In an interview with Kitco News, John Ciampaglia, chief executive officer at Sprott Asset Management, said that an unprecedented energy crisis will continue to push the demand for nuclear power higher. The bullish outlook comes after Japan recently announced that it would restart seven more nuclear reactors, bringing the total number of plants back into operation to 17.
Japan is just the latest nation to embrace nuclear power once again; Ciampaglia said there is a profound political shift in the energy market as prices continue to skyrocket worldwide. In Germany and France, energy prices recently pushed above 1,000 euros. Energy prices have hit record highs as Russia has disrupted the flow of its oil and gas to Europe in retaliation for harsh sanctions because of its invasion of Ukraine.
Ciampaglia said that there is a new nationalistic drive for secure domestic energy. While nations have embraced renewal power like wind and solar, politicians now realize that these sources aren’t enough to meet the growing demand of advanced economies.
“We have added a lot of intermittent power to the grid over the year, but people are starting to realize the need for a stable power source. There are only three options to offset intermittency: burn coal, burn natural gas, or run a nuclear power plant. Nuclear remains the cleanest and safest option. Now politicians are realizing that their decisions to phase out nuclear power might not have been well thought out.”
Not only are nations starting to recognize nuclear energy as a clean and renewable source, but Ciampaglia said that what also makes it so attractive is that supply and prices are relatively stable. He noted that uranium accounts for about 5% of total costs to run a power plan. Compare that to a natural gas power plant where fuel prices account for 70% of total operational costs.
“This is why the price of electricity has gone haywire in Europe. Nat gas prices have spiked, and companies have no choice, so they buy it and pass the cost on to their consumers,” he said. “If you’re running a nuclear power plant, the price of uranium could double and the impact on consumers would be negligible.”
However, if nuclear power is going to play a more significant role in global energy, Ciampaglia said that uranium prices have to go up. While there is plenty of uranium in the world, the market needs to see higher prices to bring that supply online.
“If you have a lower grade mine, you might not be able to bring it back online until prices hit $60 or $65 a pound. The reality is you probably need to see uranium prices at $80 or $90,” he said.
Ciampaglia said there is already a major supply and demand imbalance to justify higher prices. He noted that 130 million pounds of uranium were produced last year; however, demand is expected to rise above 180 million pounds this year and could surpass 200 million pounds in the next few years.
Looking at just Japan’s announcement, Ciampaglia said that nuclear power plants will use about 500,000 pounds of uranium each year. With Japan restarting 17 plants, the nation will need more than 8 million pounds of the metal annually.
“It doesn’t feel too far out of reach for the price to get back to $100 a pound. Prices have to go higher if you are going to fill the growing supply gap.”
Sprott continues to dominate the uranium market with both its physical trust and mining ETF. In one year, Sprott has seen its physical trust grow by more than $1 billion, with a total net asset value at $2.95 billion.
The trust holds roughly 57.6 million pounds of uranium, representing about one-third of last year’s production.
“We have a clear picture of growing demand; we can see what is happening with the supply side, so we have a picture of where prices have to go,” he said.