We’ve previously written about the attractive investment opportunity in uranium driven by a persistent supply deficit and the nuclear power industry’s return to growth after 20 countries pledged to triple capacity by 2050 at COP 28 in December 2023. Last week the Department of Energy announced new deployment targets of adding 35 Gigawatts (GW) of new nuclear capacity by 2035 and a sustained pace of 15GW per year by 2040. For perspective, 35GW is equivalent to 35 large-scale nuclear reactors. These numbers are simply massive. See Exhibit 1 for RBC’s expected demand growth for nuclear power capacity and uranium. Nuclear capacity is expected to grow from 390GW to almost 600GW by 2040, a 3% CAGR. Uranium demand is expected to increase by about 50% by 2040. Both figures have upside depending on the magnitude of the current data center buildout and nuclear’s share of the power needed.

Exhibit 1: Expected Demand Growth For Nuclear Power and Uranium

Source: RBC Capital Markets

The uranium supply deficit is in no jeopardy of ending. In fact, the deficit is at severe risk of getting worse as 65% of the expected supply growth through 2033 (50m lbs) is either not permitted yet or is delayed due to a government coup, per RBC. The shaded area in the chart below represents the supply at risk going forward. Based on numerous production cuts in the industry over the last year, it is safe to assume new supplies will also be delayed.

Exhibit 2: Supply at Risk Needed to Address the Deficit

Source: RBC Capital Markets

We do not expect supply to balance the market in the foreseeable future, and therefore see the market continuing to be susceptible to supply shocks. The market simply needs higher uranium prices to incent more exploration and development. Just a couple years ago the incentive price was thought to be about $75/lb, but as mentioned before we’ve yet to see a new greenfield project get announced. Recently, RBC wrote that they think the new incentive price is closer to $95/lb and $100/lb longer term. See their deficit and price forecast below.

Exhibit 3: Deficit and Price Forecast

Source: RBC Capital Markets

Our original uranium investment thesis in 2021 centered around the increasingly apparent supply deficit and a price of uranium that was still below perceived incentive levels. Uranium was trading just under $40/lb back then. Today, at just over $80/lb, we have yet to see the market respond with conviction to an “incentive price” given we’ve had no new large greenfield mine announcements. We think the thesis for higher uranium prices is even stronger now given demand is expected to confidently grow at a 3%+ CAGR through 2040.