Uranium Royalty Corp. (TSX-V: URC)(OTC: URCCF) CEO Scott Melbye On the Uranium Bull Market & How URC is Uniquely Positioned for Outstanding Gains
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of Uranium Royalty Corp. — Mr. Scott Melbye. Scott, I know you're busy but how are you?
Scott Melbye: Gerardo, it's great! It is busy in the uranium space but it's all very positive — so exciting times!
Gerardo Del Real: Well, you know how the space is. It's very cyclical. Nothing happens, and then it seems to all happen at once. It certainly is happening right now.
I want to talk about the supply agreement to acquire $10 million of physical uranium. But before we get into that news, I have to ask you about your recent testimony and how that went. We clearly have an outgoing administration that was very pro-nuclear. And it appears we have the new administration that also is very pro-nuclear.
How did things go on the Hill?
Scott Melbye: Yeah, it was very encouraging. For your listeners, I was asked to testify before the Senate Energy & Natural Resources Committee back in D.C. on Thursday of last week. And the topic of the hearing was, really, steps that can be taken to reassert American leadership in nuclear energy both at home and abroad.
And so I've been in this industry 36 years, and I've seen the whole spectrum of public opinion and political support. As you mentioned, I think we've always been part of a “Republican all of the above” energy strategy that includes nuclear, oil, gas, wind, and solar. So we've always seen our best support on that side of the aisle.
But I think this megatrend towards green energy, clean energy, and a realization that, I mean, we can't make a dent in carbon emissions if not for a significant commitment to nuclear energy. That is really beginning to sink in.
In a hearing like this – where you've got half the committee members being Democrat, half being Republican – ten to twenty years ago, you would expect a platform for anti-nuclear senators to get out and give you their thoughts on why they hate nuclear so much.
This time around, we saw none of that. Even those that might've leaned towards that kind of response were very muted and actually kind of supportive in terms of asking questions about how we get back to that leadership.
You also had Democrats like Joe Manchin come out absolutely 1,000% in support of maintaining the existing nuclear fleet in the United States – which is over 50% of our carbon-free energy – and advancing small modular and advanced reactors like those being built by Bill Gates and others that are really on the technological cutting edge.
And also support for the domestic fuel cycle, ensuring that we have uranium conversion and enrichment in the United States that can help meet our own needs here. But also be part of export initiatives into third countries who are wanting to buy American technology and small modular reactors.
So it was extremely positive; very encouraging. We're still finding our way in the Biden administration and this Congress. But we're quite optimistic that we fit in; clean, green nuclear energy fits in their energy vision going forward.
Gerardo Del Real: All of that bodes well for URC. The Biden administration just announced plans for a multi-trillion dollar infrastructure package that includes provisions for clean energy, of course.
And so… couldn't help but notice, Scott, that URC went ahead and exercised an option to acquire 10 million bucks of physical uranium at a time where the utilities seemingly are content to stay on the sidelines and pay up later on, which is typically what they do.
It's been really encouraging to see companies like URC take the initiative to not be on the sidelines and use healthy cash balances to come in and buy very near the bottom of the market, right?
Scott Melbye: Yeah, in our previous discussions, we've talked about just the broader nuts and bolts of supply and demand fundamentals and production really trailing consumption by very significant 40 to 60 million pound levels over the last four years. We've talked about demand getting back to pre-Fukushima levels, which is incredible.
We're generating more nuclear electricity today than we ever have. So that's all been great. But we've seen the uranium price still languish below the US$30 level in the spot market. And that's a far cry from the US$40 to US$50 that most of the world's most competitive mines need to restart or start up.
So we're very encouraged that in the last two to three weeks, we've seen buying activity come into the market, and it has come from the most surprising sources. It hasn't necessarily been the utilities or Cameco or some of these high profile buyers. It's come from other producers like Uranium Energy Corp. – our major shareholder – or URC going into the market and buying uranium at under US$30 a pound.
Why? We know very well what it takes to explore, discover, develop, and mine uranium and be able to deliver it in a drum to a conversion facility, which is the global marketplace where the utilities buy uranium from suppliers. We know what it takes to get it into the drum. And to be able to buy uranium for under US$30 a pound — that's essentially first quartile production costs globally.
And if the utilities are slow to wake up to that fact and jump in the market and start buying back at normal levels, you've basically seen a lot of other companies in the sector step in and do that. And it has really resulted in a uranium price rise of about US$2 to US$3 a pound in the spot market.
We're now up around the US$31 a pound level. So that's still a far cry from US$40. But it's headed in the right direction, and I think it could signal a very good year. We've said that the utility procurement cycle would come back to normal levels here shortly. And this could be a catalyst to encourage them to come back into the market.
Gerardo Del Real: I mentioned the balance sheet; I believe you have approximately, what, C$46 million in cash and listed securities?
Scott Melbye: Yeah.
Gerardo Del Real: Excellent! I also noticed you're using that balance sheet to acquire royalty interests. The most recent was McArthur River and Cigar Lake. I know that's in the works. Can you give us some details there?
Scott Melbye: Yeah, so for a young royalty company like ours to be able to acquire royalties on the world's two best and biggest uranium mines is quite significant. It would be like having a copper royalty on the Escondida Mine in Chile or a gold royalty on the Grasberg Mine in Indonesia.
These were really big achievements. And the royalties are on the French portion of those two world-class mines. But we didn't acquire the royalty from them directly or Cameco. It was from a third party, Reserve Oil & Minerals, that acquired those royalties back in the late-70s, early-80s being part of the early exploration efforts in the Saskatchewan Athabasca Basin.
We were able to acquire those for C$11.5 million in cash and shares. These are royalties on mines that are currently shut in; McArthur River due to market conditions and Cigar Lake due to COVID concerns. But these are also two mines that are probably the first to restart globally. So we understand the reasons for those being down, and, frankly, we support them.
But as we look forward, to have that kind of world-class mine and near-term cash-flowing assets for a young royalty company is very significant. Just back of the envelope in a US$55 uranium market – assuming these mines restart in a reasonable time – we will see C$6-$7 million a year in revenue from just these two royalties. So they're quite significant in terms of cash flow and certainly bring us a high profile.
That's certainly been noticed by the equities markets where we were already riding the positive wave of clean energy, green energy, and ESG investing in nuclear. But then, with the announcement of Cigar and McArthur, has really continued to push that share price up. And certainly, the acquisition of physical pounds and being able to hold those and give that exposure to our shareholders has also been very positive.
So I think today, I look at our share price; we're up at C$3.50 a share; market cap up to around C$250 million. So that's pretty good considering we IPOed at C$1.50 a unit, which was a common share and a warrant; the warrants are trading over a dollar today and the shares, as I mentioned, at C$3.50.
So we've got the right model as a royalty and streaming company in the right industry which is poised for a lot of development and need for investment capital. We can provide that through royalties and streams. And for investors, it's just a really great way to have diversified exposure in a pure commodity and not take on the individual risk of investing in a specific mining company or their specific assets.
Gerardo Del Real: You've had an incredibly productive Q1. Great way to start the year! What can we look forward to the rest of the year, Scott?
Scott Melbye: Yeah, we can't rest very long on our laurels. So we're already very active again, looking at the pipeline and the next deals. There's a lot of interesting projects. We're very keen on US ISR mines especially given the interest the US government has shown in the strategic uranium reserve.
We like the Athabasca Basin; we'd love to do more there. Africa, we have interest in Namibia; we'd like to do more particularly with Langer-Heinrich [uranium mine owned by Paladin Energy Ltd.] and these kinds of operations. And we still have yet to do anything in Australia so that would also be a good target for us.
So it will be a very busy year for us. Hopefully, with COVID travel restrictions lightening, we can get back on the plane and get out and get our feet on the ground and look at some of these projects and begin to invest in them.
Gerardo Del Real: Fantastic! Scott, can't wait to have you back on. Thanks again for your time. And again, congrats on all of the efficiencies and productivity. Great, great start to the year. Looking forward to the rest of it!
Scott Melbye: Great! Thanks, Gerardo. Take care.
Gerardo Del Real: You as well.
Scott Melbye: Bye.