Last Friday it was revealed President Trump has reached a decision on a request from US uranium producers to force US utilities to purchase 25% of their requirements domestically as a matter of “national security” under section 232 of the relevant Act. However, by close of business on Friday no official announcement had been made by the White House.
Media outlets nevertheless suggested in reports that the president had rejected the request. Uranium market participants therefore took the risk, and market activity suddenly surged after weeks of doldrums brought about by 232 uncertainty. Even if the media reports were unfounded, the end of uncertainty would at least allow US utilities to know where they stand and return to the market to start making required purchases.
Eight transactions totalling 900,000lbs U3O8 equivalent were concluded in the spot market last week, industry consultant TradeTech reports, and TradeTech’s weekly spot price indicator rose US$1.00 to US$25.50/lb.
Utilities did not suddenly jump in – it was mostly uranium traders taking the punt.
The Conundrum
The “national security” banner has been flying high over the White House ever since Trump imposed tariffs on imports of steel and aluminium early last year. Section 232 is also the law under which tariffs on specific imports from China have been implemented. One presumes that US uranium producers thus saw an opportunity.
The US currently imports 93% of its commercial uranium. The biggest producer is Kazakhstan, accounting for 40% of global production. But imports also flow from the likes of Russia and Canada. The bottom line is US producers cannot compete at the price. Put Russia and Kazakhstan together, at least, and one might see where a “national security” argument can be made.
Canada? Well Trump did initially include Canada in early steel and aluminium tariffs, on national security grounds, but this was most likely to gain leverage in the so-called Nafta 2.0 negotiations rather than a declaration that America’s closest ally and trading partner posed a serious security threat.
No doubt US uranium producers assumed the president would be on board, given their request played right into the Make America Great Again theme, but this would be to overlook the one conundrum apparent in any such national security decision. In short, which is the greater security need? Locally produced uranium or secure, reliable electricity production? The uranium, whether being mined or not, would always be there.
Despite lower prices offered by global uranium exporters, US nuclear power generators cannot compete with cheap coal-fired gas and subsidised renewable energy. Legacy reactors have been shutting down across the US and new reactor plans have been shelved. Some states have offered financial incentives, but the White House has yet to settle on an energy policy that might include specific support for nuclear power generation.
If reactors cannot compete at low prices, how are they to compete when forced to purchase material at higher prices?
And that’s what the president saw. The US Department of Commerce supported either uranium quotas or a tariff on imported uranium but Trump did not concur, Canaccord Genuity reports, seeing rather reduced costs for US utilities being realised if such protections were rejected.
Frankly I would have thought it was a no-brainer.
The Fallout
US uranium producers saw their shares fall an average of -30% on the stock market.
Australia is not currently an exporter of uranium to the US, but a lifting of restrictions in the US, which to date is the world’s largest consumer of uranium (some 30% of global supply) until China catches up, could open the door, Canaccord suggests, to Australian “near term” developers, being those with projects currently sitting on care & maintenance or new projects advanced in the permitting stage.
Australia, after all, does have a “special relationship” with the US.
To that end, Canaccord highlights:
Boss Energy Resources ((BOE)), which is looking to restart the Honeymoon project in South Australia, once the fourth of the then federal government’s four permitted uranium mines;
Paladin Energy ((PDN)), which, having now repaired its balance sheet, is looking to restart its flagship Langer Heinrich mine in Namibia;
Hylea Metals ((HCO)), which has proposed the acquisition of Paladin’s other mine – Kayelekera in Malawi – which had been put into care & maintenance; and
Vimy Resources ((VMY)), which is progressing the Mulga Rock project in Western Australia – one of only four WA projects allowed to advance after a new state government reinstated a prior ban on uranium mining, given the level of investment in those projects to that time.
