Over the last two years, Uranium Energy (NYSE-AM: UEC) has taken advantage of the downturn in uranium markets and acquired uranium projects in the Powder River basin of Wyoming, Canada’s Athabasca basin and Paraguay. “When prices are falling you can pull your horns in and sit on your hands, but we’ve been very active,” says Scott Melbye, UEC’s vice-president corporate development.
At the same time it was picking up new assets and consolidating land packages, it shut down its Palangana in-situ recovery (ISR) mine and Hobson ISR processing plant in Texas, a strategy it says is prudent at a time when the uranium industry is so troubled.
“We feel it’s a waste of resources, both financial and mineral, to try to produce in a market that is giving signals it doesn’t need production,” Melbye says. “It was a market-driven decision to ramp down production and preserve the assets in the ground for a better market when the production is not adding to oversupply and valued more appropriately.”
Now, he says, signs are beginning to emerge that a better market may be just around the corner, with production cuts at Cameco (TSX: CCO; NYSE: CC) and in Kazakhstan helping to rebalance the industry after a seven-year bear market triggered by the Fukushima nuclear disaster in Japan in 2011.
Uranium Energy’s Palangana ISR uranium mine, which is on care and maintenance, in south Texas. Credit: Uranium Energy.
“We’re seeing early innings of a price recovery,” he says. “We’re up 34% on the spot market from a low of US$17.75 per lb. in November 2016 … and it’s really happening on the market fundamentals, and that’s just demand.”
Despite all the challenges Fukushima presented the industry, he says, “we are building more reactors around the world than we ever have and generation from nuclear energy has reached a nice threshold, where we’re now producing more electricity from nuclear energy than we were at the time of Fukushima.”
He says positive catalysts for the sector include a new procurement cycle for utilities, as many of the eight- to 10-year contracts that have met their needs since the last bull cycle are starting to roll off.
For now, many utilities in the U.S. are waiting to see what happens with the U.S. Department of Commerce’s Section 232 investigation into uranium imports.
Earlier this year the DOC started the investigation after two mining companies — Ur-Energy (TSX: URE) and Energy Fuels (TSX: EFR) — petitioned the agency to implement a 25% domestic purchase quota limiting imports.
“With that investigation underway and a presidential decision in July, a lot of utilities that would have contracted by now are sitting on the sidelines to see what happens,” Melbye says. “We have a big procurement cycle that is set to resume, but hasn’t happened yet.”
In the meantime, he sees investor interest picking up and more “buzz” around the commodity at industry conferences. “Whether it’s big hedge funds or institutions or retail investors, the interest is encouraging for us,” he says. “There was a lot of money made in the space in 2007–2010, but a lot of investment went away in the downturn and is now coming back, so it should be an interesting year.”
Uranium Energy says it can ready its Pelangana ISR mine in Texas to coincide with any improvement in the sector, and lower the lag time to restart when prices improve.
“Unlike a conventional mine that might be put in a ‘mothballed’ state, we maintain the Palangana and Hobs operations pretty much in a ‘hot standby’ to ramp back up as needed,” Melbye says.
The production area at Uranium Energy’s Palangana ISR uranium project in south Texas. Credit: Uranium Energy.
At the same time, management continues to advance production permitting for its Burke Hollow project, which along with its fully permitted Goliad project, will one day feed ore to the central Hobson ISR processing plant, 60 km northwest of Corpus Christi. Burke Hollow and Goliad are 80 km and 69 km away from the Hobson plant.
“As a producer we’ve made all the right calls during the downturn, and want to make sure we’re ready to start producing and generating cash flow, and not be spinning our wheels to get permitted once uranium prices turn around.”
In northeastern Wyoming, meanwhile, it has been busy developing Reno Creek, its fully permitted, pre-construction ISR project in the Powder River basin.
In May 2018, the company completed its purchase of the North Reno Creek project from Uranerz Energy, a wholly owned subsidiary of Energy Fuels.
The North Reno project is adjacent to (and within) the company’s Reno Creek project permitting boundary, and consolidates the company’s land and resource base in the region.
Today Uranium Energy controls one of the largest, fully permitted and unhedged ISR portfolios in the U.S., management says.
In January, the company updated the resource on the consolidated Reno Creek project, reporting measured and indicated resources of 32 million tonnes grading 0.041% U3O8 for 26 million contained lb. U3O8, and an inferred resource of 1.92 million tonnes averaging 0.039% for 1.49 million lb. U3O8.
It initially bought the fully permitted Reno Creek project in May 2017 from Pacific Road Resources Funds, which received all of the required permits for the project in seven years.
“We have amassed the largest developed and permitted ISR project in the U.S. — just under 28 million lb. resources — which really differentiates this project from just about anything else out there,” Melbye says, adding that it helps the junior respond quickly to any upturn in the uranium market.
The company plans to complete a feasibility study on Reno Creek before the end of 2019. The study will look at processing options for the 2 million lb. U3O8 it is permitted to mine each year, either by toll milling or building its own processing plant.
The Powder River basin is home to five ISR uranium mining operations: Cameco’s Smith Ranch–Highland and North Butte; Uranium One’s Willow Creek; Energy Fuels’ Nichols Ranch; and Strata’s Lance project.
Reno Creek is 129 km northeast of Casper and 16 km from the nearest town of Wright.
On Dec. 6, the company extended its $20-million, senior-secured credit facility to Jan. 31, 2022, and issued 1.18 million shares to the lenders as an extension fee.
At press time, UEC was trading at US$1.29 within a 52-week range of US$1.12 to US$1.89. The company has 178 million shares outstanding for a US$227-million market capitalization.
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