Awaiting the U.S. Nuclear Fuel Working Group outcome has uranium investors eyeing UR-Energy
Uranium has been much unloved for some years now but this could all be about to change as soon as next week, at least in the USA. The Nuclear Fuel Working Group (NFWG) recommendations are now due by November 10, 2019. The results are hoped to boost the US uranium miners.
Several groups such as hedge funds and Yellowcake Physical Fund have been strategically buying up uranium (16m lbs) the past year with the expectation that uranium prices can only go up from the current depressed levels of US$24.20/lb. All of this means it is an excellent time to look at the US uranium miners, and ideally the lower-cost producers.
Uranium demand v supply – Deficits possible post 2023 (includes inventory)
Ur-Energy Inc. (NYSE American: URG | TSX: URE) is one of only a very few primary US uranium producers still able to operate in today’s tough market conditions. This is because in the past they signed long term uranium supply contracts at much better prices than today’s terrible prices. Their flagship project is the Lost Creek Property, and they also have several other projects (Shirley Basin, Lost Soldier).
The Lost Creek Property and the Lost Creek In-Situ Recovery (ISR) uranium facility
Ur-Energy owns and operates the Lost Creek In-Situ Recovery (ISR) uranium facility in south-central Wyoming, USA. The processing facility has two million pounds per year physical design capacity. The Lost Creek Property represents the composite of six individual contiguous projects of which the core Lost Creek Project is fully-licensed and operating, the other projects are collectively referred to as the Adjoining Projects. The current mineral Resource estimate for the Lost Creek Property is 13.251 million pounds of contained uranium Measured and Indicated and 6.439 million pounds Inferred. An amended Preliminary Economic Assessment (PEA) was issued in early 2016. Life of Mine OpEx was forecast to be $14.58/lb U3O8.
Lost Creek Property and Shirley Basin Project location map
Shirley Basin Project
Ur-Energy’s newest project, Shirley Basin, is one of the Pathfinder Mines assets that were acquired in 2013. Baseline studies necessary for permitting and licensing of the project are complete, and the application for a permit to mine has been submitted, with work on other permits underway. Shirley Basin is planned to go into production soon ramping up to 2021 with a low cost of production at about US$14.50/lb U3O8.
Ur-Energy uranium production, sales, cash and loan update
In 2018 Ur-Energy produced 2.7mlbs of U3O8, selling on long term contracts at ~US$49/lb, as a US low cost producer. In Q3 2019 the Company sold 122,500 ‘purchased’ pounds under term contracts at an average price of US$41.76/lb. The ‘purchased’ U3O8 was bought for an average price of US27.68/lb.
As of October 31, 2019 Ur‐Energy had $6.6 million in cash and 90,000 pounds of U3O8 to be sold in December at $60 per pound. With a renegotiated State Bond Loan, the Company expects to enter 2020 with a strong cash position and nearly 250,000 pounds of product inventory ready to sell.
Ur‐Energy CEO, Jeff Klenda, stated: “We find ourselves in the enviable position of awaiting the outcome of the U.S. Nuclear Working Group without the need for near‐term financing. We will defer six quarters’ principal payments on the State Bond Loan, while continuing to make quarterly interest payments. The deferred payments, beginning with the October 1 payment, represent approximately $8 million savings for that period. Considering our financial position and the ability to ramp‐up our operating, low‐cost Lost Creek mine quickly and cost‐efficiently, we have a distinct advantage over our peers.”
Nuclear utilities generally don’t support US uranium producers
US uranium producers are arguing imports have hurt their business, reducing prices and forcing them to cut production and place mines on standby. Simply put, domestic miners can’t compete with low prices from Russia and former Soviet republics. Nuclear Utilities, by contrast, have argued that uranium is plentiful and that allies like Australia and Canada are reliable suppliers. The reality is that the US uranium mining industry produces less than 1% of the uranium needed to fuel U.S. nuclear power plants and there is a lack of any domestic uranium enrichment capability for national security applications.
The bottom line is if the US wants 100% security of uranium supply then the best way is to support US uranium producers. We should all know the NFWG’s recommendations very soon (by November 10). Any significant support for US uranium producers should be a boost for UR-Energy and hopefully end the bear market for US uranium miners.
Ur‐Energy is cash flow positive with a producing US uranium mine, a second uranium project close to production (next 2 years), and other projects to follow. This gives Ur-Energy an ability to very significantly ramp up uranium production at a relatively affordable CapEx and low OpEx.