Industry News

Uranium Sector: Section 232 Decision Approaches: Higher Uranium Prices Possible on Either Positive or Negative Outcome

Purepoint received consent to share the following note and report from VIII Capital with our followers:

Source:  David A. Talbot | Director | Uranium & Battery Metals, VIII Capital

“We have released our take on the current Section 232 Petition investigation evolving in the USA.

US Dept. of Commerce investigation report into the effects of U3O8 imports on national security was due yesterday.  We may not hear details about the report until Trump is ready to act, we’d expect that to be much shorter than the 90 day limit.

Removing uncertainty surrounding the Section 232 Petition should help get utilities back to buying, particularly as many term contracts with US producers draw to a close.

We also expect considerable media attention soon – this could be good for the stocks. We believe U3O8 market speculation and U3O8 equity investment has already begun. The producers are up 22% QoQ and 8% last week despite a sharp pullback on Friday.

In the short term, we don’t believe that the US has the production capacity to cover the 25% quota

• • We need a 145% duty imposed on uranium imports to negate the impact of low Kazakh costs, according to UxC.
  • UxC anticipates potential Buy American – 25% quota of 13.5 MM lbs U3O8.
  • Neither Eight Capital’s risk-weighted US uranium production forecast nor UxC’s “potential” or “hypothetical” US production forecasts can meet this anticipated quota.

We would speculate that if uranium prices rose sufficiently, the US could cover 10% of its reactor requirements by 2021.

• • Annual US reactor requirements range from 34 MM lbs U3O8 (UxC 2018) to 40 MM lbs U3O8 (WNA 2017), not including the Government
  • UxC’s Buy American – 25% reactor requirement quota scenario suggests demand of 13.5 MM lbs U3O8 pa.
  • UxC’s Hypothetical and potential US Production scenario suggests 11.8 MM lbs and 8.7 MM lbs U3O8 pa
  • Neither scenario covers the quota and mine costs would increase to between US$50 and US$70/lb in those scenarios
  • Eight Capital’s un-risk weighted US production forecast suggests 15.1 MM lbs U3O8 pa, but only in a perfect world
  • Eight Capital’s risk-weighted US production forecast suggests 6.4 MM lbs U3O8 pa, this falls short of even if a 10% quota was put into place.
  • The petitioners suggest the Buy American 25% Quota model suggests 69% to 104% increase in uranium prices to $45/lb in the short term and US$56/lb by 2022

Of 17 uranium companies covered at Eight Capital, eight have assets in the USA or inventory from US production – corporate summaries for each of these are located at the back of this note.

A two-tiered price system that values US produced uranium higher than imported uranium may benefit these companies directly, but this news will likely impact the entire industry.”

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