Getting Back In The Game: The Nuclear Fuel Working Group Report Is Out

"Uranium, the foundational element of the US nuclear industry, transcends treatment as a pure commodity... Uranium is the most powerful element found in nature." US Department of Energy, Restoring America's Competitive Nuclear Energy Advantage, 2020

The final chapter of the long-running section 232 saga has finally closed, with publication by the US Department of Energy of its report, Restoring America's Competitive Nuclear Energy Advantage: A strategy to assure US national security. The long-delayed report contained recommendations from the Nuclear Fuel Working Group, which was established by President Trump when the White House released its findings from the s232 trade investigation into uranium imports.  The history of this trade investigation - and the  resultant Working Group - is summarised in this refresher article.

The Report confirms previously announced support for the flagging US uranium mining industry and is good news for the broader nuclear industry and uranium sector.  As well as ending a long period of uncertainty, it will support near-term uranium demand from the US nuclear sector, limit any further reactor shut downs and potentially drive longer-term demand from other markets as the US pushes its allies on nuclear reactors and re-engages with the merits of nuclear power in bi-lateral discussions.  These actions cannot be implemented without an escalation in geo-political tension, which will have important implications for the politically concentrated uranium mining sector.

I believe the Report is very positive for uranium demand in the immediate and long term.

Contained within the Report’s 30 pages are plenty of positives for the broader uranium sector, in the context of a frank recognition that the world's largest economy has dropped the ball on the most strategically potent civil export industry.  It is a strong statement of intent for them to pick up that ball and get back in the game.The Report emphasises the crucial importance of nuclear energy to the foreign policy goals of its rivals, Russia and China, and sets out a policy roadmap with a plan to:

1. 1. Take "bold action" to revive uranium mining, support conversion, end reliance on foreign enrichment and sustain the US nuclear reactor fleet;
2. 2. Regain global "nuclear energy leadership" from Russia and China; and
3. 3. Recover the United States' credibility and former position as a world leader in exporting nuclear energy technology.

The report described 18 key policy measures, the most relevant of which are below.

Reviving and supporting the US nuclear fuel cycle

• The direct purchase, starting 2020, of uranium from "at least two" US producers by establishing a Uranium Reserve.  Whilst the FY2021 budget already allocates $150m for this purpose, further congressional approval will be sought to expand this initiative to acquire 17-19 million pounds of U3O8 over 10 years and conversion services from 2022 to generate 6,000 to 7,500t of UF6.
• Ending the DoE’s bartering of uranium - an unhelpful source of up to 5 Mlbs per annum of secondary U3O8 supply that the Trump administration had already suspended.
• Supporting uranium mining through streamlining regulatory reform and land access.
• Extending the Russian Suspension Agreement, which limits the quantity of Russian uranium/enrichment that can be imported into the US.
• Preventing any potential penetration of the US fabrication market by enabling the Nuclear Regulatory Commission to deny the import of fabricated nuclear fuel from Russia or China.

Regain nuclear energy leadership (starting at home)

• Supporting the continued operation and growth of the US nuclear fleet by creating a level playing field for nuclear energy to compete in the US with subsidised renewable energy.

Recovering credibility as an exporter of nuclear energy technology

• Enacting several technical and administrative measures to support the development and commercialisation of US Small Modular Reactor and Gen IV nuclear power technology.
• Implementing various measures to enable the US to compete in the export of conventional and new nuclear technology.
• Increasing the US nuclear industry's ability to compete with Russian and Chinese reactor sales.
• Ensuring U.S. financing institutions support civil nuclear industry to compete against foreign state financing.

There are several important implications for the global uranium sector

1. 1. The publication of the Report concludes the s232 saga and removes uncertainty that has hung over the sector since January 2018, enabling US utilities to focus on their procurement strategies in light of COVID-19 uranium supply disruptions that have exacerbated a structural deficit in uranium supply and demand.
2. 2. The Trump administration has outlined several potent policy measures that support US utilities and - perhaps subject to a return of the administration in November  - will boost their operating confidence and capacity to plan.  
3. 3. The DoE uranium barter will be removed, eradicating a source of secondary uranium supply that had pushed as much as 5 million pounds per annum of price-inelastic uranium into the market.
4. 4. The intended purchase of conversion services from 2022 lays down a path to restarting the Metropolis Works conversion facility, which will de-bottleneck the conversion sector and promote uranium purchases in the near term.
5. 5. An escalation in geo-political tensions, particularly between the US, Russia and China, will emerge from the Report's strong rhetoric and the implementation of the policy objectives.  This will have important implications for politically concentrated uranium production.  In particular, it will be highly beneficial for the Namibian uranium sector which is not politically locked into either the US, China or Russia and whom boasts positive trading relationships with all key nuclear fuel demand centres.

The Report was an assertive statement of bipartisan policy support for the US nuclear sector and its support of US foreign policy objectives.  However, whilst the Report pushes as hard as it realistically can on policy directives, it does not contain any new executive orders and many measures will remain subject to congressional approval and continued tenure of President Trump.  Further, US utilities will be wary of the potential for the domestic fuel cycle measures to increase their costs – so levelling the playing field becomes a first-order priority.

Whilst investors in domestic uranium companies may have hoped for more (in the form of specific financial outcomes that would generate immediate company catalysts), I believe the Report is very positive for uranium demand in the immediate and long term.  In the short term it helps with certainty and gives US utilities hope that they will be financially rewarded for the resilient, carbon-free attributes of their output.  If the policy measures are largely implemented, they will bolster nuclear fuel demand in the US and elsewhere as competition from Russia, China and the US boosts the viability and achievability of nuclear power penetration.