Weekly Reports | Jun 14 2022
Rather than directly sanction Russian exports, the US government will purchase enriched uranium from US and allied sources.
-Congressional approval sought for US enriched uranium purchases
-Utilities look to non-Russian aligned sources anyway
-Australian-listed miners set to benefit
By Greg Peel
After lengthy consideration, the Biden Administration has decided not to impose direct sanctions on imports of Russian uranium (U3O8) and enriched uranium. Instead, congressional approval will be sought for the purchase of US$4.3bn worth of enriched uranium from US or other “friendly” producers.
In 2020 Russian imports accounted for 16.5% of US U3O8 supply and 23% of enriched uranium. Currently the US has only one enrichment facility, in New Mexico.
If approved and implemented, the Department of Energy would contract uranium domestically and then resell it to US nuclear utilities. The move comes on top of Congress providing approval in April for the DoE to begin building a strategic uranium reserve.
Back in November, Biden’s Build Back Better agenda was underpinned by the passing of the Bipartisan Infrastructure Bill, which includes US$62bn in support of a “more equitable clean energy future”. Within that amount, US$6bn is set aside to help preserve the existing reactor fleet in the US and extend the lives of reactors that have been slated for shutdown.
A further US$2.5bn will be put towards a program supporting ten advanced reactor designs to help mature and demonstrate their technologies.
As to why Biden steered clear of direct sanctions is unclear, but it is somewhat of a moot point anyway. The threat of possible sanctions has utilities in the US and elsewhere scrambling to secure reliable supply from non-Russian sources ahead of their existing Russian purchase contracts expiring. This urgency of demand has driven uranium term contract prices higher in 2022, outside of the volatility of the spot market.
Australian stockbroker Bell Potter views the potential US decision to rebuild domestic enrichment capacity as supportive for the overall uranium industry, as it continues to confirm a thesis of a revival in uranium and nuclear energy. The broker envisages the global uranium market splitting into two distinct streams.
One will source and supply nuclear facilities aligned with Russia, for example Kazakhstan selling uranium to Russia and eventually China, while the other will source from Western nations and supply to the likes of the US, France and the UK.
US utilities will not only reduce their reliance on Russian enriched uranium but also on Kazak U3O8 supply. Kazakhstan accounted for over 40% of global U3O8 supply in 2020. This presents a “momentous” task, Bell Potter suggests, for US utilities to diversify their supply.
Such a split will be positive for Western uranium conversion and enrichment demand, Canaccord Genuity suggests, and thus highly supportive of the broker’s view that demand for Western-origin uranium is increasing, creating an even more pronounced supply deficit in the West compared to the aggregated global market.
Macquarie is also positive on the uranium market, given tailwinds from increased contracting, an increased focus in energy security and a forecast supply deficit.
In the Box Seat
Any Western reduction in Russian/Kazak import demand presents an “incredible” opportunity, Bell Potter believes, for those existing producers, producers pending restart and advanced uranium exploration plays located in Western jurisdictions.
Australian-listed Boss Energy ((BOE)) has approved a final investment decision for the restart of the Honeymoon mine in South Australia, with first production targeted for the December quarter 2023. Boss is also holding 1.25mlbs of strategic uranium inventory which provides both balance sheet and ramp-up optionality, Macquarie notes.
Australian-listed Paladin Energy ((PDN)) expects to approve a final investment decision to restart its Langer Heinrich mine in Namibia next month, targeting first production in 2024. Following a recent capital raising, Paladin is fully funded for restart.
Paladin has already signed a tender award to supply US utility Duke Energy, and the company also has extensive exploration interests in Australia and Canada.
Macquarie notes both Honeymoon and Langer Heinrich are fully licenced, in known uranium jurisdictions and have a near term path to a market buoyed by a positive uranium outlook.