Shares of Canadian uranium producers fell on Thursday, after violent demonstrations in Kazakhstan, the world's top producer of the nuclear fuel, prompted a rally on Wednesday.
A Russia-led military alliance says it will dispatch peacekeeping forces to the country, a long-time ally of the Kremlin, after clashes reportedly turned deadly overnight. Protesters in the Central Asian nation's largest city Almaty stormed and set fire to the presidential residence and the mayor's office on Wednesday, according to news reports, amid demonstrations sparked by a rise in fuel prices.
Canadian uranium companies such as Cameco (CCO.TO)(CCJ), Denison Mines (DML.TO)(DNN), and NexGen Energy (NXE.TO) (NXE) reversed their gains from Wednesday's trading session. Each had fallen between five and seven per cent by 10 a.m. ET.
Kazakhstan accounts for about 40 per cent of the global uranium supply. Kazatomprom (0ZQ.F), the world's biggest uranium producer, said on Thursday that there have been no stoppages in production or impact on export contracts due to recent events.
However, the situation underscores uranium's outsized exposure to regional risks compared to other commodities, according to John Ciampaglia, CEO of Sprott Asset Management. The Toronto-based firm's Physical Uranium Trust, the largest of its kind, (U-UN.TO) was the benefactor of a strong run-up in uranium prices last year.
"It's troubling to see what is happening in Kazakhstan right now, and I hope the situation is resolved," he told Yahoo Finance Canada in an email.
"Investors should be mindful that a critical element like uranium is produced in only a few countries, and by a small number of companies, which makes it more susceptible to supply disruptions, be it social unrest, natural disasters, flooded mines or labour strikes."
Ciampaglia also says due to the relatively small number of players in the nuclear supply chain, power plant operators typically carry two to three years of supply on hand. Since launching the fund in late-July, Sprott has grown its stockpile from 18.1 million pounds to 41.3 million pounds. Ciampaglia says the fund continues to raise capital, and purchased 400,000 pounds of uranium on Wednesday.
Units of the fund fell 0.54 per cent to $14.63 as at 1:25 p.m. ET on Thursday.
Rachel Ziemba, an adjunct senior fellow at the think tank Center for a New American Security, says the swing in uranium equities today is based on “uncertainty, rather than an actual supply issue.” However, she warns Kazakhstan’s role as a commodity exporter could be impacted by increased Russian influence over the government.
“At this point, the government is likely to prioritize continuing business as usual for its major money earners, including uranium,” Ziemba said.
“Looking ahead, questions remain about whether the joint ventures with Western countries continue, or whether terms will change, especially as Russia is likely to play a more significant role in the economy.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.