May 2, 2017

#Uranium - U.S. DOE reduces amount brought to market, brings total supply reduction to 4.8% with Kazatomprom


Below is a comment from Cantor Fitzgerald regarding the reduction of uranium dispersed into the market. This is a very positive development,and together with the cut of uranium supply by Kazatomprom, the uranium supply to the market will be reduced by 7.6 Mio. pounds U3O8 or 4.8% beginning in early 2017.

 

We attached the longer term chart of URA, an ETF of uranium mining companies. Late last year the downtrend was broken when Kazatomprom announced production cuts. Currently URA is checking back towards the upper downtrend line. Attachment 2 shows the top holding in the URA (Global X Uranium ETF).

 

Attachment 3 shows the long-term Point&Figure chart of URA (Global X Uranium ETF). The chart indicates strong support in the US$ 12 to13 area. Long term fundamentals for uranium are excellent as demand will be outstripping supply by a wide margin.

 

Event: The U.S. Department of Energy ("DOE") has released a Secretarial Determination that notably reduces the maximum amount of uranium that can be transferred to contractors for cleanup services at the Portsmouth Gaseous Diffusion Plant.

 

Bottom line: Very Positive. The development is positive to the uranium sector as it reduces the amount of uranium that was being dispersed into the market by the U.S. DOE. The 2M lbs U3O8 equivalent for the remainder of 2017 and 3.1M lbs U3O8 equivalent for 2018, are notably less than the 5.5M lbs U3O8 equivalent that was occurring in prior years. This is effectively an annual cut of 2.4M lbs from the market for the next two years, which is about half of the annual amount cut by Kazatomprom when it announced production reductions earlier this year of about 5.2M lbs U3O8. That announcement spurred a rally in the uranium spot price from US$20.25/lb to a peak of US$26.00/lb, or by 28%. We believe this announcement should provide a boost to the sector.

 

·        The U.S. DOE released a Secretarial Determination for the Sale or Transfer of Uranium that stipulated maximums of 800 MTU of UF6 for the remainder of 2017 and 1,200 MTU for 2018. In prior years the maximums were set at 2,100 MTU.

·        This translates into about 2M lbs and 3.1 M lbs of U3O8 equivalent for those years. With the prior maximum equating to 5.5M lbs U3O8 equivalent.

·        The transfers were to contractors in payment for cleanup services at the Portsmouth Gaseous Diffusion Plant. The maximum amount was always transferred in the past and many industry participants believed that these transfers had an adverse impact on the market as it increased spot supply.

·        Compared to the announcement of a 10% annual supply cut from Kazatomprom earlier this year (~5.2M lbs U3O8), the announcement by the U.S. DOE that translates into an effective annual reduction of 2.4M lbs of U3O8 equivalent is 46% of the size.

·        The announcement by Kazatomprom sparked a spot uranium price rally from US$20.25/lb to a peak of US$26.00/lb, or by 28%. Uranium equities across the board experienced large gains during the same period.

·        Combined, the Kazakh and U.S. DOE cuts amount to 7.6M lbs of U3O8 equivalent, which is 4.8% of our forecast production at the beginning of 2017.

·        Our latest supply and demand forecast under a steady state US$40/lb U3O8 scenario is show below. This forecast projects likely shutdowns and production curtailments if realized prices are flat-lined at US$40/lb.

 

Uranium Supply & Demand Forecast (US$40/lb scenario)

Source: Cantor Fitzgerald Canada Research

 

 

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