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US Uranium Meltdown: Market Error Is Golden Opportunity

Commentaries & Views

As luck would have it, last Friday—the day after I published an article calling uranium stocks the best speculation in the resource sector—a wild market overreaction created some golden buying opportunities.

Without citing any sources, an Australian paper reported that it “understood” that Donald Trump would reject a Section 232 petition for support by US uranium producers.

Shares in some US players down almost 40% intraday, while shares in some Canadian uranium plays were up over 5%.

These were astonishing moves based on hearsay. That’s all the more so given that the fundamentals for uranium didn’t change and the Section 232 petition was never more than a possible tailwind, not a “make or break” necessity.

Friday night, after the markets closed, the White House published an official memorandum with Trump’s decision.

Key Points

  • The Department of Commerce did conclude that there was a threat and that action was necessary: “Currently, the United States imports approximately 93 percent of its commercial uranium, compared to 85.8 percent in 2009. The Secretary found that this figure is because of increased production by foreign state-owned enterprises, which have distorted global prices and made it more difficult for domestic mines to compete.”

  • Trump didn’t agree: “At this time, I do not concur with the Secretary’s finding that uranium imports threaten to impair the national security of the United States as defined under section 232 of the Act.” So, no quotas nor tariffs—for now.

  • Though not a national security threat, Trump does think the US depending heavily on imports is a problem and that it deserves closer study before taking action. He established a United States Nuclear Fuel Working Group to study US needs regarding uranium supply, the whole fuel cycle, and military needs. This working group has 90 days to report back to Trump on what to do next.

In short, Trump says the issue is real, but put off making any real decisions.

What’s really interesting is the price action since the White House memo was made public.

Shares in the same US plays that sold off so brutally on Friday were up by double digits in pre-market trading on Friday. Conversely, shares in Canadian plays were under pressure. Clearly, people who follow this space closely saw that the meltdown on Friday was overdone—and an exceptional opportunity.

I was among them; I put my money where my mouth was and doubled down on my favorite uranium stock.

Then the market opened, and a different set of investors came into play. The pre-open double-digit gains were reduced to single digits. By the end of the day, one of the US plays ended up even lower than on Friday’s close.

That was particularly striking, given that uranium itself popped almost 5% on the spot market at the same time. It’s up again today, over $26 per pound, last I heard.

This fits with a story that’s been circulating in the uranium space that the Section 232 petition was a bad idea, even for the companies that made the petition. The argument is that it caused key customers to stop buying until it was known whether the US would require more uranium to be sourced in the US. This makes sense, and one would expect uranium prices to rise after Trump’s decision—either way it went—just because the uncertainty was removed. And that seems to be what’s happening right now.

The problem with this is that Trump didn’t really kill the petition…

The President left the door open to do exactly as the Section 232 petitioners requested or take other action in the future.

To be clear: I’m not predicting that he will.

I’m just saying that it’s a mistake to take it as a given that he won’t.

The good news it that, at the end of the day, all this Section 232-induced volatility doesn’t matter. Even if the US government doesn’t end up doing a single thing to support US production, it doesn’t make one bit of difference to the fundamentals for uranium. Those remain as bullish as ever. We simply won’t have enough of the stuff to keep the lights on unless prices rise much higher.

Even if Trump takes no action to support US uranium companies in 90 days, that only means the status quo reigns—and that’s bullish for all quality uranium plays.

I’m as sure of this as I am of anything in the financial world. It would take another Fukushima to derail this trend. Even the worst possible Section 232 endgame—which is nothing—doesn’t come close.

As for uranium itself, the metal remains on its upward trend. Combine this rising price environment with the market’s error on Friday—which persists today—and we get the golden buying opportunities I mentioned above.

What’s the best way to play this—where did I put my own hard-earned cash? Well, that’s what subscribers to The Independent Speculator pay me to tell them.

But I’m alerting you you the idea for free. For more ideas like this and my take on other markets, please sign up for my free (no spam!) weekly email, the Speculator’s Digest.

Caveat emptor,

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.

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