Miami, FL – January 23, 2019 (EmergingGrowth.com NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on Energy Fuels, Inc. (NYSE: UUUU).
As the global energy demand continues to ramp according to the U.S Energy Information Administration (EIA), energy investors should be prepared to capitalize on this trend by investing in high quality companies in the space.
(Source: EIA)
However, with the sheer number of opportunities available in the sector, investors should be aware that not all energy stocks are created equal and therefore take a cautious approach when picking the stocks to put in their portfolio.
From our perspective, Energy Fuels Inc. (NYSE: UUUU)is a great example of a growingly exceptional energy stock that has been flying under the radar of most investors and appears undervalued.
Being the largest North American uranium (U3O8) producer, Energy Fuels presents a unique investment in an uncrowded space that is set to benefit from increasing adoption of clean energy.
Given that 2016 and 2017 weren’t good years for uranium, (the key fuel in nuclear reactors) after spot prices declined by 42 percent and 8 percent respectively, it is understandable that most investors chose to give this niche a wide berth.
But if the upswing experienced in 2018 is anything to go by, this could be the signal for investors to shore up their positions in uranium stocks going into 2019.
Background:
Energy Fuels owns the Nichols Ranch Uranium Recovery Facility in Wyoming, which is one of the newest uranium recovery facilities operating in the United States, and the Alta Mesa Project in Texas, which is a fully-permitted ISR production facility.
In addition to this, the company owns the White Mesa Mill in Utah, which is the only conventional uranium recovery facility operating in the United States. The company is also the only primary vanadium (V2O5) producer in the U.S which is a by-product of its uranium production from some of its mines on the Colorado Plateau.
In 2017, the Nichols Ranch facility produced 259,000 pounds of uranium, operating well below its annual licensed capacity of 2 million pounds while the Alta Mesa ISR facility is reported to have produced approximately 4.6 million pounds from 2005 to 2013. Although the facility has an annual licensed capacity of 1.5 million pounds, it is currently on standby as a result of excess supply.
The White Mesa mill has an annual licensed capacity of more than 8 million pounds. Last year, the facility produced 366,000 pounds of uranium and processed another 946,000 pounds for a third party.
To sum it all up, according to published EIA data, the U.S. produced 2.42 million pounds of uranium in 2017, including 1.47 million pounds of mine production and 0.95 million pounds of previously mined production which was reprocessed at Energy Fuels’ White Mesa mill, highlighting the company’s strategic position in the market.
Production cuts
A number of pundits have weighed in on the discussion about the future of uranium with widely differing views. What they are all in agreement about, is that approximately seven years of oversupply from the world’s largest uranium miners in Kazakhstan and Canada were responsible for the precipitous drop in prices from 2007 highs of $136 per pound to the $28 per pound as at December 1.
According to uranium price data publisher TradeTech, world uranium requirements continue to exceed primary mine production, with the gap being bridged by secondary supplies and excess uranium inventories in various forms that have already been mined.
One of the main reasons attributed to the supply glut is that more and more countries have been moving to reduce their dependence on nuclear power, opting instead for renewable energy sources such as wind and solar which are easier to install and maintain.
It was therefore inevitable that production cuts would come into effect in order to cushion the sector from plunging prices. To a great extent, this move contributed to an uptick in uranium spot prices and we expect that additional cuts will occur in 2019.
Some of the most notable cuts include: Kazakhstan’s state-owned uranium mining enterprise, Kazatomprom, which announced production cuts amounting to a total of 28.6 million pounds of uranium from 2018 to 2020.
In November 2017, Cameco Corporation (NYSE: CCJ)announced that it was temporarily suspending productionfrom its McArthur River and Key Lake project for 10 months, which are among the largest and lowest cost uranium production facilities in the world. According to Royal Bank of Canada, this is expected to remove 17-18 million pounds of uranium production during 2018.
In late November, Rio Tinto (NYSE: RIO)also revealed that it would be selling its entire stakein Rössing mine in Namibia to China National Uranium Corp Ltd for up to $106.5 million which would cut approximately 4 million pounds per year and will also be halting all production in its Ranger facility in Australia by 2021 effectively cutting off about 6 million pounds per year.
Near-term catalysts
The spot and term prices of uranium were negatively impacted by the accident at the Fukushima Daiichi Nuclear Plant in March 2011. The events at Fukushima triggered heightened concerns regarding the safety of nuclear plants and led to both temporary and permanent closures of nuclear plants around the world.
Although this catastrophic event created downward pressure on uranium prices over the past seven years, it appears that that we are at an inflection point as reactor restarts will be a major catalyst for both uranium prices and Energy Fuels’ stock.Japan has restarted 9 reactors while 15 more have been approved for restart or are under review which reaffirms the country’s goal of 20 – 22 percent nuclear energy by 2030 which bodes well for the future of uranium prices.
According to the World Nuclear Association (WNA), as of January 2018, there were 453 operable nuclear reactors world-wide, which required approximately 169 million pounds of uranium fuel in 2017 at full operation. Worldwide there are currently 55 new reactors under construction with an additional 152 reactors on order or in the planning stage, and another 335 which have been proposed.
At the moment, the world continues to require more uranium than it produces from primary extraction, largely due to increasing demands in Asia.China has been pursuing an aggressive nuclear program, with 38 units now operating, 20 new units under construction, 39 units which are planned, and 143 units that have been proposed, according to January 2018 WNA data.
Another important catalyst is the fact that the Trump administration is highly supportive of nuclear energy and domestic mining. Most recent data reveals that the United States currently has 99 operating reactors, two reactors under construction, and another 35 reactors on order, planned or proposed. According to the EIA, U.S. utilities purchased approximately 56.5 million pounds of uranium in 2016.
Bearing this in mind, on January 16, 2018, Energy Fuels and Ur-Energy announced that they had jointly filed a petition for Relief with the U.S. Department of Commerce (DOC) under Section 232 of the Trade Expansion Act of 1962 (as amended) from Imports of Uranium Products that Threaten U.S. National Security.
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 petition seeks remedies which will set a quota to limit imports of uranium into the U.S., effectively reserving 25 percent of the U.S. nuclear market for U.S. uranium production which translates to up to 12 million pounds.
Additionally, the petition suggests 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 DOC will have a maximum of 270 days to prepare a report and recommendation to the President while the President will have a maximum of 90 days to effect the recommendations.
Lastly, the company was recently added to the to the Russell 3000 Index and Mark S. Chalmers, President and CEO stated: “Energy Fuels is pleased to join the broad-market Russell 3000 Index®, which we believe will further increase the Company’s visibility and exposure to key institutional investors.”
Balance sheet and valuation
Despite the fact that Energy Fuels has been loss making over the past couple of quarters, it has a relatively solid balance sheet. With free cash flow being positive and growing by 41.4 percent per year,Energy Fuels has sufficient cash runway for more than 3 years if it maintains the current free cash flow level. The company had $51.3 million of working capital, including $14.8 million in cash, $27.2 million in marketable securities as at September 30, 2018.
Energy Fuels also paid off the $9.2 million Wyoming Industrial Bond balance, leaving the company with total current assets amounting to $59.2 million compared current liabilities of just under $8 million.
The company has about 91 million shares outstanding with a market capitalization of around $258 million which seems undervalued compared to its peer Cameco. Factoring reserves, Cameco’s market cap per pound stands at $5.02 compared to Energy Fuel’s $3.05 which would imply 60 percent upside potential at the formers reserve valuation.
Noble Financial reaffirmed a “buy” rating on shares of Energy Fuels while analysts at HC Wainwright set a $5.00 price target on the company giving it a “buy” rating which is in line with our assumption above.
Conclusion
The main takeaway here for investors should be that Energy Fuels is strategically positioned in this recovering uranium market.
With strong near term catalysts such as the section 232 petition, which would mean that U.S.-origin uranium could be worth considerably more and also guarantee the company’s uranium demand in the U.S, the current price level of $3 offers a great entry point for potential long-term shareholders.
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