Domestic U.S. uranium producers could get a jumpstart following the release of the FY2021 Presidential Budget. On February 10th, President Trump released his FY2021 U.S. Government budget that allocated US$150M (to remain available until expended) to create a domestic uranium reserve. Following the Presidential Memorandum that was released on July 12, 2019, which stated that although the import of uranium did not constitute a national security threat, the fact that the domestic uranium industry faced significant challenges mining it was itself an issue of national security. Therefore, the FY2021 Presidential Budget contains a line item to establish a uranium reserve for the United States that is intended to provide assurances of the availability of uranium in the event of a market disruption and to support strategic U.S. fuel cycle capabilities. While we expect this announcement of a US$150M investment could create a U.S. domestic uranium price (while funding remains) and push domestic producers stocks higher, we continue to be bullish on the uranium sector and are anticipating the tightening long-term supply-demand fundamentals to result in a significant price increase.
GoviEx Uranium Inc.
We are publishing our first “Endangered Species List”, which is a list of mining investment assets we consider most likely to go extinct (be acquired) in 2020. In addition, we plan to update this list of names throughout the year. In this note, we outline the criteria used for being selected to our list and a brief rationale of the specific catalyst that we believe could lead to the takeout occurring.
We continue to be bullish regarding our outlook for the uranium price over the medium to long-term. Following the UxC’s Q4 2019 report, which incorporates a significant long-term demand increase (~7%) without a material supply increase, we have updated our supply-demand model. Consequently, this data reinforces our bullish outlook for higher uranium prices, especially since the UxC’s price forecast was increased, bringing it towards our estimates. We are maintaining our bullish outlook on the uranium sector. We expect multiple catalysts converging that should bring utilities back to the term market to secure long term supply, which has the potential to double the uranium price from current levels.
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.
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.
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.
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.
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.
Impact: Mildly Positive
GoviEx’s announcement of a signed letter of support from the Minister of Mines of Niger significantly de-risks the company’s permitted flagship asset and fast-tracks it to become an important uranium producer with strong leverage to the uranium price. Currently trading at a discount to peers, GoviEx is due to re-rate the next uranium up-cycle.