The Bullish Case For Uranium Stocks

By Ag Metal Miner - Jul 25, 2022,

• Staunch opposition to nuclear energy in Japan and Germany is beginning to turn.
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• Growing demand for cleaner energy sources is giving rise to a potential boom in nuclear plant production.
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• As the world revisits nuclear power as a potential clean source of energy, uranium stocks could get a needed bump.

Sizewell C plant gains approval highlighting the growing case for investment in uranium stocks as the world shifts towards self-sufficiency.

Friday saw the French energy firm EDF gain approval for their Sizewell C nuclear power plant, as the company seeks to expand on their already established Sizewell B plant in Suffolk. This is a particularly notable breakthrough as it appears to highlight a growing global trend as sentiment softens toward nuclear. Sizewell C has had plenty of opposition in its time, with local protests ensuring that authorities go through four rounds of consultancy from the inception of the project in 2012.

However, events in Russia have fast-tracked efforts to move towards a more self-sufficient energy mix. Unlike most energy sources, which can be massively influenced by geopolitical relationships and pricing fluctuations, the costs associated with a Nuclear power plant are less about the price of Uranium and more about the ongoing running costs of running the plant safely. While the plant will face plenty of further opposition, the question of whether EDF gets this expansion off the ground is less important than the wider picture for Uranium demand.

Staunch opposition in Japan and Germany starts to turn

While the Sizewell C plan faced opposition from 10,000 East Sussex residents, experiences in Fukushima have ensured that pretty much the entire Japanese population stood against turning the reactors back on. However, that is exactly what their Prime Minister plans to do, with Fumio Kishida requesting that his Minister for Industry gets up to nine nuclear reactors operational by Winter.

Germany is another traditionally staunch critic of nuclear power, with the country providing consistent opposition against efforts within the EU to include nuclear energy as a green sustainable investment in its “taxonomy.” However, the evident risk posed by German overreliance upon Russian energy has clearly seen a shift, with the EU finally including Nuclear in their taxonomy which now labels the energy form as being sustainable. This opens the door for European green bonds to invest in nuclear projects for the first time. According to 2021 figures, EDF could have €7.9 billion worth of projects eligible for green funding going forward. That is by far the largest segment in consideration.

Source: Bloomberg

With global attitudes shifting in favour of nuclear once again, we can expect to see demand for the raw material pick up in the coming years. Supply will also likely expand, although it takes time to get a mine operational once again. Recent talk from the United States over the need to swiftly develop the means to produce uranium concentrate highlight to global push towards building a relatively self-sufficient nuclear industry. As the world transitions towards greater electrification, it is also clear that we cannot continue to burn fossil fuels to create that electricity. Just as the EU have now classified, nuclear largely does allow for the creation of energy in a sustainable manner if produced and stored properly.

Related: High Crude Prices Are Here To Stay

While IG does not allow the trade of the underlying Uranium price itself, we can use the Sprott Physical Uranium Trust as a good proxy for underlying price. The comparison below highlights the correlation seen over the course of the past year. We can see that price has largely taken place within a well defined range over much of the past year, with the declines seen throughout global markets helping to dampen elevated sentiment seen in March and April. However, with support coming into play here, the underlying fundamentals behind uranium demand and supply should help elevate prices once again.

Source; TradingView

Yellow Cake

Yellow Cake is the primary uranium investment vehicle in the UK, with the company issuing shares and stockpiling the product over time. We have seen YCA shares similarly head lower over the course of the past three-months, bringing price 28% lower in the process. However, it is notable that price remains above the £2.94 swing-low established in late-February. As long as the price remains above that key pivot level, this stock looks attractive.

Source: ProReal Time

Cameco

Uranium giant Cameco is another trustworthy name in the field, with the producer clearly trending in the right direction despite recent weakness. That decline takes us to 26% below its April high, yet the uptrend is evident on this weekly chart. With that in mind, bullish positions are favoured as long as the price remains above the $18.02 swing-low.

Source: ProReal Time

Global X Uranium ETF

Looking at the wider uranium space as a whole, the Global X Uranium ETF allows for investment into a wide range of companies involved in the mining of uranium and production of nuclear components. Clearly we can see that things are less clear-cut for the bulls here, with the price looking at risk of rolling over. However, the bullish story still remains in play until we break back below the $17.27 swing-low established last August.

Source: ProReal Time

By CityAM

Energy Market Madness Leads To Record-Breaking Coal Consumption

By ZeroHedge - Jul 23, 2022, 

• Coal-fired electricity generation has surged to a record high.
• 
  
• The rise in coal use is being fueled by the ongoing war in Ukraine and booming electricity demand.
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• Coal-fuelled generation is on course to set an even higher record in 2022 as generators in Europe and Asia minimize the use of expensive gas.

Global coal-fired electricity generators are producing more power than ever before in response to booming electricity demand after the pandemic and the surging price of gas following Russia’s invasion of Ukraine.

The world’s coal-fired generators produced a record 10,244 terawatt-hours (TWh) in 2021 surpassing the previous record of 10,098 TWh set in 2018 (“Statistical review of world energy”, BP, July 2022).

Coal-fuelled generation is on course to set an even higher record in 2022 as generators in Europe and Asia minimise the use of expensive gas following Russia’s invasion and U.S. and EU sanctions imposed in response.

By contrast, mine output was still fractionally below the record set between 2012 and 2014 because older and less efficient coal generators have been replaced by newer and more efficient ones needing less fuel per kilowatt.

Global coal mine production was 8,173 million tonnes in 2021 compared with 8,180-8,256 million per year between 2012 and 2014.

But mine production is also likely to set a new record this year as the surging demand for coal-fuelled generation overtakes efficiency improvements.

Coal Resilience

Coal’s resurgence has confounded U.S. and EU policymakers who expected it to diminish as part of their plan for net zero emissions.

Between 2011 and 2021, generation from coal grew more slowly (1.2% per year)...

... than hydro (2.0%), gas (2.8%), wind (15.5%) and solar (31.7%).

As a result, coal’s share of total generation worldwide has declined 36.0% in 2021 from a recent peak of 40.8% in 2013.

But the enormous growth in electricity demand (2.5% per year) ensured there has been growing demand for all sources of generation.

Coal production and generation is set to continue rising through at least 2027 as the rising demand for electricity overwhelms efficiency improvements in combustion and the deployment of gas and renewables as alternatives.

Turbocharged

Rapid recovery after the pandemic has turbocharged these trends, boosting electricity demand and the dependence on coal-fired generation, and lifting coal consumption to a record high.

Russia’s invasion of Ukraine and the resulting reduction gas exports has stimulated demand even further as generators try to minimise consumption of expensive gas and countries try to indigenise their energy supplies.

In Europe, governments are encouraging coal-burning generators to remain in service for longer rather than closing in case gas flows from Russia cease in winter 2022/23.

Responding to shortages and security concerns, China and India are encouraging domestic miners to raise output to record levels to ensure adequate fuel stocks and cut their reliance on expensive imported coal and gas.

China’s coal production climbed to a record 2,192 million tonnes between January and June compared with 1,949 million in the same period a year earlier and 1,758 million before the pandemic in 2019.

India’s production climbed to a record 393 million tonnes between January and May compared with 349 million a year ago.

Fuel Shortage

Despite the rapid growth in domestic coal production in China and India, there is still a worldwide shortage of fuel, which has sent coal prices to their highest level in real terms for more than 50 years.

U.S. and EU sanctions have intensified upward pressure on prices by re-routing Russian coal to Asia and coal from Australia and Indonesia to Europe, resulting in longer and more expensive voyages.

Coal is the bulkiest and most expensive commodity to transport relative to its value so longer voyages have a direct and significant impact on the landed price paid by power producers.Related: Germany Agrees To $15 Billion Bailout For Uniper

Higher gas prices in Europe are pulling coal prices up in their wake as coal-fired generators scramble to secure fuel in order to be able to run their units for as many hours as possible.

Front-month futures prices for gas delivered in Northwest Europe have climbed to €157 per megawatt-hour from €41 at the same point in 2021 while coal prices have risen to €53 from €16.

If the northern hemisphere winter of 2022/23 is colder than normal, shortages of coal, gas and electricity are likely to become severe and are likely to force some form of energy rationing or allocation. The global coal shortage is part of a wider shortage of energy evident across the markets for crude, diesel, gas and electricity.

In each case, the shortage stems from the strong cyclical rebound from the pandemic and has been intensified by Russia’s invasion of Ukraine and sanctions imposed as a result.

Record prices are sending a strong signal to producers to increase output and to consumers to conserve as much fuel as possible.

Like crude and diesel, however, rebalancing the coal market will likely require a significant slowdown in the major economies to ease the immediate pressure on inventories and give production time to catch up with consumption.

By Zerohedge.com 

Guyana Poised To Break $1 Billion In Oil And Gas Revenue This Year

By Rystad Energy - Jul 24, 2022, 

• Guyana’s government oil and gas revenue is set to surpass $1 billion in 2022.
• Guyana may see $7.5 billion in annual oil and gas revenues by 2030.
• Guyana is the global leader in total offshore discoveries since 2015, with 11.2 billion barrels of oil equivalent.

As the burgeoning Guyanese offshore oil and gas industry goes from strength to strength, powered by the Stabroek block, government revenue from domestic production is on track to break the $1 billion mark this year and accelerate to $7.5 billion annually in 2030, according to Rystad Energy research. This year is set to be a turning point for the Georgetown government to start capitalizing on the vast reserves in the offshore field, with revenues more than doubling over 2021 levels.  Low breakevens and below-average emissions intensity in the Stabroek will propel Guyana from a relatively small producer to a global leader in the coming years, solidifying the country’s position as a competitive and policy-friendly player for offshore production. 

The government’s take* from the production is expected to increase until 2025, reaching $4.2 billion annually. Triggered by a forecasted drop in oil prices and continued spending on the field’s development, government revenues will fall to $2.4 billion in 2027. Still, production growth is set to accelerate, with revenue momentum resuming as new pre-Final Investment Decision (FID) projects are sanctioned and brought online, leading to peak government revenues of $16 billion in 2036. These projections do not factor in as-yet undiscovered resources. 

The recent spate of prolific discoveries and the steady pace of FIDs position the Guyanese government to reap the rewards of these finds with cumulative revenues totaling $157 billion by 2040. 

Guyana is the global leader in total offshore discoveries since 2015, with 11.2 billion barrels of oil equivalent, amounting to 18% of discovered resources and 32% of discovered oil. Of the total, a whopping 9.6 billion barrels are oil, far outpacing the US in second place with a comparatively small 2.8 billion barrels. The Stabroek block accounts for all of these finds, but recent discoveries in other areas show the potential for growth elsewhere.  

Guyana is forecasted to produce 1.7 million barrels per day (bpd) of oil by 2035 – not accounting for as-yet undiscovered volumes – propelling the country to the fourth position on the list of the largest global offshore oil producers, leapfrogging the US, Mexico and Norway.

“Guyana is just starting to extract and monetize its vast resource wealth, and the coming years will be a financial windfall for the Georgetown government. The country has played the long game after several decades of elusive exploration. The country’s offshore production is finally ready to take off,” says Schreiner Parker, senior vice president and head of Latin America and the Caribbean. 

Comparing the fiscal regimes of other offshore leaders, Guyana’s is on the higher end, with the government take clocking in at 59% of total value. In contrast, applying the US fiscal regime to the Stabroek block would result in a government take of only 40%. Nigeria and Brazil align more with Guyana’s fiscal policies, with 58% and 61%, respectively. 

The cost of supply is a significant factor in considering the desirability of assets and comparing them to other sources and regions. Helping to transform Guyana into a global heavyweight in offshore production is its competitive breakeven costs, which average $28 per barrel across all projects and less than $20 for producing projects. Guyana’s offshore oil fields are some of the most competitive supply sources outside of the Middle East and offshore Norway and are cheaper than the US onshore heavyweight the Permian, Russia and many other sources.  

In addition, emissions intensity from offshore activity in Guyana is lower than the global average for oil and gas production and deepwater offshore production, further strengthening the country’s position through the energy transition. Upstream emissions from Guyana’s deepwater activities average 9 kilograms of CO2 per boe, comparable to Brazil and slightly higher than Norway. 

Although tensions with neighboring Venezuela and Suriname have been an issue in the past, warming relations have allowed for increased drilling along the borders and boosted overall investor sentiment in Guyana.  

Still, it may not be all plain sailing. Strong institutional governance, transparency and regulatory practices will be vital to unlocking the full potential of Guyana’s resource wealth for its society. Although the government has taken steps to improve governance, including establishing a sovereign wealth fund and improving fiscal policy transparency, there are still improvements to be made. For instance, the Extractives Industries Transparency Initiative (EITI), which champions strong resource management and governance practices, recently found several weaknesses in Guyana’s company reporting and tax processes. However, their EITI score will likely grow in the coming years as recent improvements take effect. 

*Government take refers to the value received by the government over the life of a license in the form of royalties, profit sharing and taxes. 

By Rystad Energy

Chaos In Commodity Markets Draws Attention From Regulators

By Ag Metal Miner - Jul 24, 2022,

• Recently, the London Metal Exchange quietly withdrew its precious metals contracts due to low liquidity.
• Supply chain issues and uncertain demand has fueled volatility in commodity markets. 
• The chaos has put commodities of all kinds under an international regulatory microscope.

MetalMiner follows the LME (London Metal Exchange) very closely, as it remains the largest commodities exchange for base metal options and futures. Recently, we mentioned how the LME had quietly withdrawn its precious metals contracts due to low liquidity. However, that’s only part of the story when it comes to dwindling LME stock.

Both LME Stock and Prices are in Freefall

Last week, Reuters published an article detailing how LME warehouses held only 696,109 tons of registered metal at the close of June. It’s the lowest amount of available LME stock this century, and it should be pushing prices into bullish territory. However, ongoing fears of a looming recession are having the opposite effect. In total, the LME index has slumped 31% from its April high point. According to experts, LME inventories were cut in half over the first two quarters of the year. In fact, that June report represents a year-over-year drop of 1.67 million tons. Depending on who you as, it’s unlikely stocks or prices have hit bottom just yet. As of the time of the report, over 300,000 tons of the aforementioned estimate was still waiting to be offloaded. In terms of readily available supply, this means the LME sits at just around 390,000

A Rare Rift Between Price and Supply 

It doesn’t take an economics degree to see what’s happening with prices and inventories is rare. One of the first things traders learn is that when stocks of a commodity decline, the price should rise. With the LME stock, we have the opposite happening. As mentioned, recession fears are a big part of this. However, it would be nearly impossible to list out all the factors contributing to this “perfect storm.”

Related: Energy Market Madness Leads To Record-Breaking Coal Consumption

What does remain to be seen is whether or not this rare rift between price and supply will correct itself in the coming weeks. Back in June, Reuters reported that zinc stocks had all but disappeared from LME warehouses. Simultaneously, the price fell to a brand new low. As of this writing, they are hovering even lower – around $2,950.

One place we can look for an explanation is the supply chain, which has remained tight throughout the pandemic. In terms of lead, zinc, and tin, you can trace very significant supply disruptions for each metal. For instance, zinc smelters in Europe are shutting down due to energy costs. A major lead plant in Germany has yet to recover from a 2021 flood. Tin, on the other hand, has been in short supply for months due to coronavirus lockdowns.

Commodities in General Are Under the Microscope

Markets around the globe have been taking hits from all directions since the pandemic first appeared on the scene. Now, more than two years later, we’ve seen unprecedented inflation, spikes in grain and energy prices, and countless disruptions in supply and demand. Just recently, the LME suspended nickel trading after a spike in volatility, prompting at least two lawsuits.

The chaos has put commodities of all kinds under an international microscope. So far, it seems many regulators don’t like what they see. While metal and oil futures boast a lot of tracking and transparency, the same can’t be said of other important products. This has led some organizations to seek new rules that would give them more leeway to predict market vulnerabilities.

So far, the Financial Stability Board, based out of Switzerland, has started scrutinizing commodities markets with renewed gusto. The same goes for The Bank of England, which is seeking more transparency on commodities trading in general. However, the investigations and any regulations stemming from them will take years.

In the meantime, the bulk of the pressure is on suppliers to fill those LME warehouses before the year’s end.

By AG Metal Miner