The metal surged from its lows of approximately $20 per lb. recorded in 2017–2018, and now it is trading at more than double that price.
This price rally has been helped by three key factors. First, Sprott, a Canada-based investment fund, went on a buying spree. This action woke up the sector to the potential of the metal in the years to come. Secondly, the ongoing unrest in Kazakhstan, the leading producer of uranium globally, has led to concerns about the ability of the country to supply uranium in the same quantities that it has in the past. Alternative sources are being looked for.
The other big factor that is supporting the yellowcake rally is the climate conference held recently in Glasgow. COP26 emphasized the urgent need to switch away from “dirty energy” such as coal in favor of cleaner forms of energy, including solar energy, nuclear energy, hydro energy and wind energy. A number of EU nations have even put nuclear energy at the center of their plans to hit their net-zero targets, and this is undoubtedly causing the ripples within the nuclear energy sector that have generated added interest in the stocks of uranium extraction companies, including Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR).
However, the increased interest in exploring for uranium is unlikely to result in many exploration projects being taken all the way to production. Analysts say that for this to happen, the price of the metal has to rise above the $50 mark in order to justify the huge expenditure needed to bring a mine to production. What is most likely to happen is that preexisting mines that had been mothballed will be reactivated, and with time, new sites will also come online as the rally continues to a level that can sustain the heavy investment that goes into opening a new mine.
NOTE TO INVESTORS: The latest news and updates relating to Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) are available in the company’s newsroom at http://ibn.fm/UUUU
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