Yes, I know that the most common isotopes of uranium are 238 and 235. There’s a more fissile 233, but it’s quite rare.

I’m not thinking about isotopes, however. It’s the Department of Commerce Section 232 investigation into the national security implications of the almost defunct US uranium sector that’s on my mind today.

Some analysts think it’s a slam-dunk that the DoC will require all US utilities with nuclear power plants to source 25% of their uranium supply within the US. This makes sense in the national security context. The US is currently 99% dependent on foreign sources for the nuclear fuel that supplies 20% of US electricity.

If proponents of the 25% requirement are successful, it will create a huge and immediate windfall for the few US producers left standing.

But since we’re talking about the government, the question won’t be settled solely on the merits of the case. Politics comes into play, with the new left/green majority in the US House likely to obstruct anything pro-nuclear.

The irony is that nuclear power is currently the most reliable alternative to dumping carbon into the atmosphere for base load power. Sadly, politicians have never shown much awareness of the irony of their counterproductive policies. So, I would not be surprised to see political interference from Congress into the 232 investigation. Indeed, I expect it.

What happens then?

Well, the good news is that uranium prices continue their recovering from their multi-year lows without any help from the DoC.

U3O8 prices were up to $28.95 at last read. As you can see in the chart below, the current rally is substantially higher and more durable than the failed rallies we saw in 2017 and 2018.

That’s still too low, of course, and there are headwinds. For example, Bloomberg reports that the world’s top uranium producer, Kazakhstan, is planning to increase output by 4% this year.

But is this really bad news?

Given that the country had announced plans to cut output by about 20% to help reduce the supply glut, concern regarding uranium prices is understandable. I don’t think it’s correct, however, to conclude that Kazakhstan is changing its tune.

First, note that reports indicate that Kazakhstan did indeed reduce output by 18.8% in 2018. Close enough.

Second, I understand that the 20% reduction target was for planned output, not from some absolute number. Planned output varies from year to year. This means that planned output before the reduction would have increased 2019 production more than the 4% currently on tap.

Kazakhstan has not abandoned its plan to shore up uranium prices.

It will, of course, be more than happy to change course when higher prices justify it. Top Canadian producer Cameco will do the same.

This will be a very good thing to see when it happens; it will tell us that the world’s most informed players see sustained higher prices going forward.

But for now, the world’s biggest uranium producers remain in glut mop-up mode. That’s a good thing too.

The real bad news, for those of us who speculate on uranium stocks, is that many shares in uranium companies continue rising and falling with the broader equities markets, rather than tracking uranium prices. That made for a disappointing Q4 2018, even though uranium prices were up for the quarter.

Back on the plus side, the apparent dovish turn of the Fed has boosted mainstream equities, and may well continue doing so all year. If so, that should remove the headwinds from uranium stocks, which should go back to rising with uranium prices.

We’ve seen this already since the “Powell put.” It’s my base case expectation, going forward. I have invested accordingly, and have not sold any of my uranium stocks.

That said, it’s possible that something else could smack equities in general down again, hitting uranium stocks as well. This worries me more than the outcome of the DoC’s 232 investigation or fluctuations in the price of uranium.

So, while I remain very bullish on uranium prices in 2019, I’m less certain about the equities than I was before they disconnected from uranium prices last quarter.

I’d like to see uranium prices firmly back in the driver’s seat for uranium stocks before I do any more buying in this sector.

The uranium companies won’t cheer me for being so cautious—but I work for you, not them.

Caveat emptor,

Monday, February 4, 1:30pm, EDT, 2019