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Is it uranium’s time to shine?

Tim Treadgold analyses the uranium market and nominates one stock to follow.

Uranium hit the headlines last week thanks to a “no tariff” decision by the U.S. President, Donald Trump, and while there has been a modest increase in the price of the nuclear fuel, it might not be enough for uranium to overcome almost a decade in the doldrums.

The twin problems of uranium are a meaningful lack of demand growth and a surplus of supply and while stockpiles of yellowcake, the traded form of the material are shrinking, there are several big mothballed mines waiting for an opportunity to re-start if the price recovery significantly.

The reality of a well-supplied market did not stop the uranium cheer squad from welcoming Trump’s move to not impose a tariff or quota on U.S. imports, a decision which will benefit Canadian and Australian miners, as well as the world’s biggest uranium exporter, Kazakhstan.

But a 5 per cent increase in the short-term price of yellowcake to $US26.30 a pound was a measure of the market’s subdued response even as headline writers had a field day with one claiming that the “uranium market soared on market clarity”. It didn’t.

Australian-listed stocks exposed to uranium did tick higher, but not convincingly. Paladin Energy (PDN:ASX) enjoyed a 2c rise to 16c immediately after Trump’s no-tariff decision, but settled back with 1c rise to 15c, which was 5c less than its price in January — and was last trading at its pre-excitement price of 14c

Vimy Resources (VMY:ASX), an explorer and potential project developer back by iron ore billionaire, Andrew Forrest, added 0.6c to 7c, roughly half the stock’s price of 13c at this time last year.

While Trump’s decision to keep the U.S. uranium market open to imports the reality of that decision can best be described as “status quo” or, no change to an existing arrangement.

The biggest loser from the no-tariff decision was ASX-listed Peninsula Energy (PEN:ASX) which is planning to develop a uranium mine in the U.S. State of Wyoming which would have made it a beneficiary of a uranium tariff.  Its shares dropped by 30 per cent on Monday.

What happened in the U.S. started as a complaint by two U.S. miners under section 232 of the U.S. Trade Act in which they petitioned for tariffs on foreign uranium supplies because the U.S. nuclear-power industry had become 93 per cent dependent on imports.

Trump’s Commerce Secretary, Wilbur Ross, sided with the U.S. miners but Trump rejected that advice, instead ordering a 90-day review of the entire nuclear-fuel industry to look for other ways to revive local production.

In the short term, the no-tariff decision leaves the U.S. market open to exporters, including BHP (BHP:ASX) which sells uranium from its Olympic Dam mine in South Australia to the U.S. but the review ordered by Trump will keep everyone in the uranium business guessing.

Regular readers of Eureka Report might remember previous attempts by uranium to break free of its long-term decline.

Just over 12-months ago we reported the birth of Yellow Cake (YCA:LSE), a London-listed but Australian-connected company which features former foreign minister Alexander Downer as one of its directors. At the time of Yellow Cake’s launch last July, the uranium price was firming having risen over the previous three months from $US20.50/lb to $US23.40/lb.

By the end of last year, the price was up to $US28.80/lb, but that was the high point in the cycle as trade war fears and overhanging surplus of material drove the price back to $US24/lb, before the slow revival in the short-term price to $US26.30/lb.

While Yellow Cake is not a miner it’s business model is interesting because it represents near-pure exposure to uranium with its aim being to buy and hold in the belief that over the long-term uranium will rise as the world re-embraces nuclear power as part of the shift to cleaner energy.

With its name on 9.6 million pounds of the nuclear fuel, Yellow Cake has a lot riding on a future price increase, but it doesn’t expect a short-term lift.

Yellow Cake chief executive, Andre Liebenberg, said after Trump’s decision was announced that: “We expect a more measured return to market activity in the near term and remain highly confident in the long-term outlook for uranium”.

On the London stock exchange, Yellow Cake’s share price rose by 4-pence after the no-tariff ruling, though at 220p the stock is only back to where it was four-months ago when the short-term uranium price was around $US26/lb.

The long-term price, which is what some miners get under deals struck several years ago, is currently around $US32/lb, a mild improvement on the short-term price but still a country mile short of the $US70/lb just before the Fukushima reactor melt-down in Japan which was the latest nuclear accident to put the skids under the price (Three Mile Island and Chernobyl were the first two events which severely damaged nuclear power’s reputation).

While a commodity-owning company like Yellow Cake will simply track the price of the underlying asset a uranium explorer or miner needs a price incentive to start (or lift) production and that means the price of uranium has to rise substantially, perhaps double from where it is today.

In time, and perhaps aided by the return of the debate about nuclear power being a reliable source of electricity which does not generate carbon pollution, uranium could (and perhaps should) make a return as a viable investment.

But what’s happened this week with Trump’s no-tariff decision was nothing more than a blip in a long-running debate which has kindled interest in the fuel but done little to generate an increase in demand.


Yellow Cake PLC

Despite not being listed in Australia, Yellow Cake is worth following because of its intimate connection to the uranium price, and might even be a worthwhile investment if you accept the argument that the long-term price trend is up.

The company started last year by raising £150 million to buy uranium from the government of Kazakhstan, and has continued buying with the last purchase made on June 3 when it added 1.175 million pounds of Kazakh material to its stockpile which is held in Canada.

The latest purchase cost $US25.88/lb taking the average cost of the 9.62 million pounds it owns to $US21.68/lb, comfortably below the current price.

Because Yellow Cake is a single-asset company, and because the uranium price can be difficult to track, the London-listing (code YCA) is a useful proxy for the uranium price, and trends in the price.

For conservative investors, uranium remains a no-go zone. For speculators, there might be short-term profits available but the risks are high as is the well-proven potential to disappoint.

Tim Treadgold is a commodities journalist at Eurkeka Report. To access more information, strategies and general advice to grow your wealth, start a 15 day trial.