Gaining exposure to the bullish side of the next uranium supercycle
2018 looks set to be the year in which we finally see the beginning of the next uranium (U3O8) upturn. Major companies have taken swathes of production offline, which, generally speaking, marks the bottom of the cycle. The loss of output inevitably raises prices, initiating the next rush period during which production is increased across the board and new mines are brought online to take advantage of the increasing value of the material, and while placing your money on a junior trying to commission a new deposit can provide the greatest return, investing in an established producer carries considerably less risk. The problem with this approach is that volatility can be so low as to produce little benefit; unless, of course, your stock-of-choice starts off undervalued.
Currently, shares in Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) (“Energy Fuels”) are thought to be trading below their true value and so, in my opinion, represent one of the better options of the established suppliers for gaining exposure to the bullish side of the next uranium supercycle. The company’s current stock valuation does not reflect its projected medium-term revenue growth, which is expected to be almost 60%, potentially providing a 20% discount on the actual value of Energy Fuels shares. At times of low prices, this is exactly the kind of boost that makes for a good entry point into the timeline of a large and secure company.
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The company is prepared to respond to the uranium recovery faster and on a larger scale than much of its competition due to the sheer number of permitted assets on standby. Some of the resources are reliable past suppliers taken offline during the low period but are entirely ready to go, providing Energy Fuels with the capability to produce over 8 million pounds of uranium in any given year. Additionally, the company owns the only fully-licensed and operating conventional uranium mill in the United States through which over a fifth of total US uranium was produced between 2011 – 2015.
Through the White Mesa mill, Energy Fuels increases cash flow further by sourcing alternative feedstocks such as uranium-bearing waste products. The mill already features a separate circuit to produce high-purity vanadium from certain ores with potential to supply emerging battery technologies, and the company has been processing waste materials through the mill for some time, but approximately 12 million pounds of measured and indicated copper resources were detailed last year in the main zone of the Canyon mine with an average grade of 5.9% Cu, and White Mesa has the infrastructure in place to potentially recover this material.
Energy Fuels also makes for a compelling long-term investment. World energy requirements are set to double by 2060, and increasing concerns over whether renewables such as solar and wind are up to the challenge are turning heads back towards U3O8. The intermittent nature of the meteorological phenomena on which green supplies depend mean that they are unlikely to be able to comprise a consistent supply without a nuclear backbone. China, for instance, currently has 20 new reactors under construction with a capacity of 20.5 GW. Additional reactors are also planned to provide 58 GW of capacity by 2020.
The uranium market has been in a deep depression since the bubble of 2007 left the market steeped in oversupply, but these stockpiles are being eroded more and more every day. Energy Fuels’ commitment to finding cash during hard times is about to pay off, but take care to buy-in before this is reflected in the share price.