Uranium Trends 2019: Sector Stagnates, Section 232 Still Unclear

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After starting 2019 with much promise, the U3O8 spot price has spent the year falling. The sector remains opaque in the wake of US President Donald Trump’s Section 232 punt, and utility companies’ hesitance to enter the market has also driven the price of the energy fuel lower.

Over the 12 month period, the value of uranium has slipped 9.9 percent from US$28.54 per pound in January to US$25.70 in mid-December.

As prices continued their year-long descent, uranium producers struggled to remain solvent as the wait for a price surge continued.

Now that the year is ending, the Investing News Network (INN) is looking back at the main uranium trends of 2019, including long-lasting production cuts from two of the largest uranium suppliers, government probes into national security and future uses that could breathe life into a flat sector.

Uranium trends Q1: Price hits year-to-date high

The year started with the uranium sector still awaiting a decision on the US Department of Commerce’s Section 232 investigation into foreign uranium imports. Optimism that Trump would implement a domestic quota that could bolster prices abounded in the space.

Throughout January, prices inched higher, ending the 30 day period at a year-to-date high of US$29.10.

In February, waiting remained the main theme, as the sector continued to be impacted by Washington’s lack of clarity on uranium imports and the absence of utilities companies, which traditionally purchase uranium for electricity generation during the first quarter of the year.

As a result, the price of the energy fuel dipped below US$28, and the prolonged low prices that have plagued the uranium space over the last three years kept weighing on producers.

Cameco (TSX:CCO,NYSE:CCJ), the world’s largest uranium producer, indefinitely shuttered its McArthur River mine and Key Lake mill in Saskatchewan’s Athabasca Basin in 2018 due to low prices, and it has yet to bring the projects back online.

There was speculation that the 17 percent reduction in global supply that came as a result of Cameco’s reduced output would benefit the spot price, but that has yet to emerge, and other producers have felt the pressure of low prices and high overhead.

Expectations that a supply shortfall might materialize began to grow towards the end of February, and that was a recurring theme at the 2019 Prospectors & Developers Association of Canada (PDAC) convention, held in Toronto at the beginning of March.

“I think (the spot price) will continue to trend a little bit higher as Cameco has to buy for 2019 and potentially into 2020,” said Nick Carter, executive vice president of uranium at UxC. “It’s really going to depend; it’s becoming a little bit of a complicated market with Section 232.”

Carter, as well as the other energy analysts at the conference, remained confident a decision would remove some of the opaqueness clouding the market.

However, Carter did express caution about the pace the market would take.

“Moving into this year, we’ll see a little bit more inventory utilization, several million pounds will continue to be drawn down, but it’s a slow market in terms of an actual turnaround.”

While low prices are a hindrance for producers and explorers, they do offer a potential value opportunity for investors looking to get in while the market is low, as Lobo Tiggre, CEO of Louis James LLC, noted.

“I do think uranium’s time has come,” Tiggre told INN at PDAC. “I think there’s a particularly great opportunity for investors in that the stocks have been hammered with the broader equities. You could see this (in Q4 2018) … The uranium stocks would go down with everything else, even if uranium was up at that time. So, a divergence in price and value is an opportunity for investors.”

At the end of March, the spot price fell to US$24.95, its lowest point since July 2018. However, that wasn’t the bottom for the uranium price in 2019.

Uranium trends Q2: Uncertainty mounts, price sinks

The second quarter of the year didn’t see improvements in the value of U3O8, as electricity producers continued to avoid the market and the wait for the US president’s decision dragged on.

The spot price was rangebound at US$25.20 for April, a US$3.70 decrease from its January high of US$29.10. The period’s lowest point came in May, when U3O8 was selling for US$24.05.

A report released during the month noted that quarterly uranium production in the US and Kazakhstan was down for the first quarter of 2019. US output dropped by 74 percent due to fewer US-based sites being in operation, while Kazakh output was down 4 percent.

“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 Tiggre at the end of Q2.

“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.”

By the end of June, the radioactive fuel was trading for US$24.50, half of the US$50 many miners and explorers have said is the key price for making uranium mining lucrative.

Uranium trends Q3: Section 232 decision offers no clarity

The U3O8 spot price did not surpass US$25 for the first 12 days of July, but climbed to its second highest point of the year on July 16: US$26.30.

The uptick came following Trump’s Section 232 decision, which was passed down on July 12. He decided to forgo a quota implementation at the time, and instead passed the task on to a newly formed group, the US Nuclear Fuel Working Group. The move came despite his acknowledgment that there is cause for concern around foreign uranium imports.

While the possibility of the new exploratory committee proposing domestic quotas remains on the table, the lack of any actionable decisions by the US leader impacted the price of uranium later in the month and during rest of the quarter.

The US head of state gave the group of politicians, industry experts and producers a 90 day timeframe to return a report on the nuclear fuel cycle.

“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 told INN at the end of September.

While many sector watchers remain bullish on the promise of uranium as a carbon-free energy source, financial analyst Jayant Bhandari isn’t convinced it’s U3O8’s time.

“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 during the summer. “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.”

Uranium dipped below its US$25 range in mid-September, but ended the quarter at US$25.39.

Uranium trends Q4: Price hits year-to-date low

In mid-October, Trump extended the 90 day deadline for the nuclear fuel committee.

The move did not bode well for prices — by the end of the month, the U3O8 spot price had fallen to its lowest point in 2019 to trade for US$23.84, a 16 percent drop from its January high.

While uranium wasn’t a main topic of focus at the New Orleans Investment Conference, it remained a point of discussion among attendees, speakers and company presenters who were discouraged by the lack of growth the U3O8 spot price had experienced thus far in 2019.

Even Tiggre, a self-described uranium bull, was discouraged by the energy fuel’s performance, which was continuing to keep producers and explorers from ramping up.

Tiggre said prices need to be even higher than US$50 to get movement from miners.

“My review of the data suggests it’s more like US$65 or US$70. The number that would really light a fire under the explorers out there is pretty high,” he said. “If you look at their feasibility studies, most of them are done at US$60 to US$65.”

While Tiggre provided sobering realism about prices, Thom Calandra of the Calandra Report expressed optimism in New Orleans about the potential upside uranium offers in the long term.

“I’m a big believer in uranium; I think it’s clean energy. I think we need energy and copper — but energy of some type to produce the infrastructure that we need going forward, and by going forward I mean the next 20 to 30 years,” he explained. “I think if you’re a believer in deep value, and I always am, then uranium is the way to go.”

In early December, word emerged that the nuclear fuel committee had handed over its report to Trump. Speculation that the committee had recommended domestic production quotas sent shares of national miners higher, but did little for the spot price.

In a late July interview with Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF), the veteran investor told INN he sees uranium switching from a bear market to bull market in 2020.

“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.”

After flirting with the US$26 mark in late November, the U3O8 spot price has remained rangebound at US$25, and will likely stay that way into the new year as indecision and uncertainty remain the key themes in the market.

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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.