Investment Alert: When Inevitable Turns into Imminent!
Supply Deficits, Surging Demand, and Low Prices Are Possibly
Setting Up this Commodity for a Major Run Higher!
Uranium prices must move higher, as utilities need to cover a 15% to 20% shortfall expected at the end of 2016, according to Cantor Fitzgerald. Even today, uranium consumption is exceeding primary mine supplies, with the difference being made up through finite inventories and secondary supplies. This is very serious for the U.S., China, India, and any other nations seeking to build and expand their nuclear generating capacity …
In total, the U.S. consumes over 50 million pounds of uranium per year, but only produced about 3.5 million pounds in 2015. The U.S. is the world’s largest uranium consumer, yet it imports the vast majority of its supply. With 1 in 5 homes and businesses powered by nuclear energy, the U.S. is far more dependent on foreign uranium than it has ever been on foreign oil.
This is not a sustainable situation.
China, who currently consumes 16 million pounds, is projected to use as much as 75 million pounds annually by 2030. Yet, they only produce about 4 million pounds a year in China. In France, nuclear energy is responsible for over 75% of their electricity. In Sweden, Switzerland, Finland, South Korea, Bulgaria, Ukraine, Slovakia, Slovenia, and the Czech Republic, the number is around 30% - 50% – and these countries produce little or no uranium.
The World Faces Enormous Geopolitical Risks Right Now
When it comes to Uranium Supply – a Market which is already in Deficit
Putin is a major player in this space, and today Russia, Kazakhstan, and Uzbekistan account for over 50% of world uranium production. Russia controls around half of the World’s uranium enrichment capacity. In 2014, nearly 40% of the uranium used in U.S. reactors came from these three nations. And according to an April 2015 NY Times article, Russia actually controls 20% of all uranium production capacity in the U.S.!
Not only does Russia create supply concerns, but we have the U.S., China, India, South Korea, and Russia competing for supply.
Kazakhstan, responsible for 40% of all world uranium production, is led by a 75-year-old dictator who’s been in power since 1989, setting up a potential black swan event for supply lines in the next several years when today’s relatively stable government is replaced in a potentially tumultuous transition. Recently, the President of Kazakhstan, Nursultan Nazarbayev, made troubling statements about the potential to “reclaim” uranium assets from private mining companies. Is he suggesting nationalization? This would create enormous uncertainty in what is today the World’s dominant uranium producer.
Uranium price movements can happen very, very fast – and without warning! Uranium markets are extremely small and thinly-traded when compared to other commodities. Over 50% of the world’s uranium production comes from just 10 mines. Supplies are heavily concentrated. If there is a technical problem, labor disruption, accident, or political issue at any one of these mines, uranium prices can react very quickly. In 2007, there was a flood at one mine, a fire at another, and prices surged from $35 per pound to $135 per pound – up almost 300%! – all in a matter of 18 months!
Deep Value Alert!
This Uranium Stock has a Market Cap of $120 Million.
- They own the White Mesa Mill …with a replacement value that could be several hundred million dollars
- The Nichols Ranch ISR project is valued at $50 million
- In May, they expect to acquire the Alta Mesa ISR project in South Texas with a replacement value that could be $50 million or more
- $13 million in cash
- $35 million in working capital
Not even taking into account a decade’s worth of permitting and development already completed, their operating mines, and up to a half-billion dollars in uranium resources in the ground in improved uranium markets… this company has a nuts and bolts value that could be far in excess of their current market cap.
This is the one uranium stock you need to research today!
With today’s unsustainably low prices, production cutbacks are happening right when we will soon likely need more uranium! With such a low uranium price, producers around the world are delaying production, canceling mine operations, and in some cases, shutting down production completely. World nuclear markets have been “bailed out” by the remarkable and surprising increase in Kazakh production since the 2000’s. However, in the coming decade uranium demand will indisputably rise, and there are no “new Kazakhstans” on the horizon.
It is unacceptable for a utility to have to shut down a reactor due to not buying enough uranium! Even if uranium prices were to double or triple, it would not have a major impact on a utility’s bottom line, because uranium constitutes such a small part of their operating expenses.
JP Morgan Research estimates the spot price of uranium will need to be over $83 per pound to spur new production. Raymond James estimates the number to be $75 per pound. Today, the spot price for uranium is at about $29 per pound, and recently touched a nearly 12-year low on an inflation adjusted basis.
When the shoe drops -- and demand outstrips available supplies -- new mines will not be able to go into production soon enough. We could see a multi-year bull market in uranium prices, as it can take decades to get large, new mines permitted, financed, constructed, and placed into production, not including the discovery and exploration cycle.
Production issues in most of the World have been masked by the meteoric rise in Kazakh production since 2000. During the big price run-up in 2007 to $135 per pound, hundreds of millions of pounds of uranium resources became economic. But, if you take away Kazakhstan, World production barely increased – it was nearly flat! And, when the next supply crunch happens, there is no reason to believe we will see another Kazakh type of production marvel.
There’s surging demand. China is aggressively building new reactors – 6 to 8 are expected to come online every year between now and 2020, and perhaps as many as 8 to 10 per year between 2021 and 2030. Japan is beginning to restart the nuclear power plants they temporarily shutdown after Fukushima. India is becoming a major player in the nuclear space with several units under construction and planned, and they recently revised their nuclear liability laws to make themselves more attractive to reactor vendors and fuel suppliers. Nations around the World -- including the U.S. -- are shutting down old plants, and replacing them with much larger facilities that consume more uranium. And a major supply deficit is likely growing each and every year – masked by finite inventories and an uncertain future for Kazakh production.
Unlike other commodities, uranium is essential for the world’s electricity needs. Just 6 barrels of uranium are equal to the power generated from 220,000 barrels of oil.
The last time uranium entered a supply deficit, we saw prices rise over 700% from 2004 to 2007. In early 2011, uranium prices were over $72 per pound, double today’s price. I personally believe that uranium is going to be the trade of this decade, and here is how I intend to profit from this opportunity.
It’s one of only a handful of publicly-traded pure-play uranium producers in the world! And when we say handful, we mean it as in less than 6 such companies.
Energy Fuels is a top producer in the U.S., expected to be #2 in 2016, but its market cap is, by definition, a penny stock. They have a market cap of a little over $100 million. However, they have $13 million in cash, and $35 million of working capital. And when you consider that they have a conventional mill and an ISR processing plant -- both in production today -- just these two assets alone could be worth several hundred million dollars in terms of replacement value!
Energy Fuels is in a real growth mode right now. They recently announced that they are acquiring even more uranium production capability from a closely-held mining company called Mesteña Uranium,. Mestena is expected to move the company lower on the cost curve, which is valuable in today’s depressed market. Mesteña owns the Alta Mesa ISR Project in South Texas. After the Mesteña closing (expected to be in early May), the Company will have a combined licensed and operating capacity of over 11.5 million pounds of uranium production per year.
Energy Fuels also has the largest uranium resource portfolio in the U.S., among producers. The company also has enormous exploration potential in the Powder River Basin, where about 2/3 of all current U.S. uranium production comes from. In fact, Energy Fuels controls a strategic land position in this productive district of over 70,000 acres! The pending Mesteña acquisition will give the company even more exploration and expansion potential, including access to nearly 200,000 acres of highly prospective uranium-bearing land in South Texas – this is an area over 25% the size of Rhode Island!
With properties in Utah, Arizona, New Mexico, Colorado, Wyoming, and soon Texas – encompassing all of the major uranium-producing districts in the U.S. – Energy Fuels has a deep pipeline of production, development, permitting, and exploration projects to feed into a potentially growing global supply deficit.
Energy Fuels is expected to produce about 1 million pounds of uranium in 2016. Arguably, with its large resource base, and several projects that can be brought into production relatively quickly, combined with its ample licensed production capacity, no other publicly-traded uranium miner can claim a comparable level of scalability in improved uranium market conditions!
They have diversified ISR and conventional uranium production
from multiple operating production centers…
These include their White Mesa uranium mill in Utah, their Nichols Ranch ISR project in Wyoming, and soon additional production capability at the Alta Mesa ISR project in Texas. White Mesa is the only conventional uranium mill in the U.S. Nichols Ranch is one of the newest uranium production facilities in the U.S. And, Alta Mesa is a very well-known uranium production center within the U.S. nuclear industry that is currently on standby.
The company also has a strong portfolio of uranium sales contracts over the coming years, extending in the case of one contract to 2020, with approximately a half million pounds under contract in 2016 alone with pricing in the upper-$50’s – well above today’s low spot price!
Energy Fuels is the only conventional uranium producer in the United States – and their White Mesa Mill is the only operating conventional uranium mill in the U.S., within trucking distance of the highest-grade uranium deposits in the U.S. This is highly strategic, as the U.S. is the largest consumer of uranium in the world. As a result, Energy Fuels not only has the facility to process its own conventional ore -- which it is doing -- but it can also earn fees by milling ore from other mines in the region can come on line as uranium prices improve. As the saying goes, “if you own the mill, you own the district.” And Energy Fuels owns the only conventional uranium mill operating in the U.S.!
Energy Fuels’ primary growth in U.S. production in the future is expected to come from expanding lower-cost ISR production at Nichols Ranch and Alta Mesa, and from three large conventional uranium projects located in New Mexico (Roca Honda Project), Wyoming (Sheep Mountain Project), and Utah (Henry Mountains Project). Each of these three projects has between 20 million and 30 million lbs. of uranium resources in the ground, with annual production potential of 1 million to over 2 million pounds of U3O8 per year. Sheep Mountain and Roca Honda are each at an advanced-stage of permitting, the Tony M portion of the Henry Mountains project is fully permitted and on standby, and the Bullfrog portion of that project is in the pre-permitting stage. These projects are expected to be ready to go as uranium prices increase in the coming years and also have competitive all-in cash costs of production. Finally, the Company is developing its Canyon mine project in Arizona, which is fully permitted and one of the highest grade uranium mines in the United States.
Arguably, there is no other company better
positioned to take advantage of rising uranium prices.
Consider shares of UUUU. Owning shares of this company will give you direct exposure and leverage to a rising uranium price. Major shareholders of Energy Fuels include Global X Management, a major South Korean utility (Korea Electric Power Corporation, or KEPCO), BlackRock Funds, Cannell Capital, and three large private investor groups. Management and insiders own about 4% of the company.
This is an aggressive growth story, and the shares of this stock are heavily tied to the price of uranium, so please research the company for yourself, call a licensed professional, read the company’s press releases and the Company’s Annual Report on Form 10-K including the risk factors set out those documents, and always be realistic when it comes to your holding period. This is NOT a day-trade alert; this is a long-term stock suggestion idea.
Note: last year, I attended a major investment conference. One of the speakers was legendary investor Rick Rule, who took a small uranium fund of $15 million and turned it into $500 million in the early 2000s. Without a doubt, right now, he expressed he is most bullish on uranium, for not only the reasons we cited above, but because uranium is actually a few years ahead of the rest of the commodities when it comes to the current bear market they are in. This giving Mr. Rule the suggestion that uranium may be the first to rise and come out of the bear market.
According to several Wall Street firms, UUUU shares are set to double -- or even triple -- under their uranium price forecasts. However, in our opinion, uranium itself is going to have a huge move, and UUUU could be considered as a valuable call option on rising uranium prices, since it could be dramatically re-priced once uranium prices begin to move.
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