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Ur-Energy, Hedging the uranium supply against the chaos of war

The big question right now is what will Putin do next? Last week U.S President Biden banned Russian oil and gas imports. Will Russia respond by banning uranium exports to the USA? That would certainly cause a huge drama given that Russia largely controls the uranium market (41% of supply from Kazakhstan, 6% from Russia) and the USA’s dependence on uranium to power 19% of the electricity grid and a significant part of its navy which is nuclear powered.

In anticipation of a possible Russian uranium export ban or supply shock, the uranium price has been moving higher since the war began. At the current uranium price of US$60/lb the outlook for uranium producers is looking dramatically improved.

Uranium prices have spiked higher since the Russia-Ukraine war began on February 24, 2022

Source: Trading Economics

Ur-Energy Inc. (NYSE American: URG | TSX: URE) is among the top two U.S uranium producers (when operational). Ur-Energy operates their flagship Lost Creek ‘in-situ recovery’ uranium mine and facility in south-central Wyoming, USA. The Lost Creek Mine and facility has been on care and maintenance awaiting higher uranium prices. Ur-Energy also owns several other projects including the Shirley Basin Project (construction ready), Lucky Mc Mine, and Last Soldier uranium projects in the USA as well as the Excel Gold Project in Nevada, USA.

A summary of U-Energy’s uranium projects in the USA

Source: Ur-Energy website

The recent good news for Ur-Energy investors can be summed up from the following two key announcements:

  1. November 1, 2021 – Ur-Energy announces Lost Creek development program to advance readiness to ramp up uranium production. Ur-Energy stated: “We are pleased to announce the commencement of a development program at Lost Creek that will advance us from reduced operations to full production-ready status…… As of October 27, 2021, we had more than $40 million in cash and 285,000 pounds of U.S. produced U3O8 in inventory worth approximately $13.4 million, stored at the conversion facility.”
  2. March 9, 2022 – “The economic analyses within the Lost Creek report continue to support the potential viability of the property. Total future life of mine (LoM) production (without additional exploration) is modeled to be 12.3 million pounds from 2022 to 2036 with LoM operating costs estimated to be $16.34 per pound. All in, the estimated total costs per pound, including royalties and extraction taxes, is estimated at $33.61 per pound before income tax of $8.72 per pound. Pricing used in the analysis ranged from $50.80 to $66.04 per pound……The Property has a calculated before tax internal rate of return (IRR) of 72.2 percent and a before tax net present value (NPV) of $210.9 million applying an 8% discount rate. When income taxes are included in the calculation, the after-tax IRR is 66.8 percent and the after tax NPV is $156.8 million.”

Note: Bold emphasis by the author.

Lost Creek update

Minimal controlled production continued at Lost Creek throughout 2021 in recognition of market conditions. Ur-Energy has all required permits for operations within the first three mine units at Lost Creek and expects to have the final permit to allow operations within the HJ and KM Horizon at LC East and additional mine units at Lost Creek this year. Ur-Energy is in the process of obtaining remaining additional amendments to Lost Creek authorizations for expansion of the Lost Creek Mine.

Lost Creek recently received an amendment to its license allowing expansion of mining activities within the existing Lost Creek Project and the adjacent LC East Project. The license now allows annual plant production of up to 2.2 million pounds U3O8, which includes wellfield of up to 1.2 million pounds U3O8 and toll processing of up to 1 million pounds U3O8. Additional approvals (as referenced above) for this expansion are expected in H2 2021.

At the current uranium price of US$60/lb it looks highly likely we will very soon hear an announcement of Lost Creek production restarting.

Shirley Basin update

In addition to Lost Creek, Ur-Energy can bring on their Shirley Basin Project. It has a before tax IRR of 105.6% and NPV8% of $129.7 million. Ur-Energy has all major permits and authorizations to begin construction at Shirley Basin, the Company’s second in situ recovery uranium facility in Wyoming, USA.

2021 year end results

Ur-Energy’s 2021 results are not important given that there was virtually zero (251 pounds of U3O8) uranium production and no sales. Ur-Energy reported: “As of December 31, 2021, we had cash resources consisting of cash and cash equivalents of $46.2 million. No sales of U3O8 were necessary in 2021. The Company had a net loss of $22.9 million or $0.12 per common share.”

Ur-Energy, new CEO, John Cash stated:

“We are encouraged by the dramatic increase in domestic and global support for nuclear power, as it is increasingly recognized as the only plausible solution to climate change. Ur-Energy is in the enviable position of being able to quickly ramp up and participate in an improving uranium market and, in addition, we could immediately deliver up to 284,000 pounds U3O8 into the Uranium Reserve Program, currently being established by the U.S. Department of Energy. On March 3, 2022, we had $44.7 million in cash, plus our ready to sell U.S. produced inventory, worth approximately $14.4 million at recent spot prices. Additionally, we continue to advance the construction of header house 2‑4 to expedite production when market signals allow us to ramp up at Lost Creek.”

Closing remarks

Uncertainty of uranium supply from Russia and Russian controlled sources such as Kazakhstan is leading to a surge in uranium prices, up almost 50% in the past 3 weeks since the Russia-Ukraine war commenced.

At current prices, Ur-Energy’s two key projects Lost Creek and Shirley Basin would be highly profitable as per recent economic studies done at uranium prices similar to today’s price. All of this means it is highly likely we will soon see the resumption of uranium production by Ur-Energy at Lost Creek Mine in the near term. It also times well with the U.S.’s intentions to build up a reserve of uranium and the recent White House Fact Sheet aiming to build USA supply chains for key materials.

For investors looking at a hedge against the war, then look no further than uranium. And if Putin bans exports of Russian controlled uranium to the USA and others, then expect to see uranium prices closer to US$100/lb, than to today’s price of US$60/lb.

Ur-Energy trades on a market cap of US$380 million. Looks appealing.




Dependence on Russian Uranium has Investors Eyeing Ur-Energy for Domestic Production

As I noted earlier in the week, in light of certain global political issues the United States may want to be looking for some better places to source commodities. As the largest consumer of uranium in the world, it behooves American consumers to secure supplies of this commodity from slightly more friendly allies. Especially given, according to the EIA, in 2020, the U.S. purchased 22% of its uranium from Kazakhstan and 16% from Russia. Not exactly the kind of leverage you want to be giving Mr. Putin when going into negotiations regarding Ukraine or anything else that may come up.

In fact, the estimated 2021 uranium requirement in the United States to power nuclear reactors was 17,600 tonnes (38.7 million pounds). Meanwhile, the EIA reported domestic production of uranium concentrate (U3O8) in the fourth quarter of 2021 totaled 9,978 pounds. And this minuscule amount of fourth quarter 2021 production is 88% higher than the third quarter total but is 98% lower than the 2015-2019 five-year range for the fourth quarter. Needless to say, the U.S. is not even close to being self-sufficient when it comes to supplying its domestic uranium requirements. Put into perspective, 20% of U.S. electricity is generated by nuclear power. It’s enough to make a person wonder if anyone in Washington, D.C. has put all this information together in a clear, concise summary for the President or any of his advisors.

Source: U.S. Energy Information Administration

To me, it seems pretty obvious that someone might want to suggest that this becomes a bit more of a priority for this and future administrations. Granted in December 2020, Congress passed the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) that makes $75 million available to the Department of Energy for the establishment of the Uranium Reserve Program. However, without being an expert at navigating the status of congressional acts, it appears this has only just concluded the request for information period and that not much has been done (but please correct me if this is inaccurate). In the meantime, I would suggest that there needs to be more domestic uranium production to prevent 20% of the electrical grid from potentially being at risk.

Enter Ur-Energy Inc. (NYSE American: URG | TSX: URE), and its uranium mining, recovery and processing operations, as well as the exploration and development of uranium mineral properties all within the friendly confines of the United States of America. The Company boasts a cash position as of October 27, 2021, of $40.9 million plus nearly 285,000 pounds of finished, U.S. produced U3O8 inventory, worth just over $12 million at recent spot prices. At its flagship Lost Creek in-situ recovery (ISR) uranium facility in south-central Wyoming, the Company announced at the beginning of November the commencement of a development program that will advance the facility from reduced operations to full production-ready status.

Initiated in October, the development program will see the next header house in Mine Unit 2 completed in Q1/22 and ready for immediate production when warranted. After completing the new header house, Ur-Energy will proceed with a delineation drill program in H1/22, which will enable the development and construction of the next four header houses in Mine Unit 2. The estimated cost of these development programs is $2.2 million. In 2021, the Wyoming Uranium Recovery Program approved the amendment to the Lost Creek source material license which grants the Company access to six planned mine units in addition to the already licensed three mine units at Lost Creek. The Lost Creek facility has the constructed and licensed capacity to process up to 2.2 million pounds of U3O8 per year and sufficient mineral resources to feed the processing plant for several years.

The Company’s second uranium ISR project, Shirley Basin, stands ready for development and construction. Having received all remaining major approvals in 2021, Ur-Energy has effectively doubled it’s licensed and permitted production capacity. Estimates for Mine Development ($12.3 million) and CapEx ($18.3 million) are $30.6 million which should enable the Company to reach approximately a 1 million pound run rate in 15-18 months. By comparison, Lost Creek operations can increase to full production rates in as little as nine months with development expenses during the full period of ramp-up estimated to be approximately $14 million.

Very well positioned to be a major supplier of much-needed domestic uranium, Ur-Energy is well funded and can ramp up production quickly.




Up 207% over the past year, Ur-Energy’s revenue is ‘forecast’ to rise exponentially in the next 2 years

Uranium prices have grinded higher in 2021 and the outlook has never looked better for U.S uranium miners with forecast uranium deficits in the years ahead. US uranium producers are well placed to benefit from the Biden policies that understand the importance of nuclear and securing uranium. Right now the USA produces virtually zero uranium and is dependent upon Russia (including Russia controlled sources in Kazakhstan) for about 50% of their uranium supply. 20% of U.S electricity relies on nuclear as does much of the U.S Navy fleet.

Ur-Energy Inc. (NYSE American: URG | TSX: URE) is among the top two U.S uranium producers and is a global low cost uranium producer. Ur-Energy operates the Lost Creek in-situ recovery uranium facility in south-central Wyoming, USA, currently on hold due to the uranium prices bear market. The stock is having a stellar year, up 207% over the past year boosted by improving uranium prices and positive uranium policy from the Biden administration.

Ur-Energy’s stock has been rising with the beginning of what looks to be a new uranium bull market

Source: Yahoo finance

An update on Ur-Energy

Over the past year, the Company has been working on their expansion plans. Ur-Energy now has all major permits and authorizations to begin construction at Shirley Basin, the Company’s second in situ recovery uranium facility in Wyoming and is in the process of obtaining remaining amendments to Lost Creek authorizations for expansion of Lost Creek.

At Lost Creek, the mine is currently on care and maintenance awaiting higher uranium prices or suitably priced long term contracts.

Ur-Energy’s revenue is ‘forecast’ to rise exponentially the next 2 years

Based on an online analyst’s forecasts, Ur-Energy is set to grow revenues from US$8 million in 2021 (close to zero in operating profits) to US$24 million in 2022 (US$24 million in operating profits), and to US$75 million in 2023 (US$40 million in operating profits). That’s a tremendous forecast revenue rise and would be mostly due to the anticipated ramp up in uranium production by Ur-Energy, forecast uranium deficits with stronger uranium pricing, and the U.S plan to establish a US$150 million pa U.S. uranium reserve building program over the next 10 years.

Joining the broad-market Russell 3000® Index

Announced on June 7, 2021, Ur-Energy is set to join the broad-market Russell 3000® Index as of June 28, 2021. This is a significant milestone achievement for the Company. Approximately $17.9 trillion is currently benchmarked to FTSE Russell indexes. Ur-Energy Chairman and CEO Jeff Klenda, stated:

“Ur-Energy is excited to be included in the Russell 3000® Index. This listing reflects the significant increase in our market capitalization over the past several months, and our continued effort to build shareholder value. Inclusion in the Russell 3000® is significant as the Russell indexes are widely followed by the investment community. We believe inclusion in the Russell index provides us with the opportunity to expand our shareholder registry as we continue to progress our strategic initiatives and maintain operational readiness until we ramp-up production operations at our Lost Creek Project.”

Closing remarks

All indicators are pointing to higher priced uranium. A key being forecast global deficits the next 5 years+ due to strong demand and constrained supply. Another is that the Biden administration is pro smart nuclear, and the U.S wanting to achieve an independent supply of critical materials such as uranium. The only way to do this is by buying uranium from ally countries or more ideally from U.S producers on long term contracts that are profitable for the miners. Existing U.S demand to feed the U.S’s nuclear reactors and military plus supply to build the reserve are all critical priorities right now for the USA.

Ur-Energy is ideally positioned in the USA to play a very significant part in restoring U.S energy security and the U.S uranium reserve. This helps explain why the stock has already run ahead by 207% in the past year and now trades on a market cap of US$316 million. The stock may well take a short-term pause but the next decade looks very strong for Ur-Energy.

Further learning

Ur-Energy’s Jeff Klenda on Biden’s interest in nuclear energy, US utilities ‘just-in-time deliveries’ for uranium and being the lowest cost producer of uranium in the U.S. (video)




Is Uranium the next commodity to move higher?

As Ur-Energy Inc. (NYSE American: URG | TSX: URE) looks to break through its $1.57 (C$1.99) high reached in February of this year it’s time to take another look at this company and Uranium in general. The Company announced some exciting news late last week – they received three approvals representing the final major permits required to begin construction of their Shirley Basin project. This is good news considering Ur-Energy is engaged in uranium mining, recovery and processing operations, as well as the exploration and development of uranium mineral properties.

The Shirley Basin project would be complementary to the existing Lost Creek project with its recently announced increase to nine licensed mine units and the licensed limit annual plant production of 2.2 million pounds U3O8 which includes wellfield production of up to 1.2 million pounds U3O8 and toll processing up to one million pounds U3O8. This gives the company the option of either building out a complete processing plant with drying facilities at Shirley Basin or a satellite plant with the ability to send loaded ion exchange resin to the Lost Creek Project for processing.

This all sounds great except for one thing. Ur-Energy isn’t actually producing very much Uranium at the moment and is selling even less. The Company is maintaining reduced production operations at Lost Creek while awaiting the implementation of the national uranium reserve and further positive developments in the uranium markets (in other words, higher prices). The positive here is that this has allowed Ur-Energy to make operating cost reductions while continuing to conduct preventative maintenance and optimize processes in preparation for ramp up to full production rates.

The story for Ur-Energy, and other Uranium producers is all about where prices are going, not where they currently are (that almost sounds like a Wayne Gretzky quote). The Uranium market is a little unusual in that historically very little Uranium is sold in the “spot” market. Most transactions are long term contracts for multi-year deals. This has created a strange anomaly over the last few years, whereby miners will actually go out and buy Uranium to fulfill those contracts rather than produce it themselves. Cameco is a great example of this if you dig into their activities. Along those lines, at the end of March 2021, Ur-Energy had 285,000 pounds of U3Oof inventory available to sell or fulfill contracts.

But where does that leave investors? Ur-Energy has an unrestricted cash position of US$15.8 million and approximately US$8.6 million in finished, ready-to-sell inventory in order to maintain and enhance operational readiness or for possible acquisitions and general working capital. The Company can quickly and easily ramp-up to full production at Lost Creek of 1,000,000 pounds per year within 6 months at an estimated capital cost of US$14 million. Assuming Uranium pricing warranted this ramp-up in the first place, Lost Creek can be further advanced to its fully licensed 1.2 million pounds per year and Shirley Basin can then be developed up to 1.0 million pounds per year, which should make investors pretty happy.

But what is going to drive that increase in Uranium prices higher than the $20-$30 per pound range it’s languished in for most of the last 5 years. For starters, the U.S. Department of Energy will be provided US$75 million to coordinate with and support the Office of Nuclear Energy in the development and implementation of a national uranium reserve program. The US Government also announced an extension and expansion of limitations on importation of Uranium from the Russian Federation. Another catalyst is the Biden Administration’s commitment to nuclear energy, calling nuclear an essential pillar to its clean energy mandate. Lastly, investment interest in the form of the recently announced Uranium Participation Corporation agreement with Sprott Asset Management to modernize its business structure and pursue a U.S. listing.

On the flip side, Cameco announced plans to restart production in April at its massive Cigar Lake uranium mine. Additionally, Kazatomprom the world’s largest producer of uranium, with production representing approximately 24% of global primary uranium production took a page out of OPEC’s book and announced 20% reductions through 2022. It’s not a reach to believe that if prices start to improve materially, both Cameco and Kazatomprom could ramp up production relatively quickly.

So as an investor, you need to make a decision on Uranium prices first and whether the current positive momentum can continue. If you decide you want Uranium exposure then Ur-Energy is a great leverage play to participate in the Uranium trade.




Ur-Energy stands ready to supply future US uranium reserve

U.S. legislation on the table to reduce foreign dependency

As the US struggles to finalize their new uranium funding to build a significant US uranium reserve using the previously announced US$150 million U.S. uranium reserve program, two new Acts have recently gone to US legislators.

On July 29, 2020, legislation was introduced in the House of Representatives by Representatives Cheney and Latta to establish a National Uranium Reserve. Then on July 30, 2020, U.S. Senator Barrasso, Chairman of the Senate Committee on Environment and Public Works, introduced the American Nuclear Infrastructure Act of 2020. Among other items, it includes the authorization to create a uranium reserve to fuel America’s nuclear reactors with domestic fuel and bolster America’s uranium industry.

The last 4 years of low uranium prices has led to significant uranium supply destruction to the point where demand for new uranium will likely put a floor on uranium prices and keep them from falling back again. The uranium miners who survived stand to benefit as the cycle turns positive.

Uranium prices from 1989 to today – Currently at USD 32.25

Source: Trading Economics

Today I look at one US uranium miner who is well placed to prosper.

Ur‐Energy Inc. (NYSE: URG | TSX: URE) is one of only two primary US uranium producers still operating able to bring on new uranium supply with a globally competitive cost of production. Ur-Energy’s flagship project is the Lost Creek Property in Wyoming. They also have several other uranium projects including Shirley Basin and Lost Soldier.

There are two key aspects investors should know about Ur-Energy:

  1. They already have a competitive cost of uranium production and a large and growing uranium reserve/inventory.
  2. They have the ability to rapidly expand uranium production if needed.

Ur-Energy continues to build up their uranium inventory ready for anticipated US Reserve purchases

In Q2, 2020 Ur-Energy produced 4,119 pounds of U3O8 at the Lost Creek plant, of which 2,892 pounds of U3O8 were packaged in drums. Inventory at the converter totaled approximately 268,552 pounds at June 30, 2020. In 2020 Q2, Ur-Energy sold 167,000 purchased pounds under a term contract at an average price of $41.50 per pound. The 167,000 pounds were purchased at a weighted average cost of $26.01 per pound. There were no sales of produced inventory in the first six months and we do not anticipate any sales of produced inventory in 2020.

Ur-Energy has the ability to quickly expand their uranium production from Lost Creek

Ur-Energy is prepared to rapidly expand uranium production at Lost Creek, to an annualized run rate of one million pounds. They can also bring on their other projects, albeit with a time lag.

For investors new to Ur-Energy, what is happening here is that the Company is building up their inventory of uranium, while still meeting their long term contracts. This inventory would be perfectly suited to sell to a US uranium reserve if and when purchases begin, ideally at higher prices.

Drilling for uranium at Ur-Energy’s Lost Creek Property

Source

On August 5, 2020 Ur-Energy stated in their Q2, 2020 earning release:

“Following multiple announcements of industry production suspensions and reductions earlier this year, U3O8 spot prices increased nearly 33 percent to $33 per pound in June. U3O8 spot prices have traded between $32 and $34 per pound since April. The production cuts amount to as much as 46 million pounds of primary production on an annualized basis and are expected to widen the supply deficit as global demand continues to grow.

Ur-Energy also stated:

“In July 2020, Energy Secretary Brouillette told the House Energy and Commerce Subcommittee on Energy that DOE is working to end U.S. reliance on Russia for nuclear fuel. DOE wants to process American-sourced uranium into high-grade fuel at the DOE facility in Portsmouth, Ohio next year. Centrifuges have been moved from DOE’s Oak Ridge laboratories to Portsmouth. Additionally, DOE is working with lawmakers to authorize the creation of the uranium reserve.”

Closing observations

The US uranium miners can see the light at the end of the tunnel, even if they are not there yet. The US government continues to progress – if slowly – towards establishing a secure uranium supply. Two new Acts have helped build pressure on the U.S. House Committee on Appropriations who are yet to allocate the Department of Energy’s previously recommended US$150m of funds.

Meanwhile the global uranium supply destruction has pushed uranium prices higher, and in time the US government will surely finalize and release the funding for the proposed US uranium reserve.

The game of patience continues for investors, and leading US uranium companies such as Ur-Energy remain on hold and attractively valued due to the uncertainty. Just remember, patience is a virtue.




Jeff Klenda and Jack Lifton discuss American uranium as the market awaits the Nuclear Fuel Working Group’s recommendation for Trump

“In January of 2018, we submitted a Section 232 Petition which was a section under the Trade Expansion Act of 1962. This was immediately after a face to face meeting with the Secretary of Energy, Rick Perry. One of the things we were speaking to him about was our concerns that at that time we were roughly producing about 5% of our own (uranium) needs here in the United States and the other 95% was coming from outside the country. Almost 50% of that coming from Russia, Kazakhstan, and Uzbekistan. So we found ourselves in a position where although nuclear energy provides 20% of our baseload in the United States, we are allowing ourselves to become dangerously dependent on geostrategic rivals. That is a dangerous national security policy and we felt that Section 232 would be the best avenue that we can go to address that problem for the nation.” States Jeffrey Klenda, Chairman, President, and CEO of Ur‐Energy Inc. (NYSE: URG | TSX: URE), in an interview with InvestorIntel’s Jack Lifton.

A Presidential Memorandum in July in response to the Section 232 established the U.S. Nuclear Fuel Working Group to provide a fuller analysis of national security considerations with respect to the entire nuclear fuel supply chain, and specifically to develop recommendations for reviving and expanding domestic uranium production. Ur-Energy awaits the recommendations of the Working Group, which are anticipated to be made and acted upon at any time now.

Jeffrey went on to say that Ur-Energy is the lowest cost uranium producer outside of Kazakhstan. He said that state-owned companies in Kazakhstan receive subsidies from their government to offset their base cost and work under lax environmental constraints. They have also devalued their currency by 85-90 percent over the last five years, hence their costs are lower. Jeffrey also said that Ur-Energy’s Lost Creek Project is in production and the company has strong fundamentals.

To access the complete interview, click here

Disclaimer: Ur‐Energy Inc. is an advertorial member of InvestorIntel Corp.