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Profit From Asymmetrical "Uranium Fork" Risk

Commentaries & Views

The US Department of Commerce is scheduled to have its much-anticipated Section 232 report on US dependency on foreign uranium to the president by April 14.

It’s unlikely there will be any fireworks on that day.

Most US investors will be more concerned with their taxes than the price of uranium. Besides, it’s not a given that uranium prices around the world will leap in response, even if the DoC does recommend requiring US utilities to buy 25% of their uranium in the US. Power utilities maintain ample stocks so they aren’t forced to buy at the last minute. Requests for proposals (RFPs) would go out first. Deals would have to be made.

It’s even possible that higher prices in the US could temporarily result in lower prices elsewhere, as major US buyers shift their new contracts to US suppliers.

We’re talking about a major potential shift in one of the largest consumers in this market. Changes in this highly regulated industry—if they happen at all—will take time. It could take years for the possible “uranium fork” to produce two spot prices—one in the US and one global—that investors could easily track. It may not even happen at all. Contracts for US-produced uranium would still have to be set at much higher prices, and that information would get out, but perhaps not very efficiently.

One thing is clear: a US government decision to support the US uranium industry would instantly add highly visible value to all US uranium plays. This applies to foreign-owned uranium assets in the US as well; the jobs and output would still be in the US.

How quickly Mr. Market recognizes that—and how much he choses to reflect that value in share prices—remains to be seen. There are no guarantees. But…

It is possible that share prices of the strongest and most obvious beneficiaries could pop the moment the DoC’s report goes public.

Plenty of investors are watching this. I can tell you that nothing else I write about—absolutely nothing—generates as much comment and debate on social media than uranium. It won’t take long for word to spread. And whether or not share prices of companies with US uranium assets should rise before the recommendations have time to turn into decisions… that turn into policies… that deliver material advantages to US producers… Experience tells me they will.

But will the DoC deliver for the US uranium industry?

Well, there’s no sure thing in investing, but given what we know about this administration, I do think it’s likely. The idea fits perfectly with the America First agenda.

In my view, that makes this a tradable event.

What makes US uranium plays great speculations today is not that Section 232 is sure to deliver. It’s that share prices are not up much in anticipation of a favorable Section 232 result. Relevant share prices keep tracking the broader indices. They drop on down days and weeks for the Dow and S&P 500, even when uranium prices are rising at the same time. This happened just last week.

That gives savvy speculators time to build solid positions in great stocks that could benefit, just before the uranium sector potentially undergoes a major change for the better.

Key point: this 232 issue makes for a trading opportunity whether or not one is bullish on uranium.

Those who agree only that the Trump administration is likely to give US uranium plays a boost can buy now, ahead of that news, and sell after the pop. No need to worry about what happens over the longer term. The stocks may not double overnight, but substantial double-digit gains in the near term would be easy to see.

And for those who are bullish on uranium going forward—if they’re right, these same stocks would continue delivering for years to come.

What if the Section 232 report is negative?

The DoC is not going to torpedo the US uranium industry. The worse case is that they decide that the uranium industry is fine as it is. If that happens, it’s business as usual. Since uranium stocks have not gone vertical in anticipation of a positive outcome, there’s relatively little downside risk. Uranium prices should continue driving higher as secondary supplies continue to be drawn off the market.

  • Those who aren’t uranium bulls should be able to get out of the short-term trade with most or all of their money intact.
  • Those who are will just have to be a little more patient in waiting for payday.

Either way: no harm, no foul.

The risk is highly asymmetrical.

But which stocks are poised to benefit the most?

Well, my answers to questions like that are what subscribers to The Independent Speculator pay me for. I’ll have updated guidance in next week’s edition. You’re welcome to subscribe now and get ready for what may be the trade of the year.

Or you can go it alone. I’ve told you what to look for.

I hope you make lots of money—and remember who tipped you to the idea.

However you play it, to make the most of this opportunity, you’ll want to act immediately.

That’s my take.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.