Awaiting the power of Trump (following the NFWG’s recommendations) on American uranium
The Nuclear Fuel Working Group (NFWG) was established by President Trump in 2019 following a Section 232 petition from two US uranium producers (Energy Fuels and Ur-Energy) in January 2018. They requested that the US government set a quota to reserve 25% of the country’s nuclear market for domestic uranium producers.
The two uranium producers commenced the Section 232 petition out of concern of cheap uranium imports (mostly from Russia/Kazakhstan/Uzbekistan) flooding the US market, and the national security threat of relying on such countries for uranium, an essential fuel for the US nuclear industry. US nuclear power provides 20% of US electricity and also helps power the US military. In recent years US uranium production has been going down and down and may soon follow the way of rare earths if nothing is done.
Source of US uranium imports by country
Uranium concentrate produced in the US is declining rapidly and may soon become extinct
The NFWG mandate is to examine the entire US nuclear fuel supply chain with US security interests in mind. In particular to protect and plan for defense infrastructure needs, and to provide some sort of assistance to support domestic uranium supply.
The Nuclear Fuel Working Group’s findings
Based on a December Bloomberg report we believe that the Nuclear Fuel Working Group’s findings were:
- President Donald Trump to direct the Federal Government to buy more uranium from domestic producers. This would primarily be purchases of uranium by the U.S. Defense Department.
- US uranium purchases to boost the national uranium stockpile.
The US nuclear and uranium industries are waiting to see what President Trump does. He may accept or reject the above recommendations. There is no mandated time period for the US President to consider the Working Group’s recommendations.
Assuming the government’s buying price was high enough, the US would then be able to keep the US uranium industry alive to help safeguard the US nuclear industries’ uranium supply needs. If this was to occur then the main beneficiaries would be the very few US uranium producers that can quickly bring on low cost supply.
Ur‐Energy Inc. (NYSE: URG | TSX: URE) is one of only two primary US uranium producers still operating, and is able to bring on new uranium supply with a globally competitive cost of production.
Ur-Energy’s flagship project is the Lost Creek Property; however they also have several other uranium projects (Shirley Basin, Lost Soldier etc.).
The Lost Creek Property and the Lost Creek In-Situ Recovery (ISR) uranium facility
Ur-Energy owns and operates the Lost Creek In-Situ Recovery (ISR) uranium facility in south-central Wyoming, USA. The processing facility has a two million pounds per year physical design capacity. They also own the Lost Creek Mine which has a current mineral Resource estimate of 13.251 million pounds of contained uranium Measured and Indicated, and 6.439 million pounds Inferred. An amended Preliminary Economic Assessment (PEA) was issued in early 2016, and estimated a Life of Mine OpEx of $14.58/lb U3O8.
In recent years due to the low uranium price Ur-Energy has been stockpiling their own uranium (248,161 pounds U3O8 as at September 30, 2019), and buying uranium to sell into their higher priced uranium contracts. If there was to be a higher uranium price then Ur-Energy can rapidly ramp up their own production again.
Location map for the Lost Creek Mine and Shirley Basin Project of Ur-Energy
Shirley Basin Project
Shirley Basin is a near term uranium producing option for Ur-Energy. Baseline studies necessary for permitting and licensing of the project are complete, and the application for a permit to mine has been submitted.
Ur-Energy has a market cap of US$87 million, and an analyst’s consensus price target of US$1.01 representing 87% upside. Ur-Energy is likely to be a winner should President Trump decide to support the US uranium miners.
Uranium demand versus supply
- Demand is projected to increase by 3.1% annually through 2025. Currently, there are 450 operable reactors; 52 under construction, with more than half due to come online in next two years.
- Supply has reduced by 30m lbs in 2018-2019, with several mine closures due to low uranium prices. With the Russian Suspension Agreement (RSA) expiring at the end of 2020, it is likely Russian dumping of cheap subsidized uranium on US shores will accelerate.
Uranium demand is forecast to outstrip supply from about 2023
The declining US uranium industry is now at critically low levels. 2018 U.S. mined production was ~700,000 lbs U3O8, the lowest since record keeping began in 1940s. 2019 U.S. mined production is unlikely to reach 175,000 lbs U3O8, a fraction of what the US nuclear industry requires.
Given foreign sources of uranium currently supply the vast majority of the uranium needed to fuel U.S. nuclear power plants, it would seem highly probable that President Trump will act on the NFWG’s recommendations. That can only mean one thing, to help support US uranium producers in some manner. It may be a government buying program, tariffs on subsidized Russian/Kazakhstan/Uzbekistan cheap imports, or something else.
One thing is for sure. Unless President Trump does something the US uranium industry will be left to slowly die away as it has been in recent years, and as we saw with US rare earths. That would leave the US totally vulnerable. The industry continues to wait and hopes to hear an outcome soon from President Trump.
The low cost US uranium producer Ur-Energy is well-positioned to benefit from a positive President Trump announcement, as well as the increasing global uranium demand and potential deficits forecast from 2023.
Matthew Bohlsen is a Senior Editor for InvestorIntel.com. With a Graduate Diploma in Applied Finance and Investment, and a Graduate Diploma in Financial Planning. He ... <Read more about Matthew Bohlsen>