Categories: Energy / Mining Stocks
Topics: General Energy / Uranium Stocks

Uranium Royalty Corp. (TSX: URC)(NASDAQ: UROY) CEO Scott Melbye on Strategic Positioning to Capitalize on Next Leg Up in Global Uranium Sector

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today for an overdue catch-up is the president & CEO of Uranium Royalty Corp. — Mr. Scott Melbye. Scott, it’s great to have you back on. It's been a bit. How are you sir?

Scott Melbye: Gerardo, it's always a pleasure to be on with you and especially right now to talk about uranium and nuclear power.

Gerardo Del Real: Well, let's start there. I want to talk URC in a second. I want to talk about the balance sheet. I want to talk about the first-mover advantage, the unique business model, and the really, really spectacular opportunity as we go into what I think is going to be a pretty historic uranium bull market. 

But before we do that, I want to talk about what I think is going to be that historic uranium bull market. What are your thoughts on uranium as a commodity and what are your thoughts on what comes next given the fundamentals and where everything stands today?

Scott Melbye: Yes, I don't think there's a better positioned commodity to invest in in the world today than uranium and for so many reasons. I’m just back from London where I attended the World Nuclear Association meetings where the entire global industry meets. 

The level of optimism and real concrete steps being taken to grow this industry… I mean, in terms of the forecasts of nuclear growth, the existing reactors, and those reactors that are being completed and being built, we're on track to essentially double nuclear generation by 2050, which means a doubling of uranium demand. 

But we've also set out — at COP28 and other forums — as an industry to triple nuclear power generation by that time. So that's an aspirational goal that might've sounded like a stretch when it was presented but I'm actually seeing us on track to double.

But we do need to do a lot of things on the permitting, licensing, and construction of reactors and also on the fuel cycle in terms of building the next generation of uranium mines, conversion facilities, and enrichment plants that'll support that kind of growth. And so, obviously, the demand side is great. 

Production of uranium is at a deficit to current demand, which we've been in that position for many years. We've talked about the structural deficit, which, in the past, really wasn't as critical because we had such extensive inventory and secondary supplies. So the gap was being met and moderated by the inventories. 

Well, in recent years, with production discipline and speculative buying from outfits like Sprott Physical Uranium Trust, Yellowcake, and others, we've effectively drawn down the excess inventories down to zero. It doesn't mean we have zero inventories but there's more or less zero excess inventories overhanging the market now.

We need production. And as you know, you don't flick a switch and bring on a mine overnight. So we’ve seen sort of the lower-hanging fruit moving forward. Uranium mines in the United States, which, interestingly, were licensed, permitted, and, in some cases, constructed — they've been some of the earlier movers. 

We've seen a mine in Australia move forward, a mine in Namibia move forward. We probably need five or six more new mines starting up and producing between now and 2030. And if they're not permitted, licensed, or built, or some of them require significant capital, we're in a bit of a supply squeeze.

I don't think any nuclear plants are going to go without fuel. But I do think that utilities that were more strategic and kind of locked down their supplies earlier in this phase are going to do a lot better than those that are coming to their contracting and procurement later in the game. And not to mention the fact that we have new entrants as well coming into the market.

So very exciting fundamentals. We need a lot of new uranium mines, and they'll need a lot of capital investment, which is where URC is positioned to be a capital provider for that growth.

Gerardo Del Real: Let's talk URC. Let's talk the unique business model. And let's talk about that balance sheet advantage that I think is going to be critical here to take advantage of the most profitable part of the cycle, which I think is coming. Tell me about URC and the business model for those that may not be familiar with it.

Scott Melbye: Yes, if you’ll recall, when we launched URC, we kind of modeled the company on the successful Franco-Nevada, Wheaton Precious Metals, Basin Precious Metals royalty and streaming model. 

We were still coming out of a pretty depressed uranium market. But that was also a huge opportunity for us to load up our inaugural portfolio with a lot of royalty and streaming assets, which, at the time, were not in production. But they were all acquired at less than 0.3 P/NAV. 

So where we're at now is with mines restarting and ramping back up their production. We have a number of our assets in our portfolio that are now cash-producing and cash-flowing or on the verge of cash-flowing.

So the portfolio is crystallizing into value. And we're a capital provider for new mine developments in competition with debt and equity. So we have a number of conversations and indicative offers and discussions underway with miners and developers to be part of their capital stack in the restart or startup of their operations. 

So really great timing. The existing portfolio is beginning to generate the cash flow we were expecting and will expect. And then, lots of new business opportunities to grow the portfolio bigger, which is a common trait of these royalty and streaming companies. They're really a growth platform.

Gerardo Del Real: When you look at the portfolio and you look at the combination of actually having physical uranium in there and having streams and having royalties, how do you prioritize the portfolio? How do you approach it moving forward into this next leg up?

Scott Melbye: Yes, it was no secret that when the mines in our portfolio were not in production, we wanted to incentivize and reward our early investors. So we deployed our cash at the time into physical uranium, really, off the bottom of the cycle. We bought a lot of US$20, US$30, US$40 uranium. Even today, we sit with about 2.7 million pounds of inventory at a cost basis of under US$60 per pound.

So that made sense in that phase, and it has created a bit of a warchest for us. We have over C$300 million in cash and liquid assets — mainly those physical uranium investments. That's our warchest to turn to cash to buy royalties and streams. And so over time, I think you'll see less focus on physical uranium other than we will have streams that kick off physical uranium for our benefit. 

But I think you'll see us turning physical uranium into cash to invest in royalties and streams going forward. And like I said, we are seeing a very target-rich environment right now in Africa, Australia, the United States, and Canada where a lot of new mines are needed. And hopefully, we can be a capital provider to some of those successful startups.

Gerardo Del Real: Well, it sounds like you and I will have plenty to chat about here in the coming months and years. Again, I think URC is one of the best positioned uranium companies for this next leg higher. Scott, thank you for your time. Anything to add to that?

Scott Melbye: No, just in terms of the existing portfolio, we've got McArthur River, Cigar Lake — and the Lance Mine in Wyoming starting up later this year. And Langer Heinrich has already restarted, and we're beginning to see cash flow payments. 

So expect about C$10 million in annual revenue within three years, C$20 million by the end of this decade. And by 2033, we should be at about C$50 million annually in revenue just from the existing portfolio with very little overhead in G&A. 

So that's the royalty and streaming model, and we're thrilled to be applying it in the uranium space, which has never looked better.

Gerardo Del Real: Great stuff. Scott, thanks again for your time today.

Scott Melbye: Thank you. Take care. 

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