U3O8 Price Update: Q3 2019 in Review

Energy Investing
Uranium Investing

Uncertainty about the US Section 232 investigation weighed on the sector in Q3, preventing the U3O8 spot price from climbing above US$26. 

Click here to read the latest U3O8 price update. 

The U3O8 spot price remained relatively flat for the majority of Q3, similar to its Q2 activity.

Continued uncertainty about the US Section 232 uranium import investigation weighed on the sector, preventing the spot price from climbing above US$26 per pound.

In early July, the U3O8 spot price sat at US$24.60, before climbing to US$26.20 by mid-month.

However, that price growth was short lived, and by the end of July uranium had slipped to US$25.30, remaining rangebound for the rest of the quarter. Currently the U3O8 spot price is US$25.65.

U3O8 price update: Sector still awaiting action

The long-awaited Section 232 decision was handed down in July, but the lack of concrete actionable items has left ambiguity in the sector. In his decision, US President Donald Trump signaled the creation of a new exploratory committee, the US Nuclear Fuel Working Group, which he has tasked with reviewing the entire domestic nuclear fuel cycle and supply chain.

Prior to the decision, there had been speculation that Washington might implement domestic quotas of anywhere between 15 and 25 percent, which bolstered the price in early July. However, without a definitive decision in the announcement, U3O8 quickly slid back into the US$25 range.

While a proposed domestic quota was the end goal of US producers, utilities companies have been adamant that they do not support such a move.

“You have got competing views on (domestic quotas) between the miners and the utilities. That will have to be worked out, but it really has put a damper on the price and no one is buying in the spot market. There is just no liquidity,” Mercenary Geologist Mickey Fulp said.

The longtime sector watcher believes utilities and other uranium buyers will be coming to market soon in order to meet their contracts; however, when that will happen is unknown.

He noted that there is speculation that sector major Cameco (TSX:CCO,NYSE:CCJ) will need to purchase between 10 million and 12 million pounds of the energy fuel to fulfill its contracts.

Cameco could need to purchase off the spot market to meet these demands because the company has temporarily shuttered its largest uranium mine, McArthur River in Saskatchewan.

“It’s an opaque market, but the general thinking is they haven’t bought any yet, so where is that uranium going to come from?” added Fulp.

In late July, the Investing News Network (INN) spoke with veteran investor Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) about the uranium market and when he sees it shifting from bearish to bullish.

“I see gold moving this year and uranium moving next year,” said Rule. “But the truth is that when uranium markets move the impacts on uranium stocks are more dramatic than any other stocks in the resource sector … When the uranium price does move, the anticipation that you’ll see from investors crowding into the few remaining uranium stocks on the planet, I think, will be very dramatic.”

For every optimist there is at least one pessimist, and for uranium that is Jayant Bhandari. INN spoke with the financial analyst in August, and he wasn’t convinced that uranium is heading into bull territory.

“Unless you think your mining company makes money at US$25 per pound of uranium, it makes absolutely no sense to participate in this hype,” Bhandari said while in attendance at the Sprott Natural Resource Symposium. “People get caught up in these trends and (the) hype of any specific commodity, and they lose a lot of money and you see empty conferences.”

U3O8 price update: Supply and demand

As mentioned, sector major Cameco plays an influential role in the uranium sector. In late July, the Canada-headquartered company announced it will not be restarting production in Saskatchewan until the spot price makes upward movements.

“So there is some progress being made on the issues creating uncertainty for market participants,” Cameco CEO Tim Gitzel wrote. “However, make no mistake, there is still a long way to go before we decide to restart McArthur River/Key Lake. We can’t lose sight of the fact that, while we have a true value strategy, there are still others in our industry who lack conviction, experience, or are still over-producing their committed sales volumes and using the spot market for surplus disposal.”

Despite indefinitely shuttering its McArthur River mine and the Key Lake mill, Cameco was the top publicly traded uranium company in 2018 with a production total of 9.2 million pounds. Though still clinching the top spot, its output slipped from 23.8 million pounds in 2017 to 9.2 million pounds last year.

In the face of its inactivity in Saskatchewan, the company has garnered good news down under. In early August, Cameco Australia won an appellate court case around environmental approvals for the Yeelirrie uranium project.

According to a 2018 project booklet, Yeelirrie has a measured and indicated U3O8 resource of 128.1 million pounds.

“Cameco is advancing the Yeelirrie project at a pace aligned with market conditions. A development decision by Cameco has not yet been made and would require favorable market conditions and government approval,” states the overview.

Even though final production numbers for 2019 are at least three months away, it is easy to tell that this year’s world totals will be significantly less than in years past.

In 2018, total world output rang in at 53,498 tonnes, a 6,000 tonne decrease from the previous year and an almost 10,000 tonne drop from 2016, when production surpassed 62,000 tonnes.

As global production slips and the market tightens, some producers have been more affected than others. Paladin Energy (TSX:PDN,OTC Pink:PALAF), the fifth largest miner in 2018, will likely not make the list in 2019 if output alone is the qualifying marker — it processed no ore during its 2019 fiscal year.

Paladin placed its Langer Heinrich mine in Namibia on care and maintenance in 2018 in hopes the spot price would hit an upswing, allowing for the company to bring it back online.

“Whilst primary production has continued to be short of forecast growth, the uranium price recovery has retracted and temporarily stalled in the shadow of this market uncertainty,” Scott Sullivan, CEO of Paladin, said in a late August press release.

“Notwithstanding, market restructuring has continued with conversion and particularly enrichment seeing notable price increases during the first half of 2019. We believe that these improvements will feed across into the uranium market once the outcome of the Nuclear Fuel Cycle Review has been announced and its impact absorbed by the industry during the course of FY20.”

Paladin is currently in the process of restarting Langer Heinrich.

Supply issues will likely continue to be a problem, with Cameco and Paladin reducing output, as well as a prolonged production cut by Kazakhstan’s national uranium producer, Kazatomprom.

Kazatomprom, the world’s largest uranium producer by volume, announced towards the end of August that it will cut production through 2021. It also plans to draw down output by 20 percent over the next two years in an effort to spur spot price growth.

“Uranium recovered somewhat from the lows of 2016, but the market is still signaling that there is no need to bring back existing production capacity,” said Galymzhan Pirmatov, CEO at Kazatomprom. “Keeping production levels flat for now supports a return to long-term sustainability in the market, which will benefit all stakeholders.”

U3O8 price update: Sector future

While uranium prices remained rangebound for the majority of 2019’s third quarter, those in the know continue to be optimistic that nuclear reactor builds and rollouts will eventually lead to a uranium boom.

As many as 50 reactors are in various stages of construction, and another handful are being discussed at a time when the need for carbon-free energy is becoming more apparent; so too is the need to add nuclear reactors to the discussion.

As Fulp mentioned, China has recently committed to commissioning six to eight reactors annually. Other regions of the world are looking to large-scale nuclear as well as small modular reactors (SMRs) as ways to cut fossil fuel dependency while also reducing greenhouse gas emissions.

He added that more reactors are in the construction and development phases now than pre-Fukushima.

“Russia just signed a deal with India for 20 reactors over the next 20 years,” he said.

“I don’t really see the buildout going away, especially if this whole green agenda, zero carbon emissions, continues to play out, because it is the only source of baseload electricity. You can’t supply baseload electricity with wind or solar, and I think some of the ‘greenies’ are starting to realize that nuclear is their only option if they want to kill the fossil fuel industry. Coal specifically.”

Even Australia, which is notoriously anti-uranium and anti-nuclear, is looking at the potential SMRs could offer, according to Fulp, although he believes the rapid rollout of SMRs won’t happen in the short term.

As Q3 drew to a close, 27 western state Republican senators and Congress members released an open letter to Richard O’Brien and Larry Kudlow, the Trump administration’s national security and economic advisers, who both sit on the US Nuclear Fuel Working Group.

The missive calls for increased domestic production of uranium, as well as exploration.

“We strongly encourage you to make improved access to federal lands with high-grade uranium deposits a top priority,” the lawmakers wrote. “Greater access to our own resources will help put Americans to work exploring for and responsibly producing the uranium that our country needs.”

The US Nuclear Fuel Working Group is expected to release its decision on October 10, 2019. It will likely impact spot prices for the remainder of the year.

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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.

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