Uranium deadline: don't bet the farm - but don't miss out
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
‘Twas the night before the NFWG report, when all through the White House, all manner of creatures were stirring…”
… but honestly, most had other things on their minds.
I’ve been traveling all week, but this is pressing, so here’s a quick update on Trump’s Nuclear Fuel Working Group (NFWG), which is following up on the Department of Commerce’s Section 232 recommendations to support US uranium production.
There’s some disagreement on when the report is due; some say November 10, some say November 14. Not all months having 30 days may add to the confusion here, but far more important is that there’s no statutory timeframe for the NFWG to report.
It’s possible that absolutely nothing happens on the uranium front next week—or in the next months—and that would be bad for money-losing producers.
That said, I do think the NFWG will report. My gut tells me they will find some action for Trump to take that doesn’t rock the boat for utilities (and their shareholders, who are voters), but which encourages US uranium production.
Otherwise, why bother creating the NFWG in the first place? If Trump didn’t want to take some sort of action on this, I think the whole thing would have been done with last July.
What might they recommend? I’ve heard rumors…
The most likely scenario seems to be one including executive orders to US agencies and the military to increase domestic uranium purchases. That may not seem like much, but even that would be a real lifeline for uranium miners. And if they can sign contracts at higher prices with various US agencies, that could lift spot prices and boost the entire sector.
Far less likely—but still possible—would be some sort of domestic supply quota for US power utilities. The utilities would squawk, but the truth remains that the cost of uranium is a tiny part of their overall costs. And they all know that uranium prices will rise sooner or later anyway.
Somewhere in between is the possibility of import tariffs. I can’t put odds on that, but we do know that Trump is happy to use tariffs to achieve policy goals.
But I want to stress again that even if the NFWG recommends no action and the fate of US uranium producers is left to market forces, the end of this much-extended, politicized process is itself a good thing.
At some point, the bean-counters in the utilities, driven by their spreadsheets, will decide that it’s time to replenish and secure their inventory. Any that have already reached that point but are waiting to see if Trump changes the rules on them will have to start buying soon. If they can’t get all they need from de-nuclearizing utilities in Japan or other sources of secondary supply, they will have to contract with miners. That will force higher prices—much higher prices.
And by the way, if any US utility has to buy before there’s clarity, their bias would have to be to buy from US sources, so they don’t risk ending up on the wrong end of whatever decision ultimately gets made.
That’s the good news. The bad news is that even if I’m right and the utilities do start contracting with miners again, that process will take some time. It could be weeks or months before we see the results in public information.
Then again, the last time there was Section 232 action, spot uranium prices popped 5% the next day.
So, to be clear:
- I am not saying that speculators must rush out now and buy uranium stocks immediately or they will miss the boat.
- Nor am I saying that there’s no downside if the NFWG news is taken as very negative.
- But I am saying that there is potential for double-digit gains in the days ahead if the NFWG news is better than widely expected.
- I’m also saying that even if nothing at all happens this month, we may see uranium prices resume their climb soon anyway as any utilities either get clarity or are forced to buy anyway.
- And finally, I still think the fundamentals are bullish for uranium for years to come. I do expect that to deliver triple-digit gains—or better—on the right stocks, when the rally really gets going.
I want to wrap up by saying that the contrarian in me loves uranium today, precisely because it’s so hated.
Investors in general think uranium stocks are just as radioactive as uranium fuel rods. Resource investors don’t want to hear about uranium, because it seems to have promised and failed to deliver for years. Even uranium bugs are giving up on the play, because their agony keeps stretching on longer and longer.
I was on a mineral exploration panel at the New Orleans Investment conference last weekend. We talked about exploration, mining, metals, and stocks for almost an hour. Not one question was asked about uranium. The subject didn’t even come up.
That doesn’t prove that uranium prices must rise and that uranium stocks must go through the roof. But it does tell us that if we few remaining uranium bulls are right, the results of our speculations should be spectacular.
That’s why I have a large part of my own money, via The Independent Speculator portfolio, in uranium stocks today.
That’s my take,