US Uranium Kerfluffle

About 20% of electricity generated in the U.S. comes from nuclear power, making uranium an important resource for all of us.  The U.S. power industry consumes far more uranium than it produces, relying heavily on imported yellowcake supplies as fuel for nuclear power plants.    

In mid-April 2019, the U.S. Department of Commerce sent to the Office of the President its completed report on the effects of uranium imports on domestic production and national security.  The President’s office will have until mid-July 2019, to decide whether to impose quotas or tariffs to counter any import threats. The investigation was triggered by a complaint filed earlier in the year by two U.S. uranium producers.

Yellowcake Uranium

Uranium selling prices have been a thorny issue for several years.  The disaster at Japan’s Fukushima nuclear power plant after the March 2011 earthquake and tsunami, sent a chill wind blowing across the nuclear power industry.  Numerous nuclear power plants in Japan and other countries were shut down, stalling demand for uranium and putting selling prices in free fall.  With uranium prices still near historic lows, there is very little, if any, current uranium production in the U.S.  Like most uranium producers around the world, U.S. domestic producers are waiting for more favorable price conditions to bring uranium mining operations back into action. 

The roll-off of a large number of long-term supply contracts with major U.S. utility companies has been intensely anticipated by producers around the world.  The import complaint and the Department of Commerce investigation may have delayed contract negotiations as the U.S. utility industry has waited for clarity on quotas and tariffs.  Whatever the final decision on tariffs or quotas, the decision should give utilities a better foundation for locking in supply agreements.

World Uranium Price

Despite the prominence of U.S. utility companies in as buyers in the uranium market, the price is ultimately determined in world markets.  For example, that world price can be seen as holding companies speculate on future uranium prices.  In mid-April 2019, London-based Yellow Cake bought another 1.175 million pounds of uranium from KazAtomProm (0ZQ:  FRA) for US$25.88 per pound.

Uranium Project Development

In the meantime, uranium developers continue to explore for uranium deposits and design extraction and processing operations. It is that world price that these developers watch.   As case in point is Goviex Uranium, Inc. (GXU:  TSX.V or GVXXF:  OTCQB).  Goviex management was recently in New York to tell investors of the company’s most recent efforts to start operations at its Madaoueia project in Niger and Mutanga project in Zambia. 

Madaeoueia, Niger

Niger is a land-locked sub-Saharan nation, but it figures prominently in the world uranium market.  About 7% of the world’s uranium reserves can be found in Niger.  As a consequence about 5% of the world uranium output comes from Niger from mines operated by France’s Orano SA.  Zambia is not as richly endowed as Niger, but it is still one of Africa’s uranium hot spots.  The economies of both countries are held together by subsistence agriculture, so the opportunity to export raw commodities like uranium receives strong support from government agencies and local communities.

It is no surprise then, that Goviex just recently reached an agreement with the Niger government to jointly develop the company’s flagship Madaoueia project.  The Niger government is taking a 10% stake in the project for US$14.5 million, bringing its total stake to 20%.  Goviex expects to take at least twenty years to successfully mine 60 million pounds of yellow cake from Madaoueia.  To help pay for its share of capital costs, Goviex recently raised CN$3.5 million through the private placement of common stock and warrants.

To Produce or Not Produce

Goviex management is tight lipped on anticipated marginal costs when the Madaoueia mining and processing infrastructure is in place.  Marginal costs or the hard costs of bringing uranium out of the ground and bringing it to market help companies decided when to produce, when to shut down and when to just go out of business entirely.  Despite the kerfluffle of U.S. uranium producers and the import complaint, it will be the intersection of project marginal costs and the world uranium price that will ultimately drive decisions by Goviex and other uranium developers like it.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.