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Uranium – Is It A Dead Market?

Uranium is a chemical element with the symbol U and atomic number 92. Uranium-238 is the most common isotope which means it has the same chemical properties and atomic number but differs in mass. Isotopes have the same number of protons and electrons, but a different number of neutrons. Uranium-238 has 146 neutrons while Uranium-235 has 143 neutrons.

Uranium-238 can undergo a conversion into plutonium-239, a fissionable material that is fuel in nuclear reactors. One kilogram of uranium can produce as much energy as 1500 tons of coal. It takes as little as 15 pounds of uranium-235 to make an atomic bomb. Aside from the military use in nuclear weapons and civil applications in nuclear power plants, uranium, and its various isotopes have a myriad of industrial and medical applications.

Uranium is a metal and a commodity. While it does not trade with the same volume and interest as other metals like gold and copper, the NYMEX division of the CME offers uranium futures that have limited liquidity. Energy Fuels, Inc. (UUUU) is a company that extracts, recovers, explores for and sells uranium in the United States. The company also produces vanadium, another chemical element that is an ingredient in alloy steels. Vanadium prices rose to record highs in 2018 but have since come back down to earth.

The price of Uranium has been falling for a dozen years

The price path of uranium has been in a bear market since reaching a high at $148 per pound in May 2007.


Source: CQG

As the chart highlights, the price of uranium futures that trade on the NYMEX division of the CME moved to a low at only $17.50 per pound in late 2016. Since then, they recovered to a high at $29.80 last December and were at the $28.80 level as of Monday, February 25. While uranium futures are $11.30 or 64.6% above the low, they remain $119.20 or 75.8% below the 2007 peak. The percentage losses and gains mask the price destruction in the uranium market over the past dozen years.

Kazakhstan is the top producer

The world’s leading producer of uranium is Kazakhstan which is the home to 12% of all reserves on the earth. The country has 17 uranium mines and 50 deposits across six provinces. Recently, Kazakhstan produced 23,800 tons which is over 39% of the global output of the element.

Canada is the world’s second leading producer with around 13,000 tons of output, followed by Australia which produces over 5,000 tons each year. The African nations of Niger and Namibia together with the Russians all produce between 3,000 and 4,000 tons of uranium each year. Uzbekistan’s output is over 2,000 tons while China, the US, Ukraine, and South Africa all have production levels that exceed 1,000 tons per annum.

Australia holds the largest stockpile

When it comes to reserves of uranium, countries like China and Russia view their strategic stockpiles and reserves as a state secret given the sensitive nature of the data. According to published statistics, Australia holds the world’s leading uranium stockpiles with over 30% of the world’s recoverable reserves. Kazakhstan is second followed by Russia, Canada, South Africa, Niger, Namibia, and Canada. While there are reserves in the US, the country is not in the top ten when it comes to the amount of uranium in the crust of the earth.

Energy Fuels produces uranium and vanadium, and the stock has declined dramatically since 2007

The corporate profile for Energy Fuels, Inc. states:

Energy Fuels, Inc., together with its subsidiaries, engages in the extraction, recovery, exploration, and sale of uranium in the United States. It operates in two segments, Conventional Uranium and ISR Uranium. The company owns and operates the Nichols Ranch uranium recovery facility located in Wyoming; the Alta Mesa project located in Texas; and the White Mesa Mill located in Utah. It also holds interests in uranium and uranium/vanadium properties and projects in various stages of exploration, permitting, and evaluation located in Utah, Wyoming, Arizona, New Mexico, and Colorado. The company was formerly known as Volcanic Metals Exploration Inc. and changed its name to Energy Fuels Inc. in May 2006. Energy Fuels Inc. was incorporated in 1987 and is headquartered in Lakewood, Colo.

As a producer of both uranium and vanadium, the stock tanked since the price of uranium fell from its peak in 2007.


Source: Barchart

As the chart illustrates, UUUU fell from a high at $240.22 per share in 2007 to a low at $1.29 in 2016 and 2017 where there is a double bottom at over 99.4% below its peak. In December 2018 the stock made a bit of a comeback, rising to a high at $4.09 per share. While the rally was impressive given the low, it still only traded to a small fraction of its price in 2007.

One of the primary factors that lifted the price of UUUU stock at the end of last year was the price action in the vanadium market.


Source: Vanadium Price

As the charts show, the price of vanadium in many forms rose to what was the highest price in decades in 2018 which likely supported gains in UUUU shares.

UUUU was trading on February 25 at $3.05 per share close to the middle of its trading range since 2017. The company has a market cap of $273.516 million, trades just under 950,000 shares on average each day and pays no dividend. However, the company is a significant uranium producer in the US and the only company with vanadium output. Vanadium is used in steel, titanium and other alloys and has a myriad of defense applications. At $3 per share, UUUU could be a call option on the uranium and vanadium markets without an expiration date.

Uranium could make a significant comeback

The demand for uranium could grow over the coming years as demand for new nuclear reactors in China, Russia, and India increases. At the last party conference in Beijing, President Xi pledged policies that would fight pollution in his nation. Nuclear power plants have a checkered past after the tragedies in Japan, Chernobyl, and Three-mile Island. However, the growing demand for clean power from the two most populous nations in the world, China and India, means that demand for uranium is likely to rise.

In the United States, less dependence on foreign energy supplies could lead to support for an increase of US domestic production which would favor companies like UUUU.

The price of uranium may be less than one-fifth what it was in 2007, but that could be an opportunity given the growing population in the world and the ever-rising demand for energy and cleaner fuels. An increase in nuclear energy plants and a world obsessed with weapons of mass destruction tell us that companies like UUUU could see an increase in the demand and prices for their production. The company has also increased its output of vanadium pentoxide (V205) to 175,000 to 200,000 pound per month and plans to reach full production of 200,000 to 225,000 pounds by the end of the first quarter of this year. While UUUU grew their output, the purity level of V205 has also increased.

The uranium market is far from dead at the current price level, and vanadium demand is growing around the globe. UUUU is an inexpensive stock that could have lots of upside potential if the company continues to carve out its franchise in US production of both elements over the coming months and years. At $3.05 per share, UUUU has the potential to double in value from its current price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Source: Seeking Alpha