A critical moment for uranium?

A slew of new reports on old news about Donald Trump’s Nuclear Fuel Working Group (NFWG) is hitting the wires today. That’s because the NFWG is supposed to report its recommendations by next Monday.

I haven’t seen anything of substance that’s new in these reports, but the reminder of the deadline is apparently enough to boost share prices in related uranium stocks today—despite uranium prices having ticked down to $24.88 per pound at last quote.

Base Case

As a reminder, the setting is this:

  • Uranium as nuclear fuel for essential base load power in many countries around the world simply cannot be substituted in less than decades.

  • Only a handful of uranium mines in the world can make any money at current prices.

  • That’s nowhere near enough to meet annual consumption.

  • The global average cost of production remains around $40 per pound.

  • The “incentive price” to build new mines remains north of $60 per pound.

  • Huge stockpiles hit the market after the Fukushima accident, sending prices all the way down to $18 per pound in 2016.

  • The world’s biggest and most profitable producers, in Canada and Kazakhstan, have been shutting down uranium mines in response to the low prices.

  • Prices have started recovering since then. Japan is restarting 30 reactors and utilities there have apparently stopped selling. China and other BRIC countries are building and have plans to build many more reactors than are being retired around the world.

  • Long-term contracts have allowed some miners to survive during this time of low prices, but many of those contracts have ended or are ending soon.

  • When power utilities come back to miners to secure new supply contracts, they will not find any miners willing to sell at anywhere near current price levels.

  • Barring another major nuclear accident, uranium prices moving quickly higher at some point is as close to a sure thing as exists in commodities speculation. I can’t say exactly when, but I don’t think it’s more than a year off—and I’d be very surprised if it were more than two.

Section 232

On top of the base case scenario, there’s the Section 232 saga, which goes like this:

  • Facing dire consequences if uranium prices remained below the cost of production too much longer, several US producers petitioned the US Department of Commerce for help, making a national security appeal under what’s called Section 232.

  • The DoC had until April 15 to submit a report to the president. I alerted readers to the possibility that this process could trigger higher uranium prices. But I warned that nothing was likely to happen on April 15 itself, as there was no obligation for the DoC to release its findings to the public and Trump had 90 days to make a decision. Several related stocks rose before April 15, and then drifted lower when nothing happened at that time.

  • However, the DoC did find that with the US relying on nuclear power for about 20% of its electricity and importing some 93% of the uranium needed to keep the lights on, there was a legitimate national security interest in supporting US uranium producers. Trump had until July 15 to make a decision on the DoC’s findings.

  • Expectations ran high again and related stocks rose as the deadline approached—some quite sharply. But with most of the imported uranium coming from close allies Canada and Australia, Trump decided not to impose tariffs or quotas. Instead, he established the NFWG to come up with more ideas. Share prices in high-flying uranium plays tanked. Some of the US producers dropped 30% to 40% the day before the White House issued its press release, the news having leaked.

  • The NFWG is supposed to report by October 14. However, while the Section 232 petition had legal requirements for steps to be concluded by specific times, I don’t think the NFWG is legally bound to do so. As there have been changes in the Trump administration affecting the NFWG, it’s possible there could be delays.

  • Key point: US utilities have policies on how much nuclear fuel they must keep on hand, but they would be foolish to enter into any new purchase contracts if the US government is on the brink of changing the rules. I believe this uncertainty has kept many buyers off the market all year. This is why prices have stagnated, despite major producers around the world shutting down mines. One way or another, this situation cannot last.

Where We Are

This brings us to today, four days before the NFWG report is due. It’s interesting to see that while the most likely beneficiaries of anything the Administration does to boost US uranium production aren’t soaring the way they did before, they are up as I type, with no company-specific news.

Now, I can’t promise that the NFWG will deliver a big boost to US uranium plays next week, but that is a possibility. They could even put quotas and tariffs back on the table. More likely, they will recommend executive actions that would not directly harm US power utilities while helping uranium miners. Ordering the US military to increase its uranium stockpiles and buy from domestic sources would be an example. Some GOP politicians have asked the EPA to reduce the regulatory burden on uranium exploration in the US—that’s something Trump could easily encourage. He could also offer new subsidies and tax breaks.

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