The implications if Section 232 Petition is made into law on the uranium market is upon us
For those of you that have been following the uranium market and Section 232 petition, wait no more. The 180 day decision period is almost upon us and a determination is expected from President Trump on or before 7/13/2019. This is two days from now.
A re-cap on Section 232 petition
Section 232 petition will try to create a level playing field in the domestic market. Section 232 petition requests that the US Government set a quota to limit imports of uranium into the US, thereby reserving 25% of the US nuclear market for US uranium production. US uranium miners have to compete with state subsidized mines in Russia and its allies in Kazakhstan. The remaining US uranium miners are operated at or near break-even levels. Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) is the only conventional uranium producer in America and can produce up to 8 million pounds of uranium per year. They were the company behind the filing of Section 232 petition with the US Commerce Department.
Over 40% of the uranium purchased in the US comes from higher risk countries. While the rest is secured largely from Canada and Australia, these countries have been reducing production due to the low prices coming out of Russia and Kazakhstan. Uranium spot prices remain well below the cost of production for most western uranium producers. The West just can’t compete against subsidized companies, but nor should it.
The US needs a secure source of uranium given its nuclear needs
Given 20% of US energy comes from nuclear plants and that the US has almost no uranium production, there is clearly a significant concern as to where the US will get uranium from should overseas supply be disrupted. Imagine for a minute 20% of US cities in darkness.
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The other key US need for uranium is for the defense sector. US law requires that any uranium used for national defense purposes (E.g. nuclear-powered naval vessels) be mined and processed in the US. It’s now getting to a critical supply stage in the US as uranium stockpiles continue to dwindle and threaten the defense’s nuclear supplies. This is why miners have suggested reserving 25% of the total US demand for domestic producers.
The Nimitz class is a class of ten nuclear-powered US aircraft carriers
The implications if Section 232 Petition is made into law
If the Section 232 Petition is successful we will most likely see a uranium market with two prices – one for the global market and one for the US market. Given the massive shortage of US sourced supply (about 1-2% of US uranium comes from the US), a huge price spike for US uranium is likely. Conversely, once US supply picks up the loss of the US as a global demand source it may negatively impact global uranium prices and non-US uranium producers.
Two key US uranium companies that will benefit if Section 232 Petition succeeds
Energy Fuels Inc. (NYSE: UUUU | TSX: EFR)
Energy Fuels operate the only conventional uranium mill in the U.S. The Company operates the highly-strategic White Mesa Mill that boasts a licensed capacity of over 8 million pounds of U3O8 per year. A positive Section 232 ruling could give Energy Fuels a huge advantage as they have their assets in production and potential to increase production.
Western Uranium & Vanadium Corp. (CSE: WUC | OTCQX: WSTRF)
Western Uranium & Vanadium is a near term producer that has acquired uranium and vanadium mineral assets in western Colorado and eastern Utah, USA. The Company has one of the largest US uranium and vanadium in-situ resources. The total uranium resource is 70,000,000 lbs. +/-, and the total vanadium resource is 35,000,000 lbs. +/- grading between 1.4-2.2%. The resource is spread over several properties. The Company is among the largest uranium resource holders with around 70,000 pounds of near term production available to be brought online if uranium prices were higher.
Sustainability and security of US uranium supply is the big issue. With very few uranium producers left in the USA will there even be enough uranium produced to even meet the short term demands of a 25% quota? The answer in the short term is clearly no. With new mines coming back online there will be a time lag and this could see both companies discussed above do very well indeed as they try to fill the US supply gap.
With only a matter of a two days before Trump is anticipated to make a determination — we will all soon know the fate of Section 232 petition. The US uranium industry stands to be the big winner if the petition is adopted.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>