Energy Fuels ready for next uranium bull market
Since uranium heavyweight, Cameco cut production in January, the International Energy Agency and the World Nuclear Association have been expecting a rise in demand for uranium. Uranium producer, Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) (“Energy Fuels”) is well poised to capitalize on this expected increase. The company is known to be able to scale production seamlessly as soon as uranium prices rise.
Energy Fuels is the owner of the only fully permitted and operational conventional uranium mill in the U.S., the White Mesa Mill. The mill has an annual capacity of 8 million (M) lbs. of uranium, and in 2017 produced 366,000 lbs. of uranium concentrate, and re-processed a further 946,000 lbs.
In addition to uranium, the White Mesa Mill is the only facility in the U.S. with the near-term ability to resume the recovery of vanadium. Vanadium prices have increased more than 300% over the past 24 months due to rising demand, especially from China. The company’s Whirlwind Mine and La Sal Complex are also close to the mill and contain large, high-grade vanadium resources. As a large producer of vanadium in the past, Energy Fuels is evaluating several near-term production opportunities to capitalize on an improving market. Being able to capitalise on rising vanadium prices, should be seen as a good hedge against potential uranium price volatility.
A consideration of the company’s other operations, we note that the majority of these projects are permitted, contain large resources and have the ability to ramp up production quickly should uranium prices improve.
The Nichols Ranch in-situ recovery (ISR) facility produces uranium from 9 wellfields and produced 259,000 lbs. in 2017. It has an annual capacity of 2M lbs. and is able to ramp up production within 6 months.
Due to recent lower uranium prices, the Alta Mesa ISR facility was placed on care and maintenance in 2013, but US Energy Fuels has confirmed that the facility is fully permitted and ready to resume production within 12 months of a production decision. It has an annual capacity of 1.5M lbs. and large resources with potential for expansion through exploration.
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The company’s Canyon mine, is the highest-grade uranium mine in the U.S., is fully permitted and ready to enter production within 12 months of a production decision. A further four mines stand at the ready to commence production within 6-12 months. In short, Energy Fuels, more than most of its peers, has the potential to scale quickly and fill any demand requirements should the uranium market turn.
For the last few years, the US has had an objective to increase its self-sufficiency for key industries, especially being able to take care of its own energy requirements. In January 2018, Energy Fuels, together with Ur-Energy filed a petition requesting that the U.S. Commerce Department investigate the effects of uranium imports on the U.S. The petition describes how imports of uranium and nuclear fuel from Russia, Kazakhstan, Uzbekistan and China potentially represent a threat to U.S. national security.
The petition further called for the implementation of a quota with the aim of reserving at least 25% of the US nuclear market for US uranium producers and a requirement that US federal agencies purchase US uranium. Currently less than 4% of US nuclear reactor requirements are met with domestically mined uranium. Should these policies be implemented, they would not only strengthen the US uranium industry as a whole, but Energy Fuels, as a highly scalable US producer, would be especially well placed to benefit from these changes.
In essence, US Energy Fuels is a sound investment choice for those looking for exposure to the uranium industry. The company has a leading production portfolio and is able to capitalize on a recovery in the uranium sector quicker than most of its peers. As the Trump Administration is proving to be supportive of both nuclear and domestic production, the company is well placed to take advantage of this supportive state legislation. Finally, Energy Fuels offers an investor diversification with exposure to the vanadium sector, which has been the best performing battery metal over the last two years, with prices having increased in excess of 300%.