A Full on Uranium Bull Market?

by Gerardo Del Real

Gerardo Del Real


Editor’s Note: Uranium stocks continue to do well as the cycle continues to turn. And now it has bipartisan political support and is being looked to, rightfully, as one of the keys of a decarbonized energy future.

Readers of mine are seeing gains from several companies in the space, including Uranium Energy Corp. (NYSE: UEC).

With interest in uranium stocks picking up, I sat down with its President and CEO, Amir Adnani, for an update on the company and the sector.

Let's get it!
 

Gerardo Del Real

Gerardo Del Real
Editor, Resource Stock Digest



Gerardo Del Real
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Uranium Energy Corp (NYSE: UEC), Mr. Amir Adnani. Amir, how are you today?


Amir Adnani: Hey, Gerardo. I'm doing great. How are you doing?


Gerardo Del Real
Gerardo Del Real:  I am fantastic. Thank you for asking. The last time you and I spoke publicly, we talked about the green shoots in the uranium space. It now appears we are in the midst of the very early stages of a full on uranium bull market. UEC has done a brilliant job of bolstering its balance sheet. You now have over $110 million in cash, equity, and inventory holdings. So I would love to get your thoughts on the uranium space, of course. And then let's talk about UEC, and how you've positioned the company brilliantly to take advantage of this new bull cycle.


Amir Adnani: Well, I appreciate those comments and the sector is certainly benefiting from this megatrend, this global megatrend of electrification and decarbonization all at the same time. There's growing demand for electricity and certainly emission-free electricity generation. In the U.S. today, the largest source of carbon emission-free electricity generation is nuclear power.

It's also for the first time, the second largest source of electricity generation in total. And with all of that, you also have the fact that the White House clean energy mandate welcomes and includes nuclear power in its plan. Lay on top of all of that, the bipartisan support. For the first time in 48 years we're seeing the democratic party supporting nuclear energy.

So the stars have aligned and maybe it's an overused term, but the stars are and have aligned here. And I think this is really underpinning, Gerardo, the interest that we're seeing in the sector, because then you kind of flip to the other side, which is okay, this is great. This unprecedented support for nuclear power emerging from these mega trends that we just talked about.

So what does that mean for nuclear power? Well, nuclear power is seeing this growth where over 50 reactors have connected to the grid globally in the last six or seven years. And there's another 50 reactors or more under construction as we speak. And so then you have a real supply-demand profile you can look at. And the cumulative deficit between supply-demand over the next seven or eight years is over 300 million pounds.

And there just simply are not any flick the switch uranium mines to come online. There just isn't anything like that. Most uranium projects out there at the development stage are still going through permitting. Takes a long time to build new uranium mines. And so there really is this exciting setup emerging and unfolding in front of us.

And to bring it to your point about the physical uranium that Uranium Energy has been buying as a company, we're staring at these facts that I just outlined to you and we're looking at what it costs to mine uranium globally. And on a global basis, some of the best uranium mines were shut down over the last few years because they don't make money at $30 uranium. And so here we are with the uranium price hasn't yet fully recovered from the longest bear market of any commodity.

Uranium has been in this prolonged decade-long bear market. Today, at $30 uranium, we can buy uranium, drummed and put it in inventory below most  of the industry’s cost of mining. And so we embarked on this strategy to buy and store physical uranium. And really, we kind of looked at it as having a strategy that had multiple objectives behind it.

Again, it was taking advantage of spot prices that are below global industry mining costs. When you buy physical uranium and you put it on your balance sheet, it bolsters your balance sheet. It's a current asset. If, as a company we believe in rising uranium prices, then holding physical uranium in addition to cash, or in some cases instead of cash, is a valuable balance sheet asset.

It gives us strategic inventory. So when we're marketing to utilities and our production efforts as they ramp up, you can accelerate your cash flow if you have inventory on hand and you can sell from that inventory when you're marketing to utilities at a higher uranium price.

And finally, when you have Texas and Wyoming-based uranium operations like we do, and you and I have talked in the past about this emerging opportunity where the department of energy in the U.S. is going to look to buy $1.5 billion of newly mined U.S. origin uranium over the next decade, it gives us the flexibility to put aside our own production, to sell for those U.S. specific opportunities, which may command a premium.

Again, your utilities give you that added flexibility to decide where you might be able to get the best price for your actual U.S. production, right? So we've gotten our position, our physical uranium initiative has reached a point of now being 2.1 million pounds of uranium that we've contracted for at an average price of $30 per pound.

This is all U.S. warehouse uranium. So we're not maintaining this uranium all over the world. It's all on U.S. soil. So it also gives us that ability to really talk about UEC as the leading pure play American uranium producer, where the production capability that we have, the fully permitted projects that we have, are right here in the U.S. in Texas and Wyoming. They're fully licensed operations.

We have the largest inventory position of any pure play American uranium company with 2.1 million pounds of actual physical inventory that we've contracted for. And as you pointed out now, our balance sheet has grown to a very strong point where we have over $110 million in cash, equity, and inventory holdings. Then on top of all of that, we're aggressively developing the newest in-situ recovery uranium project in the United States. Our Burke Hollow project is right now being developed. In fact, we're the only company in the U.S. as we speak, that's actually drilling, doing development drilling on a new uranium project.


Gerardo Del Real
Gerardo Del Real: Amir, before I let you go, what do you say to those that say, "Look, UEC had a 52-week low of $0.73." I'm happy to say I encouraged subscribers to continue to buy despite the lows. You now trade at $2.88 a share, you have a 52-week high of $3.67 a share. What do you say to those that feel like they missed out on the profit cycle? Where do you think we are in this uranium bull market?


Amir Adnani: When you look at the 52-week low on UEC, it occurred around the exact same time that we had a very broad and unprecedented stock market sell-off. Those lows were in the context of a very broad, very severe stock market crash, which coincided with the COVID-19 initial wave of lockdowns in March, April, 2020.

Around the exact same time, if I go off the top of my head, Gerardo, we had roughly perhaps again, off the top of my head, $15 million in cash, and about $18 million in debt. Today, we have $110 million in cash equity and physical holdings, and have reduced our debt to $10 million. So adjusted for debt, today you have a company that has over $100 million of balance sheet strength, which it simply didn't have a year ago at that 52-week low.

Not to mention at the 52-week low, we had a much weaker, broader stock market. We also had a weaker uranium price. The uranium price has strengthened on the back of the macro points we talked about. And a year ago with the share price near a 52-week low, we had political uncertainty. Last year was an election year. It was unclear what the politics of the next four years were going to be. Where they're going to embrace nuclear power, where they're going to be good or bad for uranium.

What we have now is the clarity whereby there's this unprecedented bipartisan support for nuclear energy. The U.S. uranium reserve has now become a reality. It has been appropriated. That means it's been funded by The House and The Senate. We didn't have that a year ago and will now be implemented by the Department of Energy in the second half of the year where again, a company like ours that can mine uranium from U.S. sources can sell to the U.S. government over the next 10 years as they do their buying program.

This is the first time since the 1950s — you’d have to go back to the Eisenhower administration — where the U.S. government purchased uranium from U.S. sources. And we have this incredible support and appetite for nuclear power as part of the solution to decarbonize, meet the net zero carbon goals that companies and industries and countries are setting. And we simply didn't have these variables all aligned in such a powerful way a year ago. We do today. And I think there’s runway now to see a company like UEC with one of the strongest balance sheets in the sector, in the U.S., as truly the leading pure play American uranium company. We simply were not positioned like we are today, Gerardo, a year ago.

I think that's the big difference, in fact, not just in the share price but perhaps in terms of having even further clarity of upside. To me, there's greater visibility of that today than it would've been a year ago where there's just too many unknowns.


Gerardo Del Real
Gerardo Del Real: Well said, Amir, insightful as always. Thank you so much for your time today.


Amir Adnani: Thank you, Gerardo.


 


For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Resource Stock Digest, Junior Resource Monthly, and Junior Resource Trader. For more about Gerardo, check out his editor page.

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