Spot U3O8 Is Turning Higher—Uranium Miners May Lead Next Year
Several recent mining reports highlight that investor interest in uranium is noticeably building. This is starting to translate into slightly higher-highs and higher-lows with regular up-ticks that may be signalling U3O8 bottomed back in August at around US$34/lb.. U3O8 is still only $34.75/lb. today, down $1.50/lb. over the past two weeks after three weeks in a row of increases.
Last year we thought uranium put in its bottom at $40/lb. going into Japan's December elections, which resulted in a new pro-nuclear government. The spot price did pop around 15% then, but didn't hold. If $34/lb. holds as U3O8's bottom this time then we were off by only a little; so let's just defer to agreeing with those analysts now expecting 2014 to be Uranium's Big Breakout Year.
Some of this renewed technical interest may be seasonal, in anticipation of spot uranium market trends that tend to move up during the first quarter. Demand is higher early in the year as utilities, governments and other buyers are on new budget cycles. However it is strong fundamentals that have only strengthened in the wake of Fukushima's uranium market fallout that we continue to focus on.
U3O8 demand is driven by nuclear power reactors—as of December 1 this includes 434 operable, 71 under construction, 173 planned and 314 proposed worldwide. There are also thousands of science and medical research reactors, plus hundreds of nuclear powered military vehicles such as submarines and aircraft carriers. More nuclear power reactors are in the works today than even before Fukushima!
Current uranium demand already exceeds mine production, and future supplies have no chance of keeping up unless prices at least double. More anticipated major mine expansions are now on hold due to low prices, from Kazatomprom and ARMZ recently—two of the world's three largest uranium producers. The 20-year U.S./Russian HEU Agreement to down-blend uranium from nuclear warheads into fuel just ended—no longer providing ~24Mlbs. per year that made up most of the U.S.' shortfall.
How did uranium prices get this low if the fundamentals are so strong? Simply because markets can overreact on both the upside and downside. Psychological greed and fear of the unknown move investors to ignore even obvious facts and make rash investment decisions. This NY Times article, Fear vs. Radiation: The Mismatch, discusses nuclear fears that simply don’t match the facts outlined.
Prior to Fukushima uranium mining stocks outperformed, but have been decimated since. I liken this to a pendulum moving far beyond fair value and about to swing back, or to a stretched elastic band that's about to snap back. U3O8 has been prone to price spikes—$10/lb. in 2003 to $137/lb. in 2007.
On top of all these uranium catalysts, Japan's 50 operable nuclear power reactors need to be restarted to lower its $75B/year fuel bill, which has doubled and has caused trade deficits since Fukushima. No nuclear power has also meant more pollution and likely more blackouts during the cold of winter. Pending restarts of 14 reactors were recently submitted to the Japanese Nuclear Regulation Authority.
So has the post Fukushima U3O8 falling knife finally become a safe bet, maybe even a trampoline?
Paul Goranson Joins Uranerz Energy As President & COO
This December and going into the new year reminds me of late 2010 and into 2011 when we first started following (AMEX: URZ)(TSX: URZ) Uranerz Energy. At that time uranium stocks were red hot and URZ was a top performer after a steady flow of key announcements from NI 43-101 U3O8 resource updates, to receiving its Draft Materials License and WDEQ Permit, to financing news.
Uranerz' shares traded then from under $2 to around $6, now $1.13 with a US$97M market cap. After Fukushima's meltdown effects on anything nuclear related, and after a relatively quiet period during URZ' two-year mine construction phase, we look forward to the company's news flow picking up again as it transforms into a producer. This month has seen two URZ news releases already.
On December 2 Uranerz announced that Paul Goranson has joined the company as President, Chief Operating Officer and as a Director. The timing is interesting as this fills an important management position that has been vacant since George Hartman retired in September of last year.
Mr. Goranson has over 25-years of experience in the uranium industry, most recently as President of (TSX: CCO)(NYSE: CCJ) Cameco Corp.'s U.S. subsidiary. He executed the company's Double U growth strategy in the U.S. including production expansion, processing plant refurbishment, and operations executive leadership at various Cameco projects that surround Uranerz' projects.
Prior he was VP of privately held Mestena Uranium in charge of construction, start-up and operation of the Alta Mesa project in south Texas that achieved over 1Mlbs./year production. He also negotiated their long-term supply contracts with nuclear utilities. Prior to this he managed radiation safety, regulatory compliance and licensing with Rio Algom Mining—part of (NYSE: BHP) BHP Billiton.
From URZ' news release, "Uranerz is very pleased to have a person with Mr. Goranson's talent, uranium mining experience and in-depth industry knowledge join our Company" stated Uranerz' Chief Executive Officer, Glenn Catchpole, "He has been involved in all facets of the uranium sector, and we look forward to his input as we initiate production at Nichols Ranch and continue our efforts to grow the Company." For the full new release click the URZ quote link above or visit Uranerz.com .
So Uranerz is nearly finished building its first uranium mine that is located in the prolific Powder River Basin (PRB) of Wyoming. This ISR mine, called Nichols Ranch, is surrounded by various Cameco projects, and Uranerz' uranium will be toll processed at Cameco's nearby Smith Ranch-Highland plant. Now Cameco-US' ex-president is Uranerz' new president. Hmmm!
Uranerz Energy Closes US$20M Wyoming State Bond Loan
While all types of mining companies these days are finding it next to impossible to finance any project without suffering massive share dilution, uranium miners in Wyoming have a huge advantage. Not only does the PRB make Wyoming the USA's largest uranium producing state, the Wyoming Business Council with the Governor's office provides coveted low-cost development loans.
In our October 29 newsletter, Uranium: Ur-Energy Closes US$34M State Bond Loan; Is URZ Next?, we mentioned how (AMEX: URG)(TSX: URE) Ur-Energy's Wyoming state loan may be seen as the government's validation of the viability of Ur's Lost Creek project. This is because, unlike the Feds, Wyoming is careful with its money and continues to run surplus budgets, and to help support local businesses. That's why it can take companies one to two years to nail down one of these loans.
Investors tend to be rewarded after de-risking events like this as shares get bid higher on anticipation of strengths building. Ur has since announced a major mineral resource expansion and last week shipped its first production. If you look at URG's 3-month or 1-year chart you will notice a gradual upward slope—impressive considering how bad the uranium market has been.
We also mentioned that Uranerz Energy was waiting for its US$20M Wyoming state loan, and reasoned that it could close sooner than some might expect. Even though Uranerz applied for its loan around 3-months after Ur applied, we believed URZ' loan could close within just a few weeks because they didn't have to deal with some of the delays Ur had to resolve.
On December 3 Uranerz Energy announced that it received the full US$20M state loan and that it immediately paid off its US$6M short-term loan. URZ' 7-year 5.75% Industrial Development Revenue Bond loan is interest-only for the first year and can be repaid early. Like Ur, Uranerz' low interest loan should be seen as Wyoming's validation of the viability of URZ' Nichols Ranch project, and as a de-risking funding milestone that also lowers costs.
Uranerz now has only $20M in debt with around $16M in cash as they complete construction of their first mine. This appears to be a more flexible position compared to Ur, where we are waiting to see if Ur has to use much of the balance of its US$34M loan, take on more debt, or do an equity raise to pay the millions needed to complete its Shirley Basin purchase.
Uranerz is focused on completing construction and commencing production as soon as possible. On July 25 URZ provided an update that drilling of its first of two Deep Disposal Wells (DDW) was complete and that both DDWs should be ready in five months. So I guess you could say that we're on watch for a news release that URZ got a few DDWs in their Christmas stocking. These wells are required prior to production, then the Nuclear Regulatory Commission (NRC) checks its lists twice to conclude inspections and approvals, and then operations start—best guess is sometime in January.
From the last line of Uranerz' news release, "Uranerz is nearing completion of the construction for its in-situ recovery (ISR) processing facility and installation of the initial production wellfield for ISR operations at its Nichols Ranch ISR Uranium Project located in the Powder River Basin of Wyoming, U.S.A. The Company expects to start the Nichols Ranch operations within the next few months."
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