Flash Update - US Bans Russian Uranium

Yesterday, after market close, the US Senate approved a bill to ban Russian uranium imports. The bill will now head to President Biden for signing and to become law. 90 days after signing, no further US deliveries of Russian enriched uranium (EUP) will be permitted (from existing contracts, or new contracts), unless a waiver is granted.

Geopolitical bifurcation is a theme that I’ve been discussing for a long time now, and this ban shouldn’t come as a surprise to anyone who’s been reading the tea leaves with respect to the Biden Administration’s recent moves to restart the domestic nuclear industry. The ban will release the $2.7bn in funding approved earlier by Congress to stimulate growth in Western uranium enrichment, helping fuel the US’ 90 conventional nuclear reactors, as well as produce High Assay Low Enriched Uranium (HALEU) for Small Modular Reactors (SMRs).

The ban will have important implications for the uranium market in the near and long term, and is overall bullish for spot and LT prices and Western uranium stocks, especially companies like EnCore Energy (EU) that have transitioned successfully from developer to producer, and have been previously tapped by the DOE for the Uranium Reserve Program. A number of utilities have been on the sidelines waiting for clarity on the ban to start contracting for fuel, and with this announcement, volumes in the term and spot markets should start picking up. Utilities switching to Western enrichers to source EUP will also find that they have to procure more uranium than they had budgeted for the same quantity of EUP, given the higher tails assays required by Western vs. Russian centrifuges. The tails may go even higher if Western enrichers have to overfeed to meet the sharp rise in demand (i.e. spin their centrifuges faster to produce more EUP faster).

Building enrichment capacity is expensive, with roughly $1bn investment required to bring on 1mm SWU (separative work units). It also takes time, as the enrichment industry is facing the same supply chain and labor shortages as the rest of the resource and mining industry. Global SWU capacity is currently 60mm SWU, of which 40% / 24mm is in Russia. If Russian enrichment is no longer an option, the West will need to build ~7-8mm additional SWU capacity domestically to become self sufficient (the remainder of Russian enrichment capacity will go towards supplying EUP for China, India etc.). However the Western enrichers, Orano and Urenco, currently have only 3.5-4mm SWU in development, which will take until 2030 to come online. This supply / demand mismatch will force Western overfeeding, and increase the demand for UF6 feedstock and ultimately U3O8.

To put rough numbers around this, a 1GW reactor needing 4% enriched uranium at 0.2 tails requires 511K lbs of uranium per year to operate. If the utility is now forced to buy enriched uranium from Western sources, and the Western enricher needs to overfeed, they may require a 0.3 tails. An increase in the tails assay from 0.2 to 0.3 will required an additional ~110K lbs or ~20% more uranium feed. Since the utility will not have contracted for these lbs, it will likely have to enter the spot market, or draw down on its inventories (which would increase demand down the road, when the utility needs to re-stock). If you now multiply this math by the number of nuclear reactors in the US that need to switch from Russian to Western EUP, you can see that the impact on uranium demand will be significant.

One last point I want to cover is the issue of waivers. I’m seeing some investors and journalists downplay the impact of the sanctions by pointing to the waivers that are available to utilities until January 2028. The provisions clearly state that waivers will be granted only if a nuclear plant is at risk of shutting down due to the inability to find fuel; they are not going to be granted simply because utilities have to pay higher prices to procure domestically sourced fuel. The number of waivers granted in a given year will be capped, and the utilities will have to provide extensive evidence to prove that there is no EUP available from any other source. The waiver recipients names will also be publicly disclosed. There is also the risk of Russia preemptively banning EUP exports to the US, making the issue of waivers a moot point. Finally, while January 2028 may seem far away, it’s not that far in nuclear fuel cycle terms. The cycle (yellowcake, conversion, enrichment) runs 18-24 months, so if you’re a utility in need of EUP for 2027/28, you’re going to want to start contracting for it sooner vs. later, especially given the intense competition for pounds. Waiver or no waiver, the ban will increase demand pressures on the Western uranium fuel cycle, which is already stretched, with major producers and enrichers already fully contracted out for many years into the future. Higher prices are coming.