Louis James opines that uranium as nuclear fuel for essential base-load power in many countries around the world simply cannot be substituted in less than decades. The WH's Nuclear Fuel Working Group (NFWG) is late in reporting its recommendations to the WH and it should do so any day now. Or it may be that they have not released it just for impact becasue everyone in this market is waiting on pins and needles to see what the WH does.
Either way, a market-defining event for uranium should occur within days. James is not the only one anticipating positive news. Spot uranium offers have ticked up to from near $24 to $26 per pound U3O8. Mr. Market is telling us something. With this in mind, James has decided to pull together and update "my takes" on the uranium companies he has covered. This way you’ll have the latest key information at your fingertips when the WH announces it's decision. But before we get to my takes on specific equities, here’s a refresher on the essentials of this speculative opportunity for new readers.
As a reminder, the setting is this:
- Uranium as nuclear fuel for essential base-load power in many countries around the world simply cannot be substituted in less than decades.
- Only a handful of uranium mines in the world can make any money at current prices, some of which are state supported.
- That’s nowhere near enough to meet annual consumption and stockpiles are dwindling.
- The global average cost of production remains around $40 per pound U3O8.
- The “incentive price” to build new mines remains north of $60 per pound.
- Huge stockpiles hit the market after the Fukushima accident, sending prices all the way down to $18 per pound U3O8 in 2016.
- The world’s biggest and most profitable producers, in Canada and Kazakhstan, have been shutting down uranium mines in response to the low prices.
- Prices have started recovering. Japan is restarting dozens of its reactors, and utilities there have apparently stopped selling their back-up fuel.
- China and other BRIC countries are building and have plans to build many more reactors than are being retired around the world.
- Long-term contracts have allowed some miners to survive during this time of low prices, but many of those contracts have ended or are ending soon.
When power utilities come back to miners to secure new supply contracts, they will not find any miners willing to sell at anywhere near current price levels. Barring another major nuclear accident, uranium prices moving quickly higher at some point is as close to a sure thing as exists in commodities speculation. James can’t say exactly when, but he doesn't think it’s more than a year off—and James would be very surprised if it were more than two.
On top of the base-case scenario, there’s the Section 232 saga, which goes like this:
- Facing dire consequences if uranium prices remained below the cost of production too much longer, several US producers petitioned the US Department of Commerce (DoC) for help, making a national security appeal under what’s called Section 232.
- The DoC had until April 15 to submit a report to the president. James alerted readers to the possibility that this process could trigger higher uranium prices. But he warned that nothing was likely to happen on April 15 itself, as there was no obligation for the DoC to release its findings to the public, and WH had 90 days to make a decision. Several related stocks rose before April 15, and then drifted lower when nothing happened at that time.
- However, the Doe did find that the US relies on nuclear power for about 20%of its electricity and imports some 93% of the uranium needed to keep the lights on. That made for a legitimate national security interest in supporting US uranium producers. WH had until July 15 to make a decision on the DoC’s findings.
- Expectations ran high again, and related stocks rose as the deadline approached—some quite sharply. But with most of the imported uranium coming from close allies Canada and Australia, WH decided not to impose tariffs or quotas. Instead, the WH established the NFWG to come up with more ideas.
Share prices in high-flying uranium plays tanked. Some of the US producers dropped 30–40% the day before the White House issued its press release, the news having leaked. The NFWG was supposed to report back by October 14. However, while the Section 232 petition had legal requirements for steps to be concluded by specific times, the NFWG did not. The previous deadline was delayed by one month and the report now seems to be late again. But the fact that it has not been officially put off tells me the report is either done or so close to being done, there’s no point in announcing an official delay.
Key point: U.S. utilities have policies on how much nuclear fuel they must keep on hand, but they would be foolish to enter into any new purchase contracts if the US government is on the brink of changing the rules. I believe this uncertainty has kept many buyers off the market all year. This is why prices have stagnated, despite major producers around the world shutting down mines. One way or another, this situation cannot last. NFWG and the WH will deliver a big boost to US uranium plays, but that card is in the deck—and it could turn over any time now.
The NFWG could even put domestic purchasing quotas back on the table. More likely, they’ll recommend executive actions that wouldn’t directly harm US power utilities while helping uranium miners. Ordering the US military to increase its uranium stockpiles and buy from domestic sources would be an example. Some GOP politicians have asked the EPA to reduce the regulatory burden on uranium exploration in the U.S.—that’s something the WH could easily encourage. The WH could also offer new subsidies and tax breaks.
What James think is unlikely is that the NFWG will recommend taking no action. It’s extremely rare for any government body to be asked to “do something” and decide not to do nothing and let the market take care of things. I can’t see the WH bothering to set up the NFWG if the group didn’t want to take some sort of action. But remember: there is no law that compels Trump to take action within any specific amount of time after the NFWG reports. So it’s a speculation on James' part, to be sure, but James does think the odds favor the WH taking action to boost US uranium production. That may or may not happen right away, but James' thinks it will happen soon.
What if James is wrong? Well, remember the base case presented above…
Read on ....The general backgrounds of the 15 uranium mining companies are presented below. Note: The report also contains Pros and Cons for each of the 15 companies.
Azarga Uranium
Azarga is an advanced-stage uranium explorer looking to become a developer as soon as uranium prices justify the move to production. The company has a large, well-defined deposit amenable to low-cost in situ recovery (ISR) called Dewey Burdock, in South Dakota. At 0.11% U3O8 in the Measured and Indicated categories, these 17 million pounds are relatively high grade, for an ISR project. How did this little junior get hold of a large, known, high-grade deposit that was well drilled by the Tennessee Valley Authority back in the 1970s? South Dakota isn’t Wyoming, and there have been serious permitting issues. Most of those are now resolved, which could unlock a great deal of value here.
See my In The Pit interview with CEO Blake Steele for more information on all of this company.
Bannerman Resources
Bannerman Resources Limited is an ASX-listed exploration and development company with uranium projects in Namibia. I don’t know any of the key people, but a search yielded no red flags. Bannerman’s flagship project is its 95%-owned Etango project, not far from several well-known uranium mines in Namibia. An updated feasibility study is in the works, driven by a large-scale heap-leach demonstration program from 2015 to 2017. The previous study assumes a $75 per pound uranium price, yielding a 15% after-tax internal rate of return (IRR) of $793 million in pre-production capital and a net present value at an 8% discount rate (NPV-8) of $419 million. Life of mine (LOM) cash costs were estimated at $38 per pound. The heap-leach test work is hoped to shave $3 per pound off the operating cost. Satellite deposits may add to the story.
Blue Sky Uranium
Blue Sky is working to advance a potentially high-margin uranium-vanadium deposit called Ivana in Rio Negro province, Argentina. Ivana currently has 22.7 million Inferred pounds of uranium grading 0.037% U3O8 and 11.5 million pounds of vanadium, grading 0.019% V2O5. Ivana is one of several zones on the Amarillo Grande project. The company has other projects as well, but Ivana is the focus.
Cameco
Cameco is mostly known as a miner that’s operating some of the world’s highest-grade uranium mines in Canada’s famous Athabasca Basin, as well as a low-cost ISR production JV in Kazakhstan.
Can Alaska Uranium
This is a junior explorer working on a high-grade target in the world’s best place to look for huge, high-grade uranium deposits: Canada’s prolific Athabasca Basin. I just interviewed CanAlaska CEO Peter Dasler, for more details on how that’s going.
Deep Yellow
Deep Yellow calls itself a specialist uranium company implementing a strategy of growing existing uranium resources in Namibia. But really, this is basically a John Borshoff play—John being the driving force behind Paladin Energy, the famous 100-bagger of the last great uranium bull market. Paladin’s Langer Heinrich uranium mine is also in Namibia.
Denison Mines
Denison is a uranium exploration and development company advancing several projects in the Athabasca Basin, Saskatchewan, Canada. That’s the home of the world’s highest-grade uranium deposits, and Denison is no exception. The Wheeler River project’s Phoenix zone alone has 59.7 million pounds of U3O8 at an average grade of 19.1% U3O8. Denison also owns 22.5% the McClean Lake Joint Venture (MLJV) with Orano Canada, which includes the McClean Lake uranium mill. The mill is processing ore from the Cigar Lake mine under a toll milling agreement.
Energy Fuels
Energy Fuels is a US uranium and vanadium producer. It’s an obvious beneficiary should President Trump light a fire under US uranium plays. The company has the only operating hard rock uranium ore-processing mill in the US. It also has several existing in-situ recovery (ISR) uranium mines waiting on higher uranium prices. Some of the company’s hard rock uranium deposits have a lot of vanadium in them, but current vanadium production is coming from reprocessing of old tailings (waste) at the mill, which is very low cost.
Fission Uranium
Fission is working to advance one of the world’s largest, highest-grade, and near-surface uranium deposits—the PLS project in mine-friendly Saskatchewan, Canada. Once a market darling, the stock has under performed since a failed merger attempt with Denison Mines in 2015.
Fission 3.0
Fission 3.0 Corp. is, as the name implies, the earlier-stage exploration version of Fission Uranium. CEO Dev Randhawa is the driving force behind both. COO Ross McElroy is another familiar face from FCU. The company describes itself as a prospect generator and a land bank play, with more than a dozen projects in Saskatchewan’s Athabasca Basin, home of the world’s highest-grade uranium deposits. There’s also a lithium deposit in Peru.
GoviEx Uranium
GoviEx is a mineral resource company exploring for uranium in Africa. The primary assets are the Madaouela project in Niger, Mutanga in Zambia, and Falea in Mali. The company says its objective is to become a uranium producer. A big part of this story is that the chairman of the board is Govind Friedland, and the Friedland name attracts a lot of attention.
NexGen Energy
NexGen is another advanced-stage, super-high-grade uranium plan in the Athabasca Basin. NexGen's Arrow deposit has 179.5 million Indicated pounds of U3O8 grading 6.88% U3O8, including a high-grade core of 164.9 million pounds at 18.84% U3O8, plus 122.1 million Inferred pounds at 1.30% U3O8.
Ur-Energy
Ur-Energy is a US producer with long-term contracts that enable it to buy uranium on the open market at low prices and sell it at higher prices. The company’s own operations are low-cost ISR mines throttled down to a trickle, waiting for uranium prices to rise again.
Uranium Energy Corp.
UEC is something between a uranium producer and a uranium exploration and development company. That’s because it owns the mothballed Hobson processing plant and the Palagana in situ recovery (ISR) uranium mine in Texas, which UEC had put into production not that long ago. The company is advancing the Burke Hollow ISR project nearby, and has other projects in Texas that could potentially feed the same plant. There are more projects in several US states, Canada, and Paraguay. But it’s the Texas operation that’s expected to make UEC a profitable producer again when uranium prices rise above $40–$45 per pound U3O8 again.
Uranium Royalty
Given the success of the royalty business model in the resource sector and the dearth of competition in the uranium space, the idea of a uranium royalty company makes sense. The shares aren’t trading yet, but after long delays, the company announced filing a preliminary prospectus for the IPO on October 28, 2019. This includes 13.34 million units at C$1.50, with each unit comprised of a share and a five-year warrant to purchase another share for C$2.00. Without any over allotment, this would start the company out with a $20 million cash infusion.
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