With the price of uranium so low, miner Cameco Corp. (CCO:TSX; CCJ:NYSE) has shuttered its McArthur River Mine in Canada, and Kazakhstan's Kazatomprom announced that it is cutting production.
Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American) President and CEO Mark Chalmers addressed the uranium market issues in a recent letter to shareholders, "Things are happening in global uranium markets, namely major production cuts, that we believe will rationalize this market and, with it, the return of much higher uranium prices. . .eventually. Unfortunately, that has been the defining—and frustrating—characteristic of the uranium market over the past few years. We all see the positive supply and demand fundamentals. We see the production cuts, the policies to address climate change and air pollution, and the slow and steady global growth of nuclear energy. However, no one knows when these fundamentals will spawn higher prices, and the recovery has thus far eluded us."
"UUUU should benefit from rising uranium prices driven by significant production cuts across the industry." - Joe Reagor, ROTH Capital Partners
Energy Fuels, along with Ur-Energy Inc., has taken action by submitting in January a Section 232 Petition to the U.S. Department of Commerce to reduce the quantity of uranium coming into the U.S. from other countries. The company noted, "The Petition describes how uranium and nuclear fuel from state-owned and state-subsidized enterprises in Russia, Kazakhstan, Uzbekistan, and China potentially represent a threat to U.S. national security." The point of the petition is to allow for the increase of uranium production in the U.S., which is the largest consumer of uranium in the world. Less than 3% of the uranium consumed in the U.S. is produced domestically. "The Petition seeks a remedy which will set a quota to limit imports of uranium into the U.S., effectively reserving 25% of the U.S. nuclear market for U.S. uranium production." The petition also requests "implementation of a requirement for U.S. federal utilities and agencies to buy U.S. uranium in accordance with the President's Buy American Policy."
The company believes the petition will be initiated soon. Once initiated, the Secretary of Commerce has 270 days after initiation to prepare a report to the President and a recommendation, and the President has 90 days to act on the Secretary's recommendation.
Energy Fuels is also exploring additional opportunities, including the potential of its vanadium resources at the Whirlwind Mine and the La Sal Complex, which recently received government expansion approvals. "Our mill last produced vanadium (as V2O5) in 2013, and during its 38-year operating history, it has actually produced over 45 million pounds of vanadium—or over $500 million at today's vanadium prices. We have a number of mines in Utah and Colorado that contain large quantities of high-grade vanadium resources," Chalmers explained. According to the company's 2017 10-k, they are also "evaluating. . .the potential to recover vanadium dissolved in the ponds at the White Mesa Mill. . .and/or recovering vanadium from non-ore sources."
As another source of revenue, Energy Fuels is processing alternate feed materials at its White Mesa Mill. Chalmers explained, "In 2017, we re-processed about 950,000 pounds of off-spec uranium concentrate for a third party, earning fees of about $6 million. Today, we are talking to several additional parties about new business for 2018 and beyond." He projects that the White Mesa Mill will continue to be cash-flow positive in 2018.
Energy Fuels also recently announced that it has accomplished final groundwater restoration at Alta Mesa Production Area 1 as confirmed in a notice from the Texas Commission on Environmental Quality ("TCEQ").
Completion of wellfield restoration is a very important environmental milestone and the company can now move on to well plugging and final closure of PAA1. Groundwater restoration is a crucial compliance milestone that must be completed after uranium recovery. The company can also proceed to a reduction of the reclamation bond on the project and the return of restricted cash.
"We are extremely proud to receive government confirmation of final restoration of the wellfield at Alta Mesa. Energy Fuels and the rest of the U.S. uranium industry operate under the highest health, safety, and environmental standards in the world, including state-of-the-art protection of groundwater and drinking water. This is a major milestone for Energy Fuels and further proof of our commitment to environmental stewardship. I congratulate our team on the ground in Texas and the support staff here in Denver for their hard work and professionalism on this important achievement," said Chalmers.
Located in South Texas, Alta Mesa is an ISR uranium project that is both constructed and fully permitted. It produced approximately 4.6 million pounds of U3O8 from 2005 to 2012.
About 200,000 acres comprise the total project area, and Alta Mesa is currently on standby. Operations there could be re-started in 12 months if the company decides to do so. A licensed and constructed ISR processing plant with a production capacity of 1.5 million pounds of U3O8 per year is onsite.
According to the company, Alta Mesa has "1.6 million tons of Measured and Indicated Mineral Resources with an average grade of 0.111% U3O8 containing 3.6 million pounds of uranium, with 7.0 million tons of Inferred Mineral Resources with an average grade of 0.121% U3O8 containing 16.8 million pounds of uranium."
In a call with Streetwise Reports, Chalmers went into greater detail, "When you're doing in situ recovery uranium projects, after you've mined an area you're required to clean up the aquifer where you were doing the mining. When you get sign-off, as we described in that press release, the state of Texas gave us approval to close out that mining area after we've plugged the wells and taken down the miscellaneous equipment."
Land clean-up work is another opportunity the company is pursuing. "The White Mesa Mill is located just a short distance away from the northern edge of the Navajo Nation, so it is the perfect facility to cost-effectively recycle low-grade ore from these sites and produce uranium that can be used for the generation of clean electricity," stated Chalmers, who added, "there are numerous other companies with reclamation obligations at abandoned uranium mine sites in the region, and the White Mesa Mill is the most rational facility to handle this material."
The company has been on the radar of analysts and industry observers.
ROTH Capital Partners analyst Joe Reagor noted on March 18, "With the recent actions of the U.S. government on trade, we believe the section 232 petition by the U.S. uranium producers has a significant chance of driving higher domestic uranium prices during 2018 and beyond."
"Even if [the petition] is unsuccessful, UUUU should benefit from rising uranium prices driven by significant production cuts across the industry. However, the company also has the potential to significantly increase production if the petition is successful," Reagor stated.
Analyst Brien Lundin, in the April issue of Gold Newsletter, noted that Energy Fuels is "a holding we'll keep for the long-term, as few companies are better positioned to quickly monetize higher uranium prices."
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Disclosure:
1) Jake Richardson compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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Disclosures from ROTH Capital Partners, Energy Fuels Inc., Company Note, Mar. 18, 2018
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures:
ROTH makes a market in shares of Energy Fuels Inc. and as such, buys and sells from customers on a principal basis.
Shares of Energy Fuels Inc. may not be eligible for sale in one or more states.
Shares of Energy Fuels Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.
Disclosures from Gold Newsletter, April 2018
The publisher and its affiliates, officers, directors and owner actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Authors of articles or special reports are sometimes compensated for their services.
