Domestic Uranium: Eyes Bigger than Stomach

In the first week in June 2022, the Biden Administration took a bold step on behalf of the uranium industry in the U.S.  Biden is asking Congress to sponsor legislation that would provide as much as $4.3 billion in funds to buy enriched uranium from domestic producers.  Biden’s advisors in the U.S. Energy Department are concerned about an interruption in supply from the country’s usual suppliers.    

Uranium buyers in the U.S. are mostly electric utilities operating nuclear power plants.  There are about 440 nuclear power plants in operation in the U.S. that contribute about 20% of the U.S. electricity supply each year.  To do that, about 55 million points of uranium are needed each year.

According to the U.S. Energy Information Administration (EIA), in 2021 U.S. uranium mines produced 21,000 pounds of uranium concentrate.  Even before the pandemic U.S. producers had pulled back from production.  In 2019, U.S. uranium output totaled 170,000 pounds, 88% lower than the previous year.  Indeed, domestic production has been flagging since 2014, slipping to a historic low in 2021.

This leaves quite a deficit in uranium supply in U.S. as domestic demand far outpaces domestic supply.  The deficit in the U.S. will not get any better in the future as 55 new nuclear power reactors are in varying stages of construction in the U.S. 

Nuclear power producers have a few options.  One is to tap into processed uranium inventories that can be enriched or concentrated to yield more power.  Unfortunately, recycling uranium in the backroom cannot solve the problem.  Thus, the industry turns to importation from foreign sellers for nearly half of U.S. uranium demand.    

Unfortunately, world suppliers do not a long list make…and some of the sellers are less than savory operators.  According to the EIA, in 2020 Russia and its satellites supplied 46% of U.S. uranium purchases.  The U.S. is not getting on with Russia since that country’s president Vladimir Putin launched a brutal invasion of neighboring Ukraine in early 2022.  It seems more than a little risky to rely on a near-enemy state for a vital natural resource.

Back to the Biden Administration and the idea to stimulate domestic uranium supply.  A worldwide supply-demand imbalance has already pushed the world uranium price up to $52.00 per ounce near the beginning of June 2022.  The price has increased over 20% since the end of last year. 

The supply shortage has been due in large part to the long tail of impact from the 2011 Tohoku earthquake and tsunami that led to a disastrous release of nuclear contamination from one of Japan’s power plants.  Of course, Japan immediately put its nuclear power plants offline.  Several other key countries followed suit, including Germany.  The action put a damper on uranium demand and the world’s uranium mining industry was forced to close many of its operating mines. Now with a shift in sentiment toward a major supplier, Russia, the supply dimension is further challenged.

The reversion to domestic uranium sources is commendable from a political standpoint  -  buy local!  There are a couple of problems with the idea.  First, the U.S. ranks at 16^th among countries with the greatest uranium resources in the ground.  The U.S. has only 1% of the world’s uranium resources.  It would take quite a lot of effort to get domestic production to the point that uranium imports would no longer be necessary.  Granted exploration has increased significantly

Australia is the leader in the uranium mining world with 28% of the world’s uranium resource, followed by Kazakhstan 15%, Canada 9%, Russia 8%, and Namibia 7%.  Those five countries command just over two-thirds the world’s resources.  It might make more sense to appeal to #1 and #3 on the list  -  Australia and Canada  -  to replace supplies from Russia and satellite countries.  For the most part, we are friendly with the Canadians and Australians, and they have been good trading partners.  Indeed, Canada already supplies 20% of U.S. uranium purchases and Australia another 11%. 

Second, domestic processing capacity will be as important as in-country uranium production.  To be used in a nuclear reactor, nuclear fuel needs a higher concentration of the U-235 isotope of uranium than is found in ore as it comes out of the ground.      

The U.S. has only one operating enrichment plant owned by a joint venture among Urenco Group (private), Exelon (EXC:  NYSE), Duke Power (DUK:  NYSE), Entergy (ETR:  NYSE).  Located in Eunice, New Mexico, the Urenco plant has a capacity of 4.9 million separation work units (SWUs) per year, a nomenclature related to the amount of separation done by an enrichment process.  It is better appreciated as a measure against the amount of SWUs the U.S. utility industry needs  -  15 million SWU per year.

 

Clearly, the U.S. is highly dependent upon international uranium suppliers and processors to meet domestic requirements for the nuclear power industry.  The next post looks at uranium industry players and how they are beginning to navigate the most recent geopolitical shock to their industry.

    

 

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.