Shares of Energy Fuels (TSX: EFR) and Ur-Energy (TSX: URE) moved higher on a report from Bloomberg that the U.S. Department of Commerce is recommending that Washington take measures to protect domestic uranium production.
The June 20 article, quoting three anonymous sources briefed on the matter, said the commerce department believes that the U.S. reliance on uranium imports poses a national security risk and that “among the trade remedies recommended is to require nuclear power plants to purchase a minimum of 5% of the radioactive fuel from U.S. mines.”
The news report said two of the three people interviewed said one option being discussed “would see the quota escalate by 5 percentage points a year.”
“The matter is far from final,” the article cautioned, “but one person said it is certain that the White House appears poised to take action. Other options being considered include doing nothing or putting limits on uranium from specific countries, one of the people said.”
According to Bloomberg, U.S. President Donald Trump has not yet reviewed the DOC report, and has until July 15 to make a decision on its recommendations.
At the moment, the U.S. imports most of its uranium from Canada, Kazakhstan, Australia and Russia.
Energy Fuels and Ur-Energy, which own conventional hard rock mines and in-situ recovery operations in the U.S., were the two companies that originally petitioned the department of commerce to consider imposing a 25% domestic purchase quota. Shares of Energy Fuels are up 3.4% to $4.38 and Ur-Energy up 2.5% to $1.25 in mid-morning trading.
“With U.S. uranium production waning to just a fraction (less than 2%) of domestic uranium requirements, a phased implementation of a quota is the rational approach to allow for production to ramp up from existing producers and idled mines,” Colin Healey, an analyst at Haywood Securities wrote in a research note. “The scale and implementation of any quota is ultimately the president’s decision and is not certain at this point.”
Healey noted that uranium production in the U.S. has fallen by roughly 90% since its peak in 1980 of about 43 million pounds of U308, and now makes up about 2% of the nation’s consumption, down from about 49% in 1987.
Alexander Pearce and Colin Hamilton of BMO Capital Markets in London commented that “any proposal to impose quotas or tariffs is negative for commodity markets, as it will stimulate higher cost supply into production at a cost for the end users.”
But they also noted that if the 5% tariff was confirmed, “this is a level we view as achievable, whereas an immediate 25% would have been impractical. U.S. output was about 1 million pounds last year. With this, and given high inventory levels, any ‘U.S. premium’ for uranium may take a couple of years to emerge, unlike the immediate impact from Section 232 decisions on the steel and aluminium markets.”
“More important for the wider uranium market is potential changes in nuclear build-out on a global basis,” they continued. “Reuters has reported that, at the China People’s Political Consultative Conference (CPPCC) held this week, senior industry officials pointed to potential to build 30 nuclear reactors in “One Belt, One Road” countries by 2030 utilizing its third-generation Hualong One reactor design.”
Chinese President Xi Jinping announced his One Belt, One Road initiative five years ago. The multi-billion dollar plans aims to connect Asia, Africa and Europe with massive infrastructure projects in a modern day version of the ancient Silk Road.
Mike Kozak, a mining analyst at Cantor Fitzgerald, calculates that if an initial 5% quota were implemented, “it would require U.S. uranium mining companies to deliver about 2.5 million pounds of domestic origin U308 to U.S. utilities, growing by about 2.5 million pounds a year U308 thereafter (to an unknown level) as the quota escalates.”
“In our view, in order to meet this domestic demand, U.S. producers would need incentive pricing (under long-term contracts) of +US$55 per lb. U308 (and potentially higher), an approximate 120% premium to current spot prices of about US$25 per lb. U38.”
Kozak notes that should the U.S. take action, Cameco Corporation (TSX: CCO; NYSE: CCJ), one of the largest nuclear fuel companies, should also gain, and has resumed coverage of the company with a buy rating and a 52-week target price of $17 per share.
“Resolution, regardless of the outcome, should nudge utilities to re-enter the contract market in a significant way,” he concluded.
Source: The Northern Miner