Pond Speak: You Say Zee

We Brits have much in common with our wonderful American cousins. But language isn’t necessarily always one of them. For instance, you put on sneakers, we put on trainers. You get in line, we love to queue. You lift up the hood, we look under the bonnet. And we can only apologise for the lack of ‘z’ in our spelling of certain words.

One of our super smart and delightful American readers has kindly helped correct us on something we wrote about yesterday. We thank him for helping us learn. Our article on the recent announcement by Energy Secretary Dan Brouillette, discussing the funding for domestically produced uranium, we used a phrase “discretionary funds”. We questioned what they meant and also what it could mean in terms of the allocation of the budget being discussed.

Discretionary to us means just that, at our discretion. In my banking days, if I had discretionary funds, I could allocate them at my discretion without seeking permission or sign off from my client as to where or how much, as long as it was in my mandate. In fact, the dictionary describes it as:

Discretionary: Adjective
Available for use at the discretion of the user.
“there has been an increase in year-end discretionary bonuses”
Denoting or relating to investment funds placed with a broker or manager who has discretion to invest them on the client’s behalf. Eg: discretionary portfolios

But in US Budget-speak, discretionary apparently means something quite different than it does elsewhere. So for the Non-US, or investors who perhaps are not quite 100% au fait with US Budget speak, buckle up. You and we are being schooled.

There are only 2 major types of budget allocations.

  1. Mandatory (a law was passed saying that funds must be used to do something enacted into law by Congress & Senate) and;
  2. Discretionary, which are budget requests that come up through the ranks from departments that may or may not be approved at the discretion of Congress.

The vast majority of budget items are discretionary, which doesn’t mean at the discretion of some politician or government employee. The budget document is broken down by Department and Agency to extent that every item is clearly defined by law there is no lack of clarity.

In our article we highlighted the questions that US producers want answered, ‘how much of this discretionary $150M is allocated to US producers and at what price’. So two questions.

And our very clever reader helps us with the first question:

1.  The description of the Uranium Reserve budget item says “domestic production” which means that the uranium MUST be produced within the borders of the United States. By definition, it would be impossible for any production from Canada, Australia or Africa to be “domestic production”. The whole point is to reinvigorate uranium mining inside the US. A question that investors ARE asking is whether Canadian or Australian based companies, like Cameco and Peninsula, would be eligible to compete for those DoE purchase contracts. Given those companies, just like Energy Fuels which could be cast as a Canadian-company, use wholly registered subsidiaries in the US to operate the mines, it seems a moot question. By definition, any mine operating inside the US where the product does not cross a federal border is domestic and would meet the requirements for a Buy America policy. So that seems clear, unless anyone else has an opinion that they would like to share. Great knowledge  shared.

The second question, which we added in a second draft:

2. A budget has been set for the purchase of domestically produced uranium ($150M x 10-years), but the price at which the US DOE will purchase? Well that is unknown at this stage. No companies that we have spoken to have been consulted on this topic by any US government department yet, either on or off the record. Yes, we asked! What we do know is that most CEO’s have said they will need $50-$55 to be incentivised, off the record some have indicated a higher would be needed. That doesn’t tell us much either unfortunately. Who and how the purchase price and contract terms are set is still a mystery. Different companies will breakeven at different levels. And who wants to just breakeven! And as we know from conventional mining AISC numbers can be manipulated to suit your argument, so the negotiations are set to be an interesting and revealing phase of the uranium saga.

So if you want to help us analyse or analyse the budget, we would welcome your thoughts in the comments below, or if you would like to come to our defence or defense, and write an article or just some wordz (too much?), we’d love to hear from you.

Love from you couzins across the pond.

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