Uranium Miners In Limbo
Summary
- The NFWG (Nuclear Fuel Working Group) has made its report.
- Congress will have to approve funding for the uranium reserve.
- Uranium miners now have a spot price of $32 a pound.
The NFWG
The Nuclear Fuel Working Group (NFWG) has submitted its report and recommendations practically a year after the uranium miners solicited the Administration via the Department of Energy to do something to promote domestic uranium mining with a Section 232. When the Department of Energy forwarded the request to the Administration, it seemed that something would be done to save US domestic uranium mining from being completely wiped out by foreign competition. This was something that was extremely important for national security since the US depends on nuclear power plants for 20% of its electricity, and the armed forces need uranium to power submarines, destroyers, cruisers and aircraft carriers as well as to make smaller tactical nuclear weapons. Now that there is practically no uranium produced domestically, that means that the US in the future will be 100% dependent on foreign suppliers. Canada may be considered an ally, but China, Kazakhstan and Russia do not fall into this category. In fact there is pressure to prevent uranium imports from Russia while China is being profiled as the enemy to beat by the military-industrial complex.
The report does not only deal with mining but with the entire nuclear energy cycle, including processing, refinement, conversion, fuel fabrication, research and nuclear utilities. It should be clear that the utility companies are not in favour of higher uranium prices even if the raw material for their reactors is not the main cost for the production of electricity. Furthermore these utility companies maintain a host of lobbyists in Washington D.C. to promote their interests, which do not always coincide with strategic interests of the US. This factor has to be taken into account since imposing tariffs on imported uranium does not seem to be something important for NFWG while the introduction of tariffs was discarded by the Administration in the middle of the trade war with China.
The Spot Price
The spot price of uranium is now around $32.00, which is a lot more than it was last year.
Uranium PRICE Today | Uranium Spot Price Chart | Live Price of Uranium per Ounce | Markets Insider
The reason for the rise in the spot price is that uranium mine production has decreased significantly due to the closing of the Cameco Cigar Lake mine in Canada and problems in Kazakhstan due to COVID-19 as well as to the program initiated in 2018 to reduce production in order to have production geared to demand.
$150 Million for the Uranium Reserve
One proposal of the NFWG was to build up a uranium reserve by spending $150 per year for ten years for a total of $1.5 billion. The figure of $150 million has been inserted in the budget for the next fiscal year but has to be approved by Congress. Given the present political climate in Washington it is by no means certain that this sum will be appropriated. Some Democrats are against subsidizing American uranium miners and also against importing Russian uranium. Even if the proposal is approved, one has to reckon that $150 million is not going to buy a huge amount of uranium and that appropriation will be for only one year, not ten. At the present spot price of $32 per pound, that would mean 4.68 million pounds of uranium. At $32 a pound American miners would have hardly any incentive to go back into production. Taking a mine and mill out of care and maintenance is expensive and takes time. America miners would need at least $45 a pound, better $50 a pound, before putting out the capital to restart mines and mills. Reckon that American utilities companies need about 40 million pounds a year to keep their power plants running, and that does not include the needs of the navy.
Furthermore the capacity for production of domestic miners has to be taken into account. Energy Fuels (UUUU), Ur-Energy Inc. (URG) and Uranium Energy Corporation (UEC) between them have limited capacity: namely, 11.5 million tons, 2 million tons and 4 million tons respectively per annum. This means that they are fully licensed and permitted. Production in 2019 was 179,000 tons and at present there is practically no production domestically. It usually takes 7-8 years to get all the permits and licences for a mine. Then there is the need for capital to get the mine going and further capital is needed for a mill. The equipment is expensive and complicated. In fact one of the recommendations of the NFWG was to make the process of permitting and licensing simpler and faster.
Here one can see how the stocks of these companies are doing.
UUUU
URG
UEC
The recent uptick is due to hopes that the NFWG will actually achieve something positive in favor of the uranium miners. There is also the rise in the spot price that makes profitable uranium mining more likely. Then there are the reductions in production on the part of Cameco and Kazakhstan. Last year, this writer, perhaps naively, thought that the DOE proposal would find a welcome reception at the hands of the Administration and that something would be done to help the miners. What happened was that the Trump Administration noted that tariffs were not really an option and set up the NFWG. Now the uranium miners have to hope that Congress will at least funnel $150 million per annum in their direction. If the proposal in the budget passes, then the price paid by the DOE will have to justify taking mines and mills out of care and maintenance. At the present time it is not clear how much higher the spot price will move. If it moves above $50 a pound, then Cameco will probably resume production. There are thus a lot of “ifs” bound up with the future of American uranium mining. Even so, US uranium stocks are not expensive and could show significant improvement if any of the “ifs” materialize Even if the uranium companies welcomed the report of the NFWG, there is still a lot of uncertainty as to the future of domestic uranium mining. Investors opting to buy shares of domestic uranium producers could gain neat profits if the “ifs” materialize.
This article was written by
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The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
All investments involve risk, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments.
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