U.S. Government Purchases of Uranium May Boost Prices
After peaking in price at $137/pound (lb.) during 2007, uranium prices plummeted to below $20/lb. during 2016, a decline of over 85%. We believe that marked the bottom of the market. As of 12/31/19, uranium was trading in the $25/lb. range.
Our primary thesis for calling a market bottom was reduced supply coupled with increased demand.
Since then, calls for the U.S. to buy more uranium from U.S. miners have added to our investment case for uranium.
Calls to Purchase More Uranium Mined in the U.S.
According to a Bloomberg article, a White House task force is recommending that President Trump direct the federal government to buy more uranium from domestic producers. Currently, about 98% of the uranium used by US utilities (50MM pounds per year across 99 reactors) is imported from outside of the US. A significant portion of these imports are from Russia influenced countries.
Previously, U.S. uranium miners had petitioned the White House to put a 25% domestic market quota on imports of uranium. The White House rejected that petition and, instead, formed the U.S. Nuclear Fuel Working Group, a working group comprised of six cabinet secretaries and several top White House officials.
Creation of a Uranium Reserve
One of the group’s recommendations was that the National Nuclear Security Administration would be involved in the purchasing effort. That group maintains the nation’s nuclear stockpile.
Part of the recommendations is that the government purchase as much as 10 million pounds of U.S.-produced uranium annually through the creation of a new “Federal Uranium Security Stockpile.”
How Might the Recommendations Lead to Higher Uranium Prices?
If enacted, the recommendations would remove 10 million pounds of uranium from total global supply. Remember that the uranium would be used to create and stock a uranium reserve.
Currently, we estimate that annual uranium demand totals 200 million pounds while supply totals 170 million pounds – a deficit of 30 million pounds. That deficit is being met by a variety of short term fixes such as inventory drawdown. The additional 10 million pounds of uranium pulled from the market would increase that supply deficit.
As we noted in our investment case, eventually, that supply deficit will need to be met through increased uranium production. However, higher prices are needed to entice miners to restart and open new mines.
Thus, we believe that uranium prices will rise as inventories are no longer able to fill the supply deficit. U.S. purchases of uranium to stock a reserve may hasten those price increases.
How May Investors Gain Focused Exposure to the Uranium Sector?
The North Shore Global Uranium Mining ETF (URNM)
The North Shore Global Uranium Mining ETF (URNM) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the North Shore Global Uranium Mining Index (the index).
By seeking to replicate the index, URNM looks to provide investors with access to both miners and holders of uranium.
 Prices sourced from Trading Economics
 See URNM investment case on www.urnmetf.com.
 Natter, Ari, Trump Panel Urges U.S. to Buy More Uranium From American Miners, Bloomberg, 12/4/19
 See URNM investment case on www.urnmetf.com.
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Commodity prices may be influenced or characterized by unpredictable factors, including high volatility, changes in supply and demand relationships, weather, agriculture, trade, changes in interest rates and monetary and other governmental policies, action and inaction. Uranium Companies may be significantly subject to the effects of competitive pressures in the uranium business and the price of uranium. The price of uranium may be affected by changes in inflation rates, interest rates, monetary policy, economic conditions and political stability. The price of uranium may fluctuate substantially over short periods of time, therefore, the Fund’s share price may be more volatile than other types of investments. In addition, they may also be significantly affected by import controls, worldwide competition, liability for environmental damage, depletion of resources, mandated expenditures for safety and pollution control devices, political and economic conditions in uranium producing and consuming countries, and uranium production levels and costs of production. Demand for nuclear energy may face considerable risk as a result of, among other risks, incidents and accidents, breaches of security, ill-intentioned acts of terrorism, air crashes, natural disasters, equipment malfunctions or mishandling in storage, handling, transportation, treatment or conditioning of substances and nuclear materials.