Uranium Energy Corp. (NYSE-American: UEC) is trading substantially higher on last week’s approval of the American Nuclear Infrastructure Act that, among other provisions, advances the federal initiative to establish a US$1.5B national uranium reserve.
Under the Act, the US Department of Energy will be restricted to buy only uranium recovered from facilities licensed by the Nuclear Regulatory Commission (NRC) or equivalent state agencies as of the date of enactment.
Importantly, uranium from companies owned, controlled, or subject to jurisdictions in Russia and China are excluded from participating in the program.
This is welcome news to US-based Uranium Energy Corporation (UEC) which has multiple permitted uranium projects on American soil including the Reno Creek project, Wyoming — considered the largest permitted, pre-construction ISR (In-situ recovery) uranium project in the United States.
From an investor standpoint, it’s important to note that – due to consolidation in the North American uranium industry over the last decade – UEC is one of only a handful of US-based uranium companies positioned to become a near-term producer and contributor to the new national uranium reserve.
“The bipartisan Nuclear Infrastructure Act is broad reaching legislation, important for supporting the US nuclear fuel industry, national security and clean energy. The legislation will provide a clear path for implementation of the US Uranium Reserve and provide a strong platform to revitalize the US Uranium Industry. UEC’s fully licensed and low-cost ISR projects in Texas and Wyoming, ideally position the Company to be a competitive supplier to the US Uranium Reserve in addition to meeting the needs of US and global utilities. ”
Since the December 3rd announcement, UEC shares have increased by approximately 27% – going from $1.10 to $1.40 per share – on strong average daily trading volume.
Additional near-term catalysts for UEC include:
Advancement of the Palangana, Goliad, and Burke Hollow projects, Texas.
Advancement of the Reno Creek project, Wyoming, where the fully permitted portion of the project boasts 23.97 million tons grading 0.04% U3O8 containing 18.71 million pounds.
Higher uranium prices resulting from continued supply disruption coupled with strong demand; price increase from ~24/lb to ~30/lb thus far in 2020.
On the infrastructure front, all of UEC’s Texas operations are anchored by the company’s fully licensed and permitted Hobson Processing Plant (below).
UEC’s fully operational Hobson Processing Plant (2MM/lbs U3O8 capacity per annum) is central to all of the company’s in-situ recovery in South Texas, including the Palangana mine, the fully-permitted Goliad project, the Burke Hollow project which is undergoing production permitting, as well as three other South Texas projects in the pipeline.
With no less than four fully-permitted ISR uranium projects in the US with a 4MM/lb per year production profile – now is an opportune time to be taking a closer look at Uranium Energy Corp. (NYSE-American: UEC) as a potential future leader in America’s resurgent uranium sector.
Our own Gerardo Del Real of Junior Resource Monthly sat down with UEC chairman & CEO, Amir Adnani, for an in-depth discussion on all things uranium.
GDR: I'm well. I'm excited… the last time you and I spoke, I think we were still in a uranium bear market. Since then, your stock has surged — UEC stock.
There's been bipartisan support to re-establish the American Nuclear Infrastructure Act; aims to re-establish a US National Strategic Uranium Reserve. A lot there. I would love to get your take on whether you believe we're finally on the cusp of what a lot of people have called for, for many years – I thought we'd get it this year, and I've been wrong thus far – and that's a uranium bull market.
AA: Well, the numbers speak for themselves, don't they? The uranium spot price at $29.50 – just short of that $30 mark, which it did cross and go higher than that earlier this year – as you know.
It's up about 13% year-to-date; it's actually up about 66% over the November 2016 lows. In hindsight, November 2016 – when the uranium spot price… it’s hard to imagine it got to $17.75 per pound – so in hindsight, now I think we can see that 2016 was the low point of this most recent bear market that we've been in.
We're up 66% from that point; up 13% year-to-date. And the catalysts that have kind of driven the uranium price this year to a 4-year high – with all the COVID-related destructions and fundamental supply demand set-up – I think is what really is the important takeaway here, Gerardo.
The fact that 2020 demand is expected to be over 180 million pounds, and the 2020 production – especially with the destructions that we had due to COVID – production is expected to be 120, maybe 122 million pounds. You’ve got a nice 60 million pound gap between primary supply and demand.
Of course, there's above ground inventories we continue to live off of. That's been the nature of the uranium market for a long time. But those above ground inventories are finite in quantity, and they're getting smaller. And they're getting smaller at a faster rate now that you have a 60 million pound deficit annually — at least in 2020.
But cumulative gap between production and demand in the next 5 years is over 300 million pounds.
And that's not going to be met very quickly because it takes a long time to build uranium mines and ramp up when we've been in this decade-long bear market. And so there's really kind of a commensurate, I think, response we're going to have on the way up to make up for a very long period of drought, under-investment, and slow development.
GDR: Haywood had a note that I think articulated the sentiment well. And in the note, they mentioned that sector fundamentals in terms of demand and supply are the best we have seen since pre-Fukushima. And I think you just alluded to the numbers and the dynamic there.
I have to ask you – and I realize this may be a bit of a sensitive question given UEC’s long-standing position with production-ready facilities here in the US – but under the Trump administration, I know that there was a lot of support for the revitalization of the domestic uranium supply chain and reinvigorating that program.
President-elect Biden now seems to indicate that he will continue in that sentiment. And do you see that from your perspective – and you're very active in this space; you're very active in Washington – do you see that continuing in the Biden administration?
AA: We've seen it happen already, right? You've seen the recent news. We've touched on it and disseminated it as Uranium Energy… but it really has to do with the bipartisan support we've seen come out of the Senate and taking the necessary steps and initiatives to provide the funding for establishing the US Uranium Reserve, which should be kicking in hopefully effective 2021.
This is a new, basically, source of purchasing and buying for uranium, which is the US government. And it's very similar to the petroleum strategic stockpiles that the government has had for years. And this will be doing that for uranium.
And it's really the foundation for it was set in place over the last few years with the Trump administration focusing on national and energy security aspects of uranium.
But it is, I think, incredibly positive to see that those views that were formed during the Trump administration – and this is crazy to say this, because tell me what else nowadays the left and the right can agree on… tell me what else has bipartisan support – so the fact that this issue with uranium, and the funding, and the establishment of the US Uranium Reserve, and support for nuclear power is clearly bipartisan and has bipartisan support is just… I don't want to say shocking… but it's a beautiful thing to me, obviously.
And I think it's real, and it's real, I think, for two issues: I think the Republicans looked at the issues around why it was important to support nuclear power from a national security lens, and that lens, it just seemed completely unacceptable that the US is relying on 100% of its requirements to be imported from foreign sources when it comes to uranium.
There's no uranium mining in the US today. It's at a historic low point. I think you got to go to the beginning of uranium mining 50 years ago… the last time there was no uranium mining. So that's one way of looking at it.
But the Democrats look at it through a different lens. But it's a complimentary lens, and it's a real lens. And that's the lens of issues around climate change, climate science, and basically reducing our carbon footprint. And when you look at it through that perspective, nuclear power very much is being embraced by climate scientists, by environmental groups, that are looking for a basket of energy sources that can reduce carbon footprint but at the same time be reliable. And so you're often seeing the renewable folks – recognizing that renewables just don't have the capacity factor to support our needs 24/7 – embrace nuclear power because it truly is CO2 emission-free electricity generation.
You combine the national and energy security concerns with climate science concerns and you get bipartisan support for nuclear power. It's a beautiful thing to watch, and it's a reality of the strength and the advantage that nuclear power has that's finally being recognized. All that means that we're going to have, I think, a very robust market both for nuclear power and uranium demand for a long time to come.
And the pickup in uranium prices we've seen this year — that's great. And if you're in a position like UEC is – and you look at our company where we've spent the last 15 years acquiring and permitting our in-situ recovery projects which are both low-cost and environmentally friendly – where we could be a supplier to the US government with the establishment of this US Uranium Reserve. But also be a supplier more... and I think really more importantly… be a supplier to US and global utilities.
And I say more importantly because, I think – at the end of the day, the bigger market where you are going to be able to really build a big business around – is selling to utilities. There's just more demand amongst utilities in the US and in the world than there is selling to the US government.
So I think it's nice to have this new source of demand in the form of the US government's uranium reserve. But for our company, we absolutely are focused on building a business that's going to be competitive globally. It’s going to be competitive and a reliable supplier to utilities all over the world that want to generate electricity from nuclear power and need uranium for the fuel. And we want to do it in the most low-cost way.
I believe our projects, using in-situ recovery, are going to be first quartile costs, and they're going to be amongst some of the lowest-cost projects both in terms of operating costs and also in terms of the upfront capital intensity needed to bring a mine online. It's just not even a comparison. You know, in-situ recovery mines are built for tens of millions of dollars versus billions of dollars for conventional mining.
GDR: How nimble is UEC? That's critical, right, if you're going to take advantage of this uranium bull market that we're all expecting and the environment where you have bipartisan support? That bipartisan support is something we don't see very often here in this country lately.
And so how does UEC take advantage of that? How nimble is the company with its operations here in the US?
AA: I mean, I wish there was a way to price this bipartisan thing because it’s so scarce, right? It is so scarce that if we were able to price it, it would be quite a valuable commodity to own.
But to come back to nimbleness, Gerardo, I think to provide perspective here: there are many junior or pre-production uranium companies in the world… but really not many can say that they're also a past producer. That to me is – the ultimate validation – is the proof of concept. What really sets UEC apart – which then really speaks to the nimbleness that you asked about – is that we're a past producer.
We’ve actually mined uranium; we operated a uranium mine in South Texas at our Palangana mine and processed at our Hobson Processing Plant. We demonstrated through actual results a very low competitive cost of less than $22 per pound and sold uranium and delivered it to customers.
And having gone through those steps – it's so important, I think, to both differentiate ourselves but also to inspire confidence in investors that look at us or own us – that we've done that. Again, most junior or pre-production uranium companies that are out there today don't have that pedigree or history… or have not done that as a company.
And it takes a team with a certain skill set. It takes a company with a certain set of projects – most importantly permits – to be able to actually achieve that. And so when you look at the nimbleness, I think is, (A.) facilitated by our past history and track record as a producer of uranium – that proof-of-concept – number one.
The second part of the nimbleness comes down to permits: it’s permits, people, and then more permits. Those are the things you really need. And what do I mean by that? Uranium mining is two to three times more permit intensive than mining gold or copper. It's proven in the last decade to take anywhere from 7 to 10 years to permit uranium mines.
There are local issues in the US. You have Native American issues in Canada and in other parts of the world. You have Aboriginal issues. Or you have issues around the water. You have issues around tailings. I mean, there's just so many complexities around permitting a uranium mine.
And so when you look at the fact that UEC has not one, not two, not three, but four projects fully permitted for production; three in South Texas and one in Wyoming (our Reno Creek Project in the Powder River Basin in Wyoming). And our three projects in South Texas that make up our hub and spoke strategy with our Hobson Processing Plant, which makes up really our fifth permitted infrastructure, which is our fully built and permitted processing plant.
If tomorrow, by some unforeseen events, there's some major disruption – maybe it’s a COVID-related disruption – and the uranium price all of a sudden pops to $50 a pound… UEC has the permits to break ground and start construction on projects we haven't built yet or turn a project like Palangana back on within a very short timeframe.
And that's something that most projects at a development stage don't have the ability to do. Tomorrow morning, if we have a $50 uranium price, most projects out there don't have the permits to break ground and begin construction so that they can mine uranium. And that still could be years and years away before they obtain those rights.
So, I think, the nimbleness is very important to define and understand in the context of “What are you able to do as a company if, tomorrow, the market all of a sudden changes and we have a $50 uranium price?”
And I say $50 because that's the low-point; most projects in the world have defined their incentive price to go into production with $50. Even Cameco, one of the biggest producers out there, has defined $50 as the price that they're looking for for the restart of – let's say, their McArthur mine – which is one of the highest quality mines in the world. So that's the price. We need the uranium price to nearly double from where it is right now for the lowest incentive level threshold to even be achieved.
So again, this is both bullish because it shows how far the price has to move before we see incentivization… and that's bullish because, again, you can see supply is not going to come online that easily. It's going to take a higher uranium price, and it's going to take years of more projects getting permitted for production.
And going back to your comments about… “Hey, what's the commentary about how this is a more bullish setup today than 2010?” Or, even, I would argue 2005, right? Those are the years preceding the last two bull markets that we had in late-2010, 2011 and the 2006, 2007 bull markets. And I would argue the setup today is far more bullish for a number of key reasons.
You recall back in 2010, and in 2005, we had this thing called the HEU agreement – the Highly Enriched Uranium treaty between the US and Russia – that provided the equivalent of 19 million pounds of uranium annually to the market. It was the equivalent of the world's largest uranium mine. The dismantling of Soviet-era warheads and blending highly-enriched uranium to low-enriched uranium and selling it to the market… that exercise – that treaty – ended in 2013.
So today, we don't have that very large – in fact, the biggest source of secondary supply being the dismantling of Soviet era warheads… that doesn't exist today. It was a fact of life and a part of the market in 2010 and in 2005.
Go back to 2005, and we had projects like Cigar Lake that were coming into the market as brand new mines and basically big sources of supply. Today, Cigar Lake has ten years left in its mine-life. Ten years. That's not a lot. And that's the biggest mine… that's one of the newest big mines in the world. And there isn't another Cigar Lake out there in the wings waiting to start production in the next year or two.
So that's a big fundamental difference in terms of available big sources of supply coming online. And, Gerardo, one other interesting point… you and I, before the interview, we were talking about Elon Musk just recently moving to Texas and redomiciling himself there. And you look back to 2005, and Tesla, as a company, was just a couple of years old. In 2005, Tesla had just been created, I think, or it didn't have any electric vehicles on the road.
And just using Tesla as a barometer of how far electric vehicles have come, and e-mobility has come, in the last 15 years… I mean, you just look at the market capitalization of Tesla or any business that has to do with e-mobility. And it is a fundamentally, I think, a key difference in terms of how we think about need/demand for electricity today versus 2005. And even Elon Musk, himself, is startled by the potential; the doubling of demand for electricity and the need for things like nuclear power to help meet that demand.
Bottom line is that even the combined market caps of all these uranium companies is a drop in the bucket… I mean, less than probably, what… $6, $7 billion in market cap?
AA: And we’re poised to be the providers of the fuel, uranium being the fuel, for this electricity that is needed everywhere from more electric vehicles on the road to just everything else that needs electricity and that demand for CO2 emission-free electricity being on the rise. So my point is, the setup, I think, today is not only fundamentally different than previous bull markets — it's just more bullish.
And... so anyways, I'll stop there. I mean, from the bipartisan support to the e-mobility fundamental shifts in the market… to expiry of things like the HCU agreement and the fact that there isn't a single big mine like Cigar Lake in the wings looking to come online in the next couple of years… there's a fundamental setup for uranium that, in my 15 years of being in this business, I've never seen before.
GDR: You’re about to be an overnight success, Amir!
I kid because nothing happens in this sector for a decade… and then it all happens all at once! And I say that to mention that – for those who have not experienced a uranium bull market – they are violent to the upside (and the downside, obviously) but we're coming out of the downside.
And so I would encourage everyone to get familiar with the quality names in the space like UEC because the bottom line is, Amir, you and I know, there's simply not a lot of quality names out there to absorb the capital that's going to be looking for quality exposure to the uranium sector.
I'll leave it there. Anything else to add, Amir? Thank you for your time as always.
AA: My pleasure, Gerardo. Great conversation. And I really look forward to an exciting 2021… a continuation of the theme that was established in 2020 for this uranium sector to come to life. It needs to gain more life, and I believe it will in 2021.
And it's going to be a strengthening story year after year from this point on. We have a strong and long bull market ahead of us. And that's going to be needed to make up for a decade that basically saw very little activity because of a very prolonged bear market. And in fact, the longest bear market we have seen for any commodity is what we have just lived through in the last decade of the bear market in uranium.
So hopefully the patience of many of your listeners and investors who've been in the sector, patiently, for the last decade will be greatly and handsomely rewarded in what lies ahead.
GDR: That coiled spring we often reference is looking a lot less rusty than it has been, Amir.
AA: Absolutely! And who knows… we might even have a Christmas rally… and maybe Santa will be kind to those of us in the uranium sector. The way things are going… it's been a couple of exciting days here for the uranium sector; some big moves, and let's see how it ends, Gerardo. The year's not over yet!
GDR: Agreed! Take care. Stay safe… and thanks again, Amir.
AA: Okay… you too. Thanks, Gerardo.
Mike Fagan has mining in his blood. As a teenager he staked countless gold and silver properties in Nevada alongside his dad, Brian Fagan, who created the Prospect Generator model that’s still widely used today in the resource space. One of those staking projects was put into production by a major Canadian mining company — a truly rare and profitable experience. That background uniquely qualifies him as a mining stock speculator. One of the most well-known names in the business, Mike is now putting that experience to use for the benefit of Resource Stock Digest and Hard Asset Digest readers.