U.S. legislation on the table to reduce foreign dependency
As the US struggles to finalize their new uranium funding to build a significant US uranium reserve using the previously announced US$150 million U.S. uranium reserve program, two new Acts have recently gone to US legislators.
On July 29, 2020, legislation was introduced in the House of Representatives by Representatives Cheney and Latta to establish a National Uranium Reserve. Then on July 30, 2020, U.S. Senator Barrasso, Chairman of the Senate Committee on Environment and Public Works, introduced the American Nuclear Infrastructure Act of 2020. Among other items, it includes the authorization to create a uranium reserve to fuel America’s nuclear reactors with domestic fuel and bolster America’s uranium industry.
The last 4 years of low uranium prices has led to significant uranium supply destruction to the point where demand for new uranium will likely put a floor on uranium prices and keep them from falling back again. The uranium miners who survived stand to benefit as the cycle turns positive.
Uranium prices from 1989 to today – Currently at USD 32.25
Source: Trading Economics
Today I look at one US uranium miner who is well placed to prosper.
Ur‐Energy Inc. (NYSE: URG | TSX: URE) is one of only two primary US uranium producers still operating able to bring on new uranium supply with a globally competitive cost of production. Ur-Energy’s flagship project is the Lost Creek Property in Wyoming. They also have several other uranium projects including Shirley Basin and Lost Soldier.
There are two key aspects investors should know about Ur-Energy:
- They already have a competitive cost of uranium production and a large and growing uranium reserve/inventory.
- They have the ability to rapidly expand uranium production if needed.
Ur-Energy continues to build up their uranium inventory ready for anticipated US Reserve purchases
In Q2, 2020 Ur-Energy produced 4,119 pounds of U3O8 at the Lost Creek plant, of which 2,892 pounds of U3O8 were packaged in drums. Inventory at the converter totaled approximately 268,552 pounds at June 30, 2020. In 2020 Q2, Ur-Energy sold 167,000 purchased pounds under a term contract at an average price of $41.50 per pound. The 167,000 pounds were purchased at a weighted average cost of $26.01 per pound. There were no sales of produced inventory in the first six months and we do not anticipate any sales of produced inventory in 2020.
Ur-Energy has the ability to quickly expand their uranium production from Lost Creek
Ur-Energy is prepared to rapidly expand uranium production at Lost Creek, to an annualized run rate of one million pounds. They can also bring on their other projects, albeit with a time lag.
For investors new to Ur-Energy, what is happening here is that the Company is building up their inventory of uranium, while still meeting their long term contracts. This inventory would be perfectly suited to sell to a US uranium reserve if and when purchases begin, ideally at higher prices.
Drilling for uranium at Ur-Energy’s Lost Creek Property
On August 5, 2020 Ur-Energy stated in their Q2, 2020 earning release:
“Following multiple announcements of industry production suspensions and reductions earlier this year, U3O8 spot prices increased nearly 33 percent to $33 per pound in June. U3O8 spot prices have traded between $32 and $34 per pound since April. The production cuts amount to as much as 46 million pounds of primary production on an annualized basis and are expected to widen the supply deficit as global demand continues to grow.”
Ur-Energy also stated:
“In July 2020, Energy Secretary Brouillette told the House Energy and Commerce Subcommittee on Energy that DOE is working to end U.S. reliance on Russia for nuclear fuel. DOE wants to process American-sourced uranium into high-grade fuel at the DOE facility in Portsmouth, Ohio next year. Centrifuges have been moved from DOE’s Oak Ridge laboratories to Portsmouth. Additionally, DOE is working with lawmakers to authorize the creation of the uranium reserve.”
Closing observations
The US uranium miners can see the light at the end of the tunnel, even if they are not there yet. The US government continues to progress – if slowly – towards establishing a secure uranium supply. Two new Acts have helped build pressure on the U.S. House Committee on Appropriations who are yet to allocate the Department of Energy’s previously recommended US$150m of funds.
Meanwhile the global uranium supply destruction has pushed uranium prices higher, and in time the US government will surely finalize and release the funding for the proposed US uranium reserve.
The game of patience continues for investors, and leading US uranium companies such as Ur-Energy remain on hold and attractively valued due to the uncertainty. Just remember, patience is a virtue.
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