Nuclear Meltdown or Opportunity?
The long-awaited Section 232 decision by President Trump was announced over the weekend.
The petition was filed by Ur-Energy and Energy Fuels and was meant to seek relief for U.S.-based uranium miners.
Most analysts expected some form of relief in the form of purchase quotas that would help revitalize U.S. uranium production.
The President stated that he does not concur with the DoC conclusion that uranium imports “threaten to impair national security."
As always, the details matter.
Trump does believe that the United States' uranium industry faces significant challenges in producing uranium domestically and that this is an issue of national security.
Trump agreed that the DoC’s findings “raise significant concerns regarding the impact of uranium imports on the national security with respect to domestic mining,” and ordered the “fuller analysis of national security considerations with respect to the entire nuclear fuel supply chain.”
The decision went on to highlight that further examination of the entire nuclear fuel supply chain is required.
Trump has ordered a new 90-day review by a group of Federal agencies — The Nuclear Fuel Working Group.
This group will be chaired by U.S. National Security Advisor John Bolton and U.S. National Economic Council Director Larry Kudlow. It will "develop recommendations for reviving and expanding domestic nuclear fuel production."
The group is tasked with ensuring a complete review and reinvigoration of the United States' nuclear fuel supply chain, consistent with the United States' national security and nonproliferation goals.
While the decision was not the catalyst that many hoped for, it does provide clarity to the utilities and it is not a coincidence that the uranium spot price is up on the news.
The decision was highly anticipated because of the clarity it would provide moving forward.
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Yes, a positive decision that benefited the U.S. companies would've provided a boost to those companies, but the catalyst has always been the clarity that a decision would provide, which will allow the utilities a clear investment landscape.
Utilities have sat out talks for long-term contracts until a decision was made. The utilities are the largest consumer and, as I said before, are the spark that will light the uranium bull market fire.
Uranium companies with U.S. exposure shed between 25%-40% of their market caps. That sell-off was overdone and provides an opportunity.
Why? The math.
Domestic uranium production in the U.S. has declined by ~90% since peaking in 1980 at ~43M lbs U3O8 (source: EIA), and now accounts for ~2% of the country’s consumption (estimated 2018), compared to 49% in 1987.
The remainder of U.S. uranium requirements are filled by imports from Canada (~25%), Kazakhstan (~24%), Australia (~20%), and Russia (~14%) to support the 97 nuclear reactors that produce 20% of the country’s electricity.
So, who’s filling the void?
Uranium deliveries from state-owned companies in Russia, Kazakhstan, and Uzbekistan increased 16% from 2017 to 2018, according to the U.S. Energy Information Administration.
These countries provided 44% of the uranium imported to the U.S. last year. Meanwhile, U.S. mines produced 37% less uranium from 2017 to 2018, reaching a record low.
Deliveries from Canada and Australia declined 25% during that same time frame.
This is a simple story. The utilities need uranium. They will pay much higher prices because current prices are below the cost of production and because the price they pay is a small input in the overall equation.
Companies that can supply the uranium will do very well. The end.
To your wealth,
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.
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