Here’s what the US probe into uranium imports means for Aussie small caps
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Often countries will make moves that affect the price of a commodity but it’s not always clear cut as to why or what it means for the broader industry.
So Stockhead decided to take a look at what the US’ probe into uranium imports might mean for ASX-listed uranium players.
Now there are really only two ASX-listed uranium companies with projects in the US – Peninsula Energy (ASX:PEN), which is already in production, and Laramide Resources (ASX:LAM).
But there may also be some positives for other ASX-listed small cap uranium players.
So, a couple of US-based uranium miners submitted a petition to the US government calling for an investigation into security of supply concerns.
Basically the petitioners, Ur-Energy and Energy Fuels, wanted the government to impose a restriction that requires US utilities to source 25 per cent of their supply from freshly mined US uranium.
To put that into context, the US would have to produce 12 million pounds of uranium each year to meet that requirement, but right now the country produces less than 2 million pounds.
This “Section 232” investigation has been concluded and a confidential report and set of recommendations has been forwarded by the Department of Commerce to President Donald Trump.
He has until July 14 to decide what action to take.
Given the massive increase in production needed to meet a 25 per cent quota, it seems unlikely the US would back it.
“The rumour mill tells us that they have actually gone down the quota route,” Julian Tapp, chief nuclear officer for junior uranium miner Vimy Resources (ASX:VMY), told Stockhead. “I’d be astonished if it was 25 per cent because it’s so difficult, but assuming they did, they’d have to phase it in over quite a large number of years.
“I would suggest if it is quotas, they would be more targeted than that. They will apply to Russia, Uzbekistan and Kazakhstan and potentially Chinese interests in Namibia.”
Tapp said the US may be able to muster up 5 million pounds a year, but 12 million might be too much of a big ask.
“A lot of projects that at the moment would never be developed would have to be dusted off and brought into production; and what price brings that on?
“The answer is they’re going to need a price north of US$60 and probably close to US$80 for some of these projects to actually stack up and get into production and the problem is they’re three to five years away from being able to be in production on some of them.
“It would just be madness to introduce it effective from next year because all that happens is the US utilities simply can’t comply.”
One company that would be in a good place to capitalise on a push like this is Peninsula Energy, according to Tapp.
The company is in the process of ramping up production at its Lance operations in Wyoming.
Laramide Resources (ASX:LAM), meanwhile, also sees this as a good opportunity for the company.
“It is a potentially very opportune time for shareholders in uranium companies as years of underinvestment in potential future supply have created an unsustainable supply/demand balance that is likely to be resolved by higher uranium prices, regulatory action, or both,” CEO Marc Henderson said earlier this week.
“Should any pro-active action be taken which supports US domestic production capabilities, Laramide believes it is well positioned to benefit as one of a small group of companies with material US development assets.”
Canada-based Laramide is developing projects in New Mexico and Utah.
With the US and China at loggerheads over trade, there is always the possibility China may also decide to withhold uranium supply from its own mines and the African mines the Asian powerhouse controls.
Most of the US’ uranium imports come from Canada and Australia, so there could be an opportunity for these two countries to step up supply if China does decide to stop its uranium from going to the US.
“If the Australian and Canadian industries are in good stead, they can simply step up and increase their production to offset it because the amount going from these countries to America wasn’t that large,” Tapp explained.
The big problem at the moment is that the uranium price is nowhere near the level needed to incentivise new production.
The uranium price is just over $US25 a pound. But heavyweight Cameco has mothballed its McArthur River mine until it can get at least US$45 a pound — and that mine was already in production.
So the consensus is prices have to go up for new mines to come into production.
While the US has been carrying out its uranium probe, utilities have stayed away from long-term contracts until they know the outcome.
“Basically, the long-term contract buyers are all sitting on their hands waiting to understand what the outcome is and the implications, so they make sure they’ve got the right strategy for purchasing,” Tapp said.
“There’s a burst of demand due to come and once the decision is known then they’ll all go out and fill up before the price gets pushed up.
“We think the price is going to go up a bit once the outcome is known because long-term contracting will restart and there will be a bit of competitive tension because they’ll all be trying to fill in before the price goes up.
“And I think they all know the price is going to go up eventually.”