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Energy
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General Market Commentary
Topics:
General Energy
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General Market Commentary
Trump rocket fuel on the uranium bonfire
As a long-only value fund, we are drawn to bear markets. As alluded to in last year’s article titled ‘Like buying oil at $20 a barrel’ we have a firm interest in the beaten down uranium sector. Whilst it seems we were one of the first Aussie funds to allude to the potential upcoming uranium bull market, we have certainly not been the last.
Since our article was published in January 2018, many other great articles have been published on Livewire. These articles are a great source of explaining the current uranium investment thematic.
‘Uranium: the bull market is upon’
‘Uranium – the bull market has already started’
‘Why 2019 could be uranium’s break out year’
‘The bull market nobody’s talking about’
‘Uranium: Interest is building’
‘Betting on the perfect storm’
‘On the crest of a uranium wave?’
It also seems many investment banks and brokerage houses are starting to warm to the idea of uranium as a strong risk vs reward proposition. It now seems Macquarie, UBS, Credit Suisse, Patersons, Morgans and I suspect many others are slowly turning positive on this other yellow metal.
Due to the plethora of great articles already published, I won’t go into too much detail on why we like this sector. The uranium bear market is certainly showing signs of green shoots. We have had mine closures (i.e. supply destruction), demand growth now higher then pre-Fukushima levels, huge nuclear reactor growth from China, India, UAE and more importantly nuclear energy gaining popularity and acceptance in the global community.
It is a fact that nuclear power is the only carbon-free baseload power. Everything seems to be in place for this market to take off.
Except for one thing: Utilities signing long term contracts for uranium purchases.
Why are utilities not buying?
Simple - We feel it’s the uncertainty relating to the outcome of a US petition. As a way of background, two US uranium miners filed a S232 petition.
The US Department of Commerce (DOC) took up this petition and will release their recommendations to the Trump office on 14th April. A Section 232 investigation is conducted under the authority of the Trade Expansion Act of 1962.
The purpose of the investigation is to determine the effect of imports on national security grounds. Investigations may be initiated based on an application from an interested party, a request from the head of any US gov’t department or agency, or may be self-initiated by the DOC.
The two applicants have requested for US utilities to be mandated to purchase 25% p.a. of their uranium needs from US domestic mines. Today, the US has the largest civil nuclear power fleet representing annual uranium demand of close to 50m pounds p.a. The US imports 99% of their uranium from foreign countries with less than 1% produced domestically in the US.