Seeking Alpha

Waiting For Uranium

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Includes: URA
by: WWS Swiss Financial Consulting SA
WWS Swiss Financial Consulting SA
Debt, long-term horizon, contrarian, investment advisor
Summary

The U.S. Government Administration has given the Nuclear Fuel Energy Working Group a 30-day extension to prepare its report but does not have to do anything for domestic uranium mining.

This creates uncertainty regarding the future of uranium mining in the U.S.

Investors can speculate by purchasing uranium mining shares now in the hope that something positive is done for the miners.

In July, the Administration postponed any decision on promoting domestic uranium mining companies and created a Nuclear Fuel Energy Working Group to examine further the entire question of nuclear energy. This was done despite the fact that the Department of Commerce had recommended imposing purchasing quotas of domestically produced uranium on utilities companies. More recently, the Trump Administration has given the Nuclear Fuel Energy Working Group 30 more days to prepare its report, which should be ready by the middle of November.

The statement of the Administration in July and the creation of the Working Group were followed by a disastrous fall in the share prices of domestic uranium producers. See below for the share price of Energy Fuels Inc. (NYSEMKT:UUUU) and Uranium Energy Corp. (NYSEMKT:UEC).

Energy Fuels Inc.

UUUUhttps://research.tdameritrade.com/grid/public/research/uploadhandler/z27897d0aza5ad69939bc0417d90306782e2939d9d.png

Source: Ameritrade

Uranium Energy Corp.

https://research.tdameritrade.com/grid/public/research/uploadhandler/z36897d0aze370ce46b33c4cb492016aa7bc8355a1.png

UEC

Source: Ameritrade

Strategic Considerations

It is a fact that uranium mining in the US was once a flourishing industry that has practically been wiped out by cheap imports of uranium from Russia and Kazakhstan besides Australia and Canada. The few companies that remain have difficulty in breaking even, with a spot uranium price of $24.

Uranium Price

It is obvious that uranium is a strategic commodity. 20% of US electricity is generated by nuclear power plants. Uranium is also necessary for the DoD to keep nuclear submarines running and providing for other strategic needs. Depending on imported uranium is not an ideal situation. One could learn from past mistakes like when a Chinese SOE (State Owned Enterprise) acquired a state of the art processing facility for rare earths in Indiana in 1995. There was a requirement that the plant had to remain in production for at least five years. At the end of the five-year term, the plant was closed, dismantled, and reassembled in China. Rare earths are important for the production of many electrical items. In the case of uranium, it takes several years to get a uranium production facility going because permits have to be obtained, exploration has to be carried out, and the mine has to be constructed. In the short term, having no domestic uranium producers or even minimum production could be a strategic weakness.

When one speaks of reserves, there is a difference between uranium in the ground and mined uranium in the form of yellow cake. The EIA discontinued its reports of US uranium reserves in 2010 (U.S. Uranium Reserves Estimates). In comparison with the strategic stockpiling of petroleum reserves, there does not seem to be a strategic stockpile of uranium. The EIA site does not have a uranium stockpile page. Commercial inventories held by US companies (Uranium Marketing Annual Report) would suffice for less than a year of demand.

Uranium consumption top countries 2017 | Statista

Doubtlessly, the Nuclear Energy Working Group will have researched all these aspects of the nuclear situation in the US. Since uranium contracts, however, are more often long term, the companies operating nuclear facilities are probably banking on being able to buy uranium at the currently very low prices in the spot market. It is highly probable that the industry lobbyists have been working overtime to convince the Administration that nothing should be done to protect domestic uranium mining companies since any measures taken would be sure to result in higher prices for uranium in the US. If a quota system is not adopted, then a 100% tariff rate would be needed to bring the price of uranium to a level that might be interesting for domestic producers. The utility companies would surely resist any such price increase.

The Uncertain Outlook

The conclusion that can be reached, given the present situation, is that the future of uranium mining in the US is uncertain. Share prices are already very low after the debacle in July. The Administration is not obligated to do anything. At the moment, the suggestions that the Working Group is going to propose are not publicly known. If no positive measures are undertaken to support domestic suppliers, then the industry will remain in purgatory for an indefinite time. Investors will be cautious about putting their capital into an industry languishing in limbo. On the other hand, it would be stupid for the Administration to do nothing and have the US continue to be dependent on imported uranium. China already has considerable influence in Australia. The Australian government is more and more tending to do the bidding of Beijing, which means that the US in future will not be able to count on Australia as a staunch ally. It is also the case that Kazakhstan and Russia are not usually considered allies of the US.

Investors could speculate that the Government will come to the aid of the desperate domestic producers in order to rescue them from extinction and buy US uranium mining stocks before the report of the Nuclear Fuel Energy Working Group is issued. That strategy could pay off handsomely since the stock prices of uranium miners would increase significantly if there was any sign that help was on the way. If investors wait to see what is proposed and wait even more to see what the Administration plans to do, if anything, then it would be a bit too late to make radioactive profits off uranium. If nothing is done, then the prices of uranium shares could fall still further, creating a nightmare for investors. All that can be said for certain is that potentially explosive uncertainty prevails at the present time for uranium mining companies, and that is not a good thing.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Data from third-party sources may have been used in the preparation of this material and WWS Swiss Financial Consulting SA (WWW SFC SA) has not independently verified, validated or audited such data. WWS SFC SA accepts no liability whatsoever for any loss arising from use of this information, and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Please consult your own professional adviser before taking investment decisions.
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