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Uranium Week: Restricted Share Prices

Weekly Reports | May 14 2019

Sachem Cove Partners believes listed uranium miners present an extraordinary investment opportunity even as the uranium price continues to slide.

-Asymmetrical opportunity in uranium miners
-Spot market extremely weak
-Three Mile Island to close

By Greg Peel

The near-decade-long bear market for uranium miners has ended,” notes uranium investment platform Sachem Cove Partners. “Due to unsustainably low prices, the market is seeing significant production curtailments, no green-field project development, shrinking inventories, and reduced secondary supplies. As a result, the uranium market has entered a significant multi-year supply deficit.

“The price of uranium needs to rise at least 100% from today’s spot market levels — and stay there for a sustainable period — before the majority of miners can even contemplate re-starting idled capacity or moving ahead with new project development.

The spot uranium price has risen some 33% since its low in late 2017, albeit including a -14% decline in 2019. Sentiment towards the sector has improved, as evidenced by growing interest in uranium investment vehicles. Further supporting prices has been purchases in the spot market by producers, rather than loss-making production, in order to satisfy contract obligations

Sachem Cove believes a “material re-rating” of listed uranium miners is being held up by two factors. The first is the section 232 investigation much discussed previously in this weekly report.

The second, lesser appreciated factor is a decision last year by Global X, sponsor of the Global X Uranium ETF (URA:NYSE), to reconstitute the fund from 100% pure play uranium miners to 60% miners and 40% nuclear construction companies, mostly Asian conglomerates.  The intention of the reconstitution was to reduce volatility and attract greater funds flows. The move backfired.

The move required Global X to sell US$150m of its uranium miner positions into the market, pushing down share prices even as the uranium price was recovering. Assets under management have since almost halved.

Even if the uranium price can rally 100% to incentivise production restart or development, a lead time of 2-10 years on new developments will ensure deficits well into the future, Sachem Cove notes. On the demand side, the delivery contracts settled by utilities in the 2007-11 cycle are now expiring at an accelerating pace, leaving dangerously low utility inventories.

Sachem Cove believes the section 232 and ETF dampeners provide for “the most asymmetric opportunity available in today’s market”, referring to listed uranium miners.

No Interest

Near term demand for spot uranium remains “extremely weak”, industry consultant TradeTech notes. Utility interest is largely absent. Spot activity was very slow last week, with only five transactions concluded totalling 500,000lbs U3O8 equivalent.

In order to attract buyers, sellers were forced to continually lower offer prices, TradeTech’s weekly spot price indicator has fallen -US30c to US$24.70/lb.

TradeTech’s term price indicators remain at US$28.50/lb (mid) and US$32.00/lb (long).

End of an Era

Before Fukushima there was Chernobyl. Before Chernobyl there was Three Mile Island.

Exelon’s Three Mile Island plant has been running at a loss for years. Exelon was facing a June 1 deadline to purchase uranium needed for the plant while awaiting the outcome of two bills put to the government of Pennsylvania to provide financial support for nuclear power. The bills failed to advance.

Three Mile Island will close for good on September 30.

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