In the wake of the NFWG outcome, uranium commentators have been sent into a furore. There is a lack of specifics within the report, and this had led to speculation amongst uranium investors becoming rife and interpretation has been varied.
To cut through any possible misapprehensions, Crux Investor recently spoke with Bannerman Resources (ASX: BMN) CEO, and uranium expert, Brandon Munro. He was able to help to clarify some confusion around the definitions for investors. In order to make intelligent investment decisions, investors need to be informed.
One of the report’s topics that has resulted in a lot of frantic chatter is the conclusion of the US Department of Energy’s bartering of uranium. The Department of Energy has on a variety of occasions engaged in transactions under which it bartered uranium to which it has title for goods or services. This policy has now ended, but what exactly does this mean for the uranium market?
Munro acknowledges this is an important issue.
Some investors may already be confused about what exactly the barter entails, and Munro was keen to clear this up before moving on. He stated that the barter has essentially been derived from problems in the US Congress regarding funding the clean-up of the Portsmouth Gaseous Diffusion Plant (PORTS) located in Pike County, Ohio. This was an industrial site, not a nuclear weapon testing site, and the appropriations were blocked, rendering funding unachievable.
The solution the DoE came up with was bartering uranium. The DoE took the uranium it had the responsibility of cleaning up and sold it in to the open market, using the proceeds to pay off the contractors who were carrying out the clean-up operation. For investors who understand why the uranium price crashed like it did in the first place, alarm bells will be ringing…
This decision, in a market that was already very fragile at the time, was very destructive for the uranium space. The more pounds that were sold into the market, the lower the uranium price was driven. This lead to the DoE having to sell even more to bankroll the static clean-up bills, and there was still plenty of uranium to off-load. The pounds were priced inelastic: another problem.
At one point, the DoE’s sale of uranium was hitting as much as 5Mlbs pa. This secondary supply was clearly very unhelpful for uranium companies and investors hoping for price discovery and was potential a damaging move.
Whatever your views on the Trump administration, it appears the dying domestic uranium space is one issue they are addressing. The Trump administration suspended the bartering mid-fiscal year and then extended it for the next fiscal year. There were concerns from those within the uranium space that this bartering behaviour could make a comeback in the next fiscal year, but this is now completely off the table. Uranium investors may well be breathing a sigh of relief. Things could have looked much different under a potential Bernie Sanders presidency…
Munro claims the mechanisms to deploy this strategic shift are now insignificant, given that the DoE itself has put forward this policy in the document. He thinks this is a good thing and should avoid any complications bringing an end to uranium bartering. The secondary supply source will not come back, and the market has been provided with invaluable certainty. Uranium investors can now operate more confidently. Bartering will no longer cause millions of pounds of uranium oversupply.
We hope you enjoyed this first exploration of the details behind the NFWG report. We’ll be releasing several articles over the course of the next week that will cover other intricacies and definitions that uranium investors need to fully understand in order to make educated investment decisions. Until then, make sure you keep your Geiger counters switched on.
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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