In a July 19, 2018, research note, Haywood Securities analyst Colin Healey reported that on July 18 the U.S. Department of Commerce launched an investigation into how uranium imports may be threatening national security. "U.S.-focused uranium equities rallied yesterday on the news, although we expect some profit taking is likely in the term," added Healey.
The DOC's move came in response to a joint request for such an inquiry, in accordance with Section 232 of the Trade Expansion Act of 1962, filed in mid-January by two of the U.S.' largest uranium producers, Ur-Energy Inc. (URG:NYSE.MKT; URE:TSX) and Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American).
Healey pointed out that in that correspondence, the two companies purported that the domestic uranium mining industry is vital to U.S. national security but is suffering dramatically from having to compete with heavily subsidized ex-U.S. producers.
Ur-Energy and Energy Fuels offered two solutions, that a cap be placed on uranium imports and that utilities in the United States be required to buy uranium produced in the U.S. For example, "if the government were to mandate that 25% of its nuclear fuel be sourced domestically, this would require an incremental increase of about 10 million pounds of uranium," Healey indicated.
Healey relayed that the most recent data shows 83% of the uranium the U.S. requires is imported. About 25% comes from Canada, about 24% from Kazakhstan, about 20% from Australia and about 14% from Russia. U.S. uranium production has plummeted by about 90% since the peak in 1980.
The DOC's investigation and any subsequent action are expected to take about a year. By law, the commerce department has 270 days to complete and report the findings of such an investigation along with its recommendations to the U.S. president, who then has 90 days to take action.
The imposition of any tariffs, quotas and/or federal utility purchase mandates resulting from the investigation would greatly benefit U.S. uranium producers and developers because it would allow them to capture a larger share of the domestic market. "This could eventually lead to outperformance from the associated equities and turn the group into sector leaders," suggested Healey.
The companies that could benefit, he wrote, are: Ur-Energy, Energy Fuels, Uranium Energy Corp. (UEC:NYSE.MKT), Azarga Uranium Corp. (AZZ:TSX), Laramide Resources Ltd. (LAM:TSX; LAM:ASX), Peninsula Energy Ltd. (PEN:ASX) and Cameco Corp. (CCO:TSX; CCJ:NYSE). Haywood's favorite stocks in the sector are: NexGen Energy Ltd. (NXE:TSX; NXE:NYSE.MKT), Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT) and Uranium Participation Corp. (U:TSX).
In the interim, near-term drivers of share price in the sector will be news flow, particularly related to the Section 232 investigation, and market sentiment. As such, Haywood recommends investors build positions in "quality uranium names, using news-driven price shocks such as this as an opportunity to rebalance security exposures," Healey noted.
The analyst concluded, "We continue to believe we are in the very early stages of a secular bull market in uranium and that sentiment is beginning to perk up. . .we expect a sustained increase in the long-term price to be the sector's most salient catalyst."
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Haywood Securities, Uranium Sector Update, July 19, 2018
Haywood Securities, or certain of its affiliated companies, may from time to time receive a portion of commissions or other fees derived from the trading or financings conducted by other affiliated companies in the covered security. Haywood analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income.
Haywood Securities, Inc., and Haywood Securities (USA) Inc. do have officers in common however, none of those common officers affect or control the ratings given a specific issuer or which issuer will be the subject of Research coverage. In addition, the firm does maintain and enforce written policies and procedures reasonably designed to prevent influence on the activities of affiliated analysts.
Analyst Certification: I, Colin Healey, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
The following Important Disclosures apply:
▪ At the end of the month immediately preceding this publication either Haywood Securities, Inc., one of its subsidiaries, its officers or directors beneficially owned 1% or more of Azarga Uranium and NexGen Energy
▪ Haywood Securities, Inc. has reviewed lead projects of Azarga Uranium, Denison Mines, Energy Fuels, NexGen Energy and Uranium Energy Corp. and a portion of the expenses for this travel may have been reimbursed by the issuer.
▪ Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for Uranium Participation Corp. in the past 12 months.
▪ Haywood Securities, Inc. or one of its subsidiaries has received compensation for investment banking services from this company in the past 12 months: Azarga Uranium Corp.
▪ Haywood Securities, Inc. or one of its subsidiaries has received compensation for investment banking services from this company in the past 24 months: Azarga Uranium Corp. and NexGen Energy.
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a.