This could be the catalyst for the expected uranium rally. After waivers for foreign companies working on Iranian nuclear were extended at the end of October, one of the four waivers were rescinded yesterday, because of the resumption of enrichment at the Fordow facility. Sanctions will come into affect for companies working at this facility on December 15th. It is estimated that the European, Chinese and Russian companies currently engaged in Iran’s nuclear program make up about ~20% of nuclear fuel supply. While companies that discontinue working at this facility would not be subject to sanctions, the potential exists for some impact on the nuclear fuel supply chain which we expect to push prices higher. This is only one of the potential near-term catalysts that we see pushing the uranium price higher in the near-term, as noted in our recent uranium update, in September. While we believe that the implementation of sanctions is likely to push the uranium price higher in the short-term, we continue to have a bullish outlook on the uranium sector and are expecting the tightening long-term supply-demand fundamentals to result in a significant uranium price increase.
Appia Energy Corp
Watershed event could be a major inflection in the uranium fuel space. The expiration of nuclear power waivers (October 29th) allowing foreign companies to continue engaging in Iran’s civil nuclear program has the potential to be a massive near-term catalyst for the uranium space, as it could impact as much as ~20% of U.S. nuclear fuel supply. The European, Chinese and Russian companies currently engaged in Iran’s nuclear program could be subject to sanctions if waivers are not extended, which could then jeopardize nuclear fuel imports to the United States. This is one of the potential catalysts we highlighted in our recent uranium update last month, that could spark the expected increase in uranium prices and contracting activity. With U.S. legislators threatening to force the issue (versus leaving it to the President), the odds of these sanctions occurring have increased slightly but it remains virtually impossible to call what will happen. Regardless of whether sanctions are implemented, we continue to have a bullish outlook on the uranium sector and are expecting the tightening long-term supply-demand fundamentals to result in a significant uranium price increase.
Following the publication of both the UxC’s quarterly report and the World Nuclear Association’s (WNA) biannual nuclear fuel report, we have updated our uranium supply/demand model to reflect evolving market conditions since our last update on June 3rd, 2019. Following various sector updates, most importantly the outcome of Section 232, we have also updated our uranium company assessment. We are maintaining our bullish outlook on the uranium sector. We expect multiple catalysts converging in October 2019 may bring utilities back to the term market to secure long term supply.
Impact: Positive Appia has released additional drill results from its Alces Lake property which continue to showcase its high-grade potential. Additionally, the intersection of xenotime in IV-19-014 suggests the company may have closed in on a new style of host mineralization; which it is planning to do a follow up survey to search for potential xenotime hosts environment. The stock continues to consolidate in lockstep with the rest of the uranium space post the 232 decision earlier this year; however, we believe the market is not properly valuing the REE potential at Alces Lake.
The official decision on 232 was announced on Friday night. In our view this is positive for the overall uranium market, as we believe its resolution should allow utilities and producers to enter into long-term agreements, which should push the uranium price higher. While positive for the overall market, the premium that U.S. producers and developers had acquired over the last ~18 months is likely to come out of the market.
Impact: Mildly Positive Appia has announced the completion of ground gravity survey results at its higher grade Alces Lake REE property in Saskatchewan, Canada. The company is now doing follow up drilling (3,000m). We believe a successful program would uniquely position the company to emerge as one of the few high-grade rare earth element (REE) explorers in North America. We continue to believe Appia provides significant exposure to REE price momentum at Alces Lake project and underpinning value with a large uranium resource at the Elliot Lake Camp.
Recent events suggest that a Presidential decision on Section 232 investigation into Uranium is coming soon, which in our view should be a catalyst for the entire uranium space. We have summarized our thoughts below.
Impact: Mildly Positive Appia has provided drill results from its Loranger property in the Athabasca Basin of northern Saskatchewan. This technical success provides important data on uranium mineralization in two target areas, which could allow the company to close in on a potential discovery. We believe Appia provides leverage to the uranium market with its Loranger property and large uranium resource at Elliot Lake Camp in addition to providing significant exposure to rare earth price momentum at its high-grade Alces Lake project.
Earlier this week, Red Cloud hosted a pair of conferences in New York and Toronto featuring presentations from seven uranium developers and explorers and other industry experts. Both conferences were kicked off by a presentation from Philip Johnson, Vice President – Fuel Cycle, of the UxC, which is one of the nuclear industry’s leading market research and analysis companies. Philip presented an overview of the uranium market, which included the UxC’s outlook on global nuclear demand and uranium supply. Seven presentations followed from Anfield Energy (TSXV:AEC), Appia Energy (CSE:API), Blue Sky Uranium (TSXV:BSK), CanAlaska Uranium (TSXV:CVV), Fission 3.0 (TSXV:FUU), Fission Uranium (TSX:FCU) and Laramide Resources (TSX:LAM). The New York conference ended with a Q&A with Arthur Hyde, Partner & Co-Portfolio Manager at Segra Capital Management, which consisted of a discussion on recent macroeconomic trends and the outlook on the uranium sector.
A new uranium bull market is coming – sooner than most people think. Our work suggests that the current price environment is unsustainable and that the long-term the price needs to increase 72% to more than US$55/lb U3O8e to stimulate the market enough to bring on new production (Figures 4, 5 and 6). In this report, we evaluate both the supply and demand fundamentals of the market, the real cost to bring on new supply and the price response required to do so. In addition, we evaluate most uranium companies and provide a detailed analysis of stocks that we believe are likely to benefit with the coming bull market.