U3O8 Price Update: Q2 2019 in Review

The U3O8 spot price stagnated for much of Q2, but optimism remained strong in the uranium sector ahead of US President Donald Trump’sSection 232 comments.  

The spot price was hovering around US$25.20 per pound in early April, a US$3.70 decrease from its January high of US$28.90.

Over Q2, stockpiles remained high and the price continued to slip, reaching its lowest point in the quarter in May when it was at US$24.05. As of mid-July, the spot price was sitting at US$26.15. 

U3O8 price update: Sector awaits action

There hasn’t been much price action in the uranium market over the last three months, with the major story being the Section 232 report on foreign imports in the US.

The investigation, which was conducted by the US Department of Commerce, examined the impact of uranium imports on national security. It was handed over to the president in mid-April.

“The available data suggests that the underwhelming Q2 was not the result of a new flood of secondary supply from Japan, or the like,” said Lobo Tiggre, CEO of Louis James LLC. “Rather, ironically, it may be the Section 232 petition. Industry insiders are saying that some of the utilities — all of which have uranium stockpiles — are holding off on new purchase contracts until they know what Trump is going to do.” 

The anticipation of the presidential decision kept utility companies away from market and created speculation about new quotas in the US and what other measures might be implemented to secure America’s uranium sector.

In addition to production allocations, the idea that the president could extend an executive order issued last year was also mulled over.

As Mercenary Geologist Mickey Fulp explained, “(Trump) signed an executive order that the Department of Defense could not use any foreign uranium supplies for 100 nuclear subs and five aircraft carriers. That’s a significant amount of uranium.”

The president’s Section 232 decision, which was passed down late in the afternoon on July 12,implemented no domestic production quotas, even though Trump acknowledged that there is cause for concern about foreign uranium imports. 

Trump has ordered more examination into the sector, tasking a working group with re-evaluating the domestic uranium market over the next 90 days.  

The news that the president will not take any action was disappointing to Fulp, who views the continued review of the sector as “redundant.”

Many of the members of the newly formed investigatory group already weighed in during the Department of Commerce’s nearly year-long Section 232 investigation. 

While American companies may be displeased with the lack of finality in the decision, Canadian uranium company NexGen Energy (TSX:NXE) sees the announcement as an advantageous opportunity for itself and other Canadian uranium producers. 

“With the uncertainty created by the Section 232 investigation now concluded, with President Trump determining to take no trade action to support US domestic supply, Canada as a whole, and NexGen specifically, is in the preferred position given that it will have the largest and lowest-cost operation in the world coming from just north of the border,” Travis McPherson, vice president of corporate development, told the Investing News Network. 

“The decision bodes well for all Canadian uranium given the US is the largest consumer of uranium and the Trump administration is undertaking significant steps to revitalize the nuclear energy sector in the US, including next-generation reactor technologies.” 

U3O8 price update: Outside the US 

At the end of April, uranium major Cameco (TSX:CCO,NYSE:CCJ) received environmental approval for the Yeelirrie uranium site, located in the remote Northern Goldfields region of Western Australia. 

The project is considered to be one of the country’s largest undeveloped uranium deposits.

Even though the company has been approved to proceed to the next step at Yeelirrie, there are no plans to rush into production while the spot price remains depressed.

The need for higher U3O8 spot prices remains the most pressing issue of the sector as whole.

“The important thing is that supply is not ramping up yet, so, with or without Section 232’s help, uranium prices still have to go up,” said Tiggre.

The spot price needs to be higher across the board, and that includes Canada as well. In the northern nation, weak spot prices have kept Cameco’s flagship Wheeler River mine and Key Lake mill offline since last year, with no word on when the projects are expected to ramp up again.

Even so, there was some positive news during Q2. Horizons ETFs Managementlaunched Canada’s first uranium ETF in mid-May, giving investors direct exposure to the C$15 billion global uranium sector. While prices may be low now, the fund, which trades on the TSX under the ticker symbol HURA, plans to capitalize on growing demand for nuclearenergy, which needs long-term and stable supply ofU3O8.

“Today, nuclear is the only viable solution to supply zero emission-base-load-power, and currently, there is not enough uranium being mined to meet planned growth. These factors combined make for a very positive opportunity for the uranium mining sector,” said Nick Piquard, portfolio manager and options strategist at Horizons ETFs, in apress release.

Nuclear energy is one of the fastest-growing renewable energy sectors. In 2018, the global market grew by 2.4 percent, the quickest pace since 2010.

U3O8 price update: Looking forward

While Trump’s working group re-evaluates the uranium sector, there are a few things to consider.

Following the release of a governmental report calling for increased permitting, exploration and mining of a host of minerals and resources, a US House subcommittee met to discuss extending an Obama-erauranium mining claim and activity ban for areas in and around the Grand Canyon.

The million acre area was protected as part of the 2012 legislation for 20 years; however, as Fulp pointed out, that could be one of the areas addressed by Trump.

“I’m sure that Trump could reverse that with an executive order. He did that on the Sage-Grouse withdrawal,” said Fulp. “I think it’s a given that he is going to establish some sort of domestic mining quota. I think it’s a given that he is going to put foreign import tariffs and those are going to hit on Russia, Kazakhstan and Uzbekistan.”

For producers and explorers, there is still hope that spot price growth can reinvigorate the market, creating much-needed capital to ramp up production or finalize exploration. 

“We would expect the contracting cycle to commence again given the unprecedentedly large non-contracted demand,” said NexGen’s McPherson, referring to nuclear reactor requirements that currently aren’t filled under long-term contract agreements.

“We are confident that, once the contracting cycle starts again, prices will normalize significantly higher than where spot prices are quoted today based on the requirement for those contracts to cover the all-in cost of mining uranium plus a return.” 

Regardless of the future action the president takes, global spot prices need to trend higher to encourage production growth and exploration, a sentiment that was echoed by Tiggre.

“But as bullish as I am on uranium going forward — the stuff simply cannot be mined in sufficient quantities at current prices, and it can’t be replaced in less than years or decades — I’d see that as a great buying opportunity,” he said. 

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.