Despite all the talk about wind and solar these days, nuclear energy produces more zero-emission, zero-carbon energy in the United States than all renewable sources combined – and by a wide margin. Because of nuclear energy’s clean air attributes, the sector is growing – significantly – led by China, India, South Korea, Russia, and the U.S. Indeed, many people don’t know that the U.S. currently has the largest fleet of nuclear reactors in the World, we just started a new unit in Tennessee earlier this year, and we have four more units under construction in Georgia and South Carolina. All nuclear reactors – in the U.S. and around the world – are fueled by uranium.
Energy Fuels Inc. (NYSE MKT: UUUU & TSX: EFR) is positioning itself to become the largest producer of uranium in the U.S. and a major global supplier. Already in 2016, Energy Fuels expects to be the 2nd largest producer of uranium in the U.S., behind only Cameco.
However, uranium is a misunderstood commodity right now, and uranium producers like Energy Fuels are surprisingly seeing little love from investors. Look at the 10-year stock charts of uranium companies like Energy Fuels, Cameco, Paladin, and Rio Tinto subsidiary, Energy Resources of Australia, etc. The sector has been decimated – most names in the space are down well over 90% since 2007. Here is an unbelievable statistic: if you remove Cameco from the equation, today an investor can buy every single publicly-traded, pure-play uranium producer in the World – for under a billion dollars. That’s mind boggling considering the global nuclear space is actually growing.
According to the World Nuclear Association, today there are 444 operable nuclear reactors in existence, along with 62 new ones under construction, and another 509 on order, planned, and proposed. China has officially announced that it intends to double the size of its nuclear fleet – in the next 5 years – and they expect to have up to 6 times more nuclear capacity installed by 2030. Nations around the World are seeking to address climate change and air pollution, as demonstrated by the recent COP21 Paris Agreements. This is not a declining sector by any means – to the contrary, nuclear is experiencing very strong global growth. And, this growth will be fueled by uranium.
Consider this: 1.6 billion people around the World have no electricity at all. 3 billion more people will be born in the World by 2050. Reliable electricity results in cleaner air, cleaner water, better healthcare, better education, and stronger economies. Nuclear energy is on the rise, yet uranium prices are near multi-year lows.
The main reasons for the weak performance of uranium prices are largely tied to the 2011 nuclear disaster in Japan and unexpected growth in production from Kazakhstan, today’s leading producer. Despite these developments, there is reason to believe the oversupply of uranium is about to reverse course. Kazakh production has already plateaued, and Japan is returning reactor units to service – albeit slowly. In addition, major uranium mines are depleting, others are reducing production, and the low prices of the past several years have severely curtailed new uranium exploration and mine development. There are only two new major mines coming online now – Cigar Lake and Husab. The World is expected to need several more large mines at some point in the next 10-15 years, and there are none on the horizon, as it typically takes 10+ years – at least – to explore, license, finance, and construct a major new uranium mine.
When the market finally turns, existing producers like Energy Fuels are likely to be the main beneficiaries, since demand will outweigh supply – perhaps dramatically so – and that could drive uranium prices much higher.
Energy Fuels is uniquely positioned, because it provides the “double-barreled” benefits of lower cost production and the potential to significantly increase production when uranium prices rise. Energy Fuels is an established uranium producer with current sales to major nuclear utilities. They are not an exploration or development play – they have a proven track-record of production and sales. While the company makes sales internationally, it largely focuses on the United States, which is the World’s largest nuclear market.
In 2016, the company expects to produce about 1 million lbs. of uranium form its lower-cost sources of production. However, it has the capacity to produce over 11.5 million lbs. annually in a higher price environment. The company also has the largest NI 43-101 uranium resource in the U.S., among producers and near producers. Arguably, no other company can claim these levels of scalability.
Energy Fuels has emerged as the dominant uranium producer in the U.S., especially since Cameco has announced that it is reducing U.S. production to focus on larger-scale production in Canada and Kazakhstan. Energy Fuels is also the only company in the U.S. – and one of only three companies in the World – with uranium production that utilizes both conventional and in situ recovery (“ISR”) methods. In very general terms, ISR is typically lower cost, while conventional is typically more scalable and better suited to increasing to higher levels of annual production over a longer period of time.
Energy Fuels owns and operates two ISR production facilities, the Nichols Ranch Project in Wyoming and the Alta Mesa Project in Texas. The company has grown significantly over the past several years through acquisitions that are consolidating the U.S. uranium space. Their most recent acquisition added the Alta Mesa Project to the company’s portfolio. This was a highly strategic move by Energy Fuels. Alta Mesa is a fully-licensed and constructed ISR plant and mine that is currently on standby – it ready to go back into production within about 6 months of a “go” decision. It produced almost 5 million lbs. of uranium between 2005 and 2013. Indeed, the company expects Alta Mesa to have the lowest cash costs of any project in its portfolio once it goes back into production. The company also expects to publish a maiden NI 43-101 resource report on Alta Mesa in the summer of 2016, and the project has considerable exploration potential on the nearly 200,000 acres of private land comprising the project. By the way, this is about a quarter the size of Rhode Island!
Energy Fuels’ Nichols Ranch Project is an ISR plant and mine currently in production. Nichols Ranch began operations in 2014, and it is expected to produce about 300,000 lbs. of uranium in 2016. The company is currently regulating production in order to maintain the in-ground resources for the higher prices expected in the future. As uranium prices rise, a significant amount of the company’s near-term, lower-cost scalability is expected to come from Nichols Ranch.
Energy Fuels is also the only conventional producer of uranium in the U.S. The company owns the only conventional uranium mill in the U.S., the White Mesa Mill. The company expects to produce about 650,000 lbs. of uranium from the White Mesa Mill in 2016.
Energy Fuels is also currently in the process of developing a conventional mine in Arizona, called the Canyon mine. Shaft-sinking is underway to mine the deposit, and as of this writing, the shaft is at a depth of over 1,000 feet. They are also in the midst of an underground drill program to further evaluate the resource. The company has currently identified about 1.6 million pounds of uranium with an average grade of about 1% U3O8 contained in 83,000 tons of inferred resources. However, they hope to significantly expand the resource through underground drilling and upgrade the resource to a higher classification.
Finally, the company has a number of other future production sources, including three large conventional projects currently in permitting. The Roca Honda Project in New Mexico is one of the largest and highest-grade resources in the U.S., and the company has a published preliminary economic assessment (PEA) which estimates average annual production of 2.7 million lbs. of uranium for nine years. Roca Honda is also within trucking distance of the White Mesa Mill – which has ample excess capacity – so there is a fully licensed and operating facility available to produce this resource. The Henry Mountains Project in southeast Utah is another large resource within trucking distance of the White Mesa Mill. The company has a NI 43-101 report which shows that Henry Mountains has indicated uranium resources totaling 2.4 million tons with an average grade of 0.48% containing 12.8 million pounds of uranium, along with inferred uranium resources totaling 1.6 million tons with an average grade of 0.47% containing 8.1 million pounds of uranium. The company has a 3rd major conventional project – the Sheep Mountain Project – located in central Wyoming. Energy Fuels published a NI 43-101 preliminary feasibility study (PFS) that estimates average annual production of 1.5 million pounds of uranium over 15 years.
As recently as 1980, the U.S. was the World’s largest producer of uranium, and in the coming years, the U.S. could become a major player again. That bodes well for Energy Fuels, since the company has the management and technical team to execute on their growth strategy. Management has decades of experience in all phases of the U.S. uranium mining industry. President and CEO, Steve Antony, has worked in the U.S. uranium mining space since the mid-1980’s, including stints with Mobil Oil’s uranium division, Energy Fuels Nuclear, and Power Resources. Harold Roberts, who runs all of the company’s conventional operations, including the White Mesa Mill and the Canyon Mine, has over 30 years of experience with the company’s assets. Paul Goranson oversees all of Energy Fuels’ ISR production and is a recognized leader in this method of production. The company also recently added Mark Chalmers as Chief Operating Officer. He previously served as Executive General Manager for Paladin Energy in Australia, where he was involved in the Langer Heinrich and Kayelekera mines and oversaw sustained, significant increases in production and reduced operating costs.
Energy Fuels continues to use today’s quiet uranium market to position itself for the coming price recovery. They are closely monitoring market conditions to determine the best time to increase production. They are continuing to manage their cash, debt, inventory, and production rates. They have a strong balance sheet, including $37.5 million of working capital as March 31, 2016. Later this year, they hope to announce positive drill results at their Canyon Mine, along with updates on production, uranium sales, and utility contracting. Energy Fuels offers current uranium production, lower costs, scalability, and excellent potential leverage to the increasing prices expected in the future.
Energy Fuels is listed on the NYSE MKT under the symbol UUUU and on the TSX under the symbol EFR. Further information on the company can be found at www.energyfuels.com.
The company paid consideration to SNN or its affiliates for this article.
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