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Uranium Energy Corp
Back over on the Beginners Guide to Fundmental Analysis, Maurice proposed some valuations on a couple of UEC’s properties. I figured it would be much easier to start a group and have multiple company studies going on with multiple threads rather than trying to cram them all onto one thread.
Maurice, if you want to propose your starting valuations here, I’ll be happy to participate and maybe we could get others to join in as well.
Thanks
Matt, thank you for the opportunity. I would like to begin with stating the following presents an optionality opportunity. What is optionality? In simple terms, it is buying something on a discount that isn’t productive or lucrative at current prices of a said resource. For example, a fiscally sound company with proven management may have excess capital in the treasury. The said company seeks investment opportunities on properties from less successful companies that may have large deposit but average grade or even high grades but the depth to extract from the ground wouldn’t allow the company to continue to pursue the endeavor because its revenues could not exceed all in sustaining costs (produce a profit) forcing the company to default or liquidated its assets. TBut wait there’s more! The gaining company may acquire more than just the ore deposit, but the intellectual capital and permitting process, 43-101 reporting, massive capital expenditures all because the spot price needed to be 30% higher. This is germane to the events today because we are coming out of bear cycle during a secular bull market for the last 4-5 years. So what we are attempting to identify are the proven management that can procure these deposits/opportunities at a significant discount (like a foreclosed home in a great neighborhood) and just sit idle and when the market conditions return favorable deploy the assets full steam ahead resulting in massive profits for shareholders! ! !
That’s a great definition you gave on optionality plays, Maurice. It makes perfect sense for a company with the means, like UEC, to acquire uneconomic deposits for pennies on the dollar with the anticipation of exploiting them at a later date when the uranium price rises sufficiently to make them economic again.
I believe the market is usually forward-looking in that it will value the net present value of these projects based on the prevailing commodity price at the time. This is why it’s so important to understand things like supply-demand fundamentals and inventory levels in whatever commodity we are discussing.
In the case of the Anderson project, you stated that using a 10% discount rate, the after tax NPV with a $65 uranium price would be $101 million. If we were to look at the spot price of uranium today at around $26 per pound, the project would have a negative net present value. Knowing that the Anderson project could potentially generate a NPV of $101 million with a $65 price of uranium leads me to believe that, based on the market cap of the company which is currently $110 million, the market is placing only a fractional value on their multiple in situ deposits, processing facility, Anderson Project, Slick Rock Project, and their excellent management team. So if you were to purchase the shares now, you would get all of those assets and management team for a fraction of what they would be worth if the uranium price went form $26 to $65, which is what it costs the industry to make the stuff.
From a balance sheet point of view, they do have some debt of $20 million to deal with however they do not have to make principle payments on this debt until 2019.
It also appears that they’ve been diluting shareholders on a yearly basis as they wait for a rebound in the uranium price. This dilution doesn’t seem to be excessive but it is something to watch, since we don’t know exactly when and for how long it will take the uranium price to recover.
Overall I think the whole company of UEC could be looked at like a leveraged call option on the price of uranium that only expires when you either lose the patience or have a better time value investment presented to you now rather than later. All in all, it’s a great company and it would be very interesting to break down the value of each and every in situ deposit, processing facility, and the couple of deposits they have PEA’s on to come up with some future valuations based on a higher uranium price.
UEC will be very tricky from a valuation standpoint.
Traditionally, in jinior cases like this, we create an asset valuation matrix, one property model using the current commodity price to establish net present value, and another at te ” incentive price” ( the global industry median cost per unit of production, including amortization, depreciation, and cost of capital).
Intangibles to consider here will include liquidity and the very low cost of capital.
I must lead from a distance on this one, we are the senior , secured creditor.
Perhaps we want to do a ” shark tank” styled public workshop with them?
I thought it would be tricky to value UEC, considering the various in situ deposits they own. It appears that a couple of these deposits have only been categorized as inferred resources and still some of them haven’t yet been explored completely. Given the low level of confidence in an inferred resource, it must be difficult to place a hard value on what’s in the ground.
That would be awesome if we could get UEC to do a public style Shark Tank. I’m sure we could all learn a great deal.
I was a shareholder in UEC for a while and luckily got out at a profit. After looking into uranium further I found Energy Fuels Inc. Highly recommended by Brien Lundin, Brent Cook, Steve Saville. Trades for less than book and has both kinds of production.
I found UEC had too much debt and less assets. However I like Amir heading up the company.
I think Uranium is going to a big one over the next few years and with the precious metals up and mining stocks, I consider uranium the best buy in terms of value. Maybe oil is a close second!
Alan, agreed! I prefer Energy Fuels over UEC as a quality uranium play. They have production, wider range of assets, better balance sheet etc. I have my wife in Energy Fuels but have myself in both UEC and Energy Fuels because I think UEC provides more leverage but at a much higher risk (no production, high G&A etc). Between the two I’m 65% UEC, 35% UUUU but I’m adding to UUUU.
I have been buying UEC since Apr 2014, with a few buys and sells along the way, and currently stand at 3,800 shares. I’ve started moving profits from AG, FFMGF, BCEKF and others into uranium stocks; UEC UUUU and PALAY. When I started buying mining stocks, I had less money to invest than I do now so with the uranium bull market and the gold/silver market as well, this will be a very great time!
Toby, great to hear. I am ecstatic about the value proposition in the entire natural resource space, but I believe you’re onto something. My favorite uranium plays are Fission, Denison, and UEC. Sticking to the subject of UEC, what might be shocking to everyone in this forum is that UEC made a phenominal acquisition this year in Paraguay that is not related to uranium! ! ! More to follow, as I work on providing the numbers to you.
Maurice
In regards to Fission and Dennison, I’ve noticed that event in the down uranium market, exploration plays have been able to achieve strong valuations, eg: Fission @ US$256M & Dennison US$296M.
When I think of the gold market, exploration plays have and will continue to outperform. But in a rising Uranium pricing environment, I’m torn wondering if the exploration plays or the near term producers provide the best upside opportunity. In the silver space this year, First Majestic has been able to outperformed because it was able to ‘immediately’ capitalize on the rise in the commodity price. If the same holds true in the coming Uranium bull market, I’m drawn to UEC and Energy Fuels as they will both be able to bring on production quickly and thus I assume see similar share price movement to First Majestic.
Although my heart draws me to the exploration plays, my head is telling me the near term producers will give the best price leverage, at least in the short term.
What do you (and others) think about uranium exploration plays vs. near term production plays?
I believe both will move very, very aggressively. Fission and Denison provide great arbitrage opportunities via M&A, and UEC’s AISC is $27. As the non sector/retail investors will come in too late. If you are patient you will be rewarded handsomely. What would really excite in this sector is lower volume, meaning no trading on some days. Why? Because this to me signals a bottom. This is a perfect contrarian play. It’s the other yellow metal. I certainly don’t want to see an M&A for Denison or Fission with a low spot price. Uranium won’t happen overnight, but when sun comes out there will be no clouds in the sky and it will be scorching hot! All 3 will remain and only be added onto in my portfolio. You may want to consider URPTF as well. I don’t own it, but at least consider.
My own belief, for what it is worth, is that Uranium prices will stay depressed for another couple of years. World wide economies are soft, reducing electricity demand, and delaying a Japanese reactor restart. Other forms of conventional energy feed stock, like Coal and natural gas are similarly cheap, putting pressure on all feed stock prices.
Excess Uranium inventories, In Germany, Japan, Korea and China are being worked off slowly.
And Kazakh production will likely plateau next year, worsening supply imbalances this year.
That said, I’m looking to deploy a lot of capital in the sector next summer.
The eventual upside is dramatic, with the industry average total cost of production ( including cost of capital, and adding back historical write offs) is in the US$60-65 per pound range.
My belief is that while price recovery may not be imminent, it is inevitable. I also believe that the last uranium bull market was so powerful, and so fresh in speculators minds, that a partial recovery in uranium prices could unleash an insane market response.
As a consequence, Sprott would like to be aggressively allocated in the sector, and own the discussion, by next summer.
I guess the question is one of capital allocation. I desperately want to put profits back into gold&silver stocks, and I am, but I know the money I made was not buying into hot markets but buying into depressed markets.
If you have cash burning a hole in your pocket, where do you put ‘today’?
Toby maybe this will be of assistancehttp://www.provenprobable.com/blog/maurice-jackson-say-it-aint-over/
Thanks Maurice. Checked this out yesterday, very impressive interviews you have!
And strategy wise I’ve done the same. Sold every single position at or above 100% gain and redeployed else where. Can’t seem to hold onto cash though… think that’s my problem.
Cash is good for the nerves. Gives you the tools and the courage to be brave when otrhers are afraid.
Where to put the cash? In your pocket Mr. Toby, for when you need it, because I guarantee you will
I agree with Rick, I’m not so much in the micro space anymore but am quite aware of the macro picture and that’s telling me there’s likely to be an economic slowdown here and those – obviously -are not good for energy prices, I’m long coal, natural gas at this time, I think uranium is a little bit of a dead market for the time coming for reasons Rick stated and for some other reasons too. As you know low prices cure low prices, especially in the commodity space, so the longer this market is in a semi dead state, the more vicious it’s comeback will be.
I think the macro picture will worsen from here on out and there’s potential for some very big concerns developing globally.
I truly do like the narrative surrounding uranium but for the market to really take off I think we’ll have to see some real economic growth and the like, but I think that’s likely to be worse than expected.
So what I’m doing here: just watching the URA ETF and U3O8 future & spot price every now and then to stay up 2 date.
Uranium’s time will come but it really could be quite some time off, but it certainly is a ‘when’ and not an ‘if’ event, as Rick often accurately describes it.
That’s my 2c
I’m in the same camp as Bart.
The macro picture for the global economy seems to be more dire than what most people believe. Global debt is no longer serviceable unless interest rates are near zero. In addition to that, global growth isn’t growing at a fast enough pace to grow our way out of the looming debt crisis. If this continues, my best guess is we will see a deflationary vortex suck the whole global economy down with it. This will destroy overpriced assets across the board and should present a great opportunity to contrarian investors.
Another scenario that could happen is that central bankers get what they wish for good and hard, which is a runaway inflation. This will cause already overpriced assets to sky rocket even further.
I think the latter scenario will eventually happen depending on how successful central bankers are in their massive global manipulations. If they temporarily fail in their schemes, we will see massive deflation. If they succeed, we will see massive inflation. But even if they fail temporarily, a crisis situation will present them the opportunity to succeed beyond their wildest dreams in inflating fiat currencies out of existence.
Right now, I’m hedging these scenarios by shorting the stock market (deflationary event) and holding hard assets (inflationary event).
As to uranium, it is trading at well below the average cost of production and I would think that now is a good time to buy companies with very low operational risk. I really like the Fission deposit. UEC doesn’t excite me as much because they really don’t have a quantifiable asset that is comparable to Fission’s.
A discussion of Fission versus UEC would be quite instructional.
I’m not going to conduct the whole discussion, but;
UEC has existing infrastructure, regulatory approval, rapidly scalable production in the near term
Fission has a very high grade discovery, sure to grow.
Take it away, great exercise.
Looking forward to tackling this discussion. Hopefully we can get everyone to participate. I’ll do some more research on these companies and report back.
On another note, I recently checked up on Dominion Diamond and noticed a few positive news releases, aside from the fire, about a share repurchase program and the board giving its approval to proceed with the Jay Project. Even with all this good news, the shares still seem to be depressed. Looks like a great buying opportunity.
I am still a little wet behind the ears when it comes to investing in Uranium, but I would like to participate in the UEC vs FCU discussion in some capacity. It would be a great learning experience for me. Matt, is there anything I can do to help add value to your UEC vs FCU thread?
Thanks Maurice! Maurice/Rick, a chart of UUUU or URA both show very flat or slightly rising trends. I’m not a technical analyst but do you think the bottom has been made and it’s sideways to up from here or is there more downside first?
That’s kinda of what I said :). Rick, I give full credit to you for introducing me to Uranium!
Did you guys see what energy fuels inc did?
Big learning experience for me. Even with the backing of quality people they can still give the finger to shareholders. They sold a nice private placement at 20% below the current market price with a nice half warrant for 5 years. A great deal for the new backers but a kick in the teeth for the old.
The market rewarded us all by dropping nearly 30%.
UEC is looking more interesting now!
Alan
You take a $50 proforma into a $25 world, and you have the holding costs on those assets, and you do what you have to do. Remember, in a capital intensive business, if you have no capital, you have no business.
Welcome to the family :), and most important thank you for sharing.
Rick,
Is Energy Fuels a company you’ll be looking to invest in next year?
I took a bit of the last placement. The reasonable warrant terms were sufficient inducement. Continuing increases in Kazack uranium production, reduced global economic growth ( which constrains Japanese electrical demand, and so postpones Japanese reactor restarts, and very low real global seaborne LNG p
prices suggest further softness in uranium prices. I suspect Sprott will enter the uranium space next summer in earnest, and I suspect we will be a year early.
Those of you who are Sprott clients look closely for a near term transaction though. There is an asset, and a new team, to cheap to ignore.
The new investment is an Australian junior called Deep Yellow, where we are backing Mr. John Borschoff in a uranium consolidation, optionality and beneficiation strategy.
The last time we backed Borschoff, about 15 years ago, the resultant vehicle ” Paladin” had an epic run, going from AU$.10 to AU$10. Not a typo, 10 cents to ten dollars, in six or so years.
Once again, please!
Rick,
Thanks for sharing. I still haven’t taken a position in a uranium company yet. Maybe this will be the first.
Rick. At your conference you mentioned that you were thinking of a Sprott Uranium conference in late 2017. Markin Katusa is also planning a special report on uranium to be released soon. I have a kind of theory that you guys are way to smart to research and promote your best ideas before taking a large position yourself. So are we close to launch for Uranium and, how heavily committed are you to the sector vs. how much you hope to commit?
P.S. Thanks for the mention of Deep Yellow. I’m going to guess I should have checked in sooner and purchased DYLLF instead of PALAY.
Long: UEC, UUUU, GVXXF, PALAY
I think we are in a head fake rally here. When I try to trime the market I’m usually wrong. I’d like to come to really understand tghe market between now and mid summer, allocate in late summer or fall, and harvest in 2019 and 2020. Who knows, maybe I’ll get it right this time. Last time I was three years early.
The stocks are rocking up, but the industry is in disarray, until the Japanese reactor fleet restarts.
Thanks Rick. You’re always so generous with your knowledge.
What’s your take on George Glasier and Western Uranium as a analog to Deep Yellow? Both have had success in the past. Are you backing both this time round?
I know George reasonably well, and obviously made money with him. I’m underwhelmed by the US assets, other than the Blanding mill.
I own some Western, but I likely will favor Deep Yellow. I’m leery about US permitting, particularly for the assets proximal to either the Navajo reserve, or the Grand Canyon Park. I’m also leery about small high grade operations.
My own preference is for much larger operations, even with the difficulties presented by the logistical challenges in Namibia, and the other African jurisdictions where Deep Yellow will focus.
It is worth repeating that I view all of the uranium stocks as being ahead of their valuations at this uranium price. I, and others who believe a price recovery in Uranium to be inevitable, have likely done too good a job talking about the eventual upside leverage, and to poor a job conditioning speculators for what might be a long wait.
Thanks Rick. It’s very tempting to buy more but I’ll try to restrain myself.
I really like Goviex in Africa and Deep Yellow looks like a good match up. As a credit analyst, do you think Paladin will make it? Is it a play?
I don’t have the guts to buy Paladin yet, even after the restructuring.
By the way, Deep Yellow is now way ahead of itself in price. Let it cool off, and finance.
Congratulations on the placement for the partnership. 500% in 3 months. Jeez.
Glad to see the share roll back. Buying on the OTC is impossible for retail. The stock is jumping up and down between $0.01, $.02 or $0.03 and some discount brokers only let you trade to two decimal places!! I’ve got bids at $0.01.
I know you’re not a fish market but will you share your valuation of the company today and at the incentive cost of U308?
Nexgen is a tier 1, world class discovery. I think it will liklely be developed alongside the Fission discovery, given their proximity and the extraordinary remoteness of this emerging uranium camp. Shareholders will ultimately be rewarded, but it could easily take ten years to be developed.
Timing will be a function of scale.One of the ” big boys” will have to own this camp, the question is when.
The recently announced UEC financing was very successful. In excess of C$70mm in indicated interest, for a C$10mm raise, upsized to C$25mm.
Great marketing work by Amir Adnani and his team, great support and leadership from Marin Katusa.
My own beliefe is that the uranium equities are ahead of themselves, and WAY ahead of the physical markets. Traders long these positions may consider reducing positions into strength, and looking to re position if they equities soften in response to current weakness in the physical market.
Rick in relation to your advice regarding a preference for large mines “everything that can go wrong with a big mine can go wrong in a small mine but a small mine can never make you big money” do you class uec as having big mine potential ?? The company proven resources in my view fall well short of other junior uranium plays. I’d welcome your take on where uec would be placed in terms of mine size in your view,
In relation to fission uranium are there any shareholders within this forum that are concerned with the majority of the current resource being under a substantial amount of water?
Our operating assumptions are that UEC can, with reasonable capital expenditures, be a 4,000,000 lb producer, at US$60 yellowcake. That is $240,000,000 per annum. The question now is satellite deposits.
As to Fission, the deposit is expanding in both directions, and Canada’s diamond industry has shown that diking is feasible. We need more critical mass in this remote region, hence the ongoing success enjoyed by Nexgen, and the recent discovery by Skyharbour are very encouraging. Note that none of them get built at this uranium price.
Great recent roundtable interview with Mr Friedland on risk….a must watch. One of the most informative I’ve seen!
My favorite bit was the discussion on Friedland’s company Clean Teq. The very thought of having Elon Musk come and ask to buy, and Robert seems to be inferring that he may have to beg, for his product is incredible. I love the clean energy space, love tesla and elon musk (not a share holder) and getting into the supply chain here is very attractive to me.
Anyone here that has taken a hard look at Clean Teq? Anything to share?
