An Explosive Opportunity In Uranium
There is a remarkable opportunity emerging in a market where demand growth is running into a serious wall of tightening supplies, and we are about to witness a dramatic shift in control for this supply. I have talked about this change before in many of my past letters, but the time to act on this change is running out. Literally. By the end of the year this shift will take place, and it will put America at a major disadvantage.
The global market is about to run headlong into its first major supply deficit, and one that will be controlled by a major world player that does not play ball with the West.
Major institutions, such as JP Morgan, are predicting that prices will more than double within the next few years. I think that is being conservative. There is strong evidence that prices will go even higher; including a recent political change in a major economy.
There has never been a better time to speculate on these events.
In this special edition letter, I am not only going to introduce you to this explosive opportunity, but also introduce you to a Company that is poised to take advantage of this upcoming explosive market. Analysts are already shooting out buy signals for this Company with prices much higher than where the Company trades today. Industry experts are already touting that, “this Company is primed for growth” and “sees (its) current price as a gold-plated bargain.”
However, before we get into the details of the Company, let us talk about this explosive sector opportunity first.
Uranium: The Next Explosive Commodity
Before you shut down the prospects of uranium, let me explain why I believe this sector is primed for explosive growth in the coming months and years. Not only is uranium one of the cheapest and most efficient sources of energy in the world, it is also one of the cleanest. While we continue to hear talks of alternative energy such as wind, solar, or hydro, uranium is the only alternative energy source amongst them that actually creates energy - the others simply capture and store it.
Because of uranium’s ability to produce constant and uninterrupted energy, it is perfect for baseload capacity - meaning that it is always on. There are only three sources of baseload energy available to us: fossil fuels (coal and gas), hydro, and nuclear.
The Cost of Power
No other form of energy is as cost effective as nuclear. Solar energy is the most expensive at $250 per megawatt-hour (MWh), while nuclear is the cheapest at around $40 per MWh. In some countries, nuclear only costs $30 per MWh.
Nuclear power plants also have the highest percentage of electricity produced relative to the total capacity of the plant. To draw a comparison, nuclear plants have a capacity of 89.6%; coal 72.6%; natural gas 37.7%; heavy oil 29.8%; hydro 29.3%; wind 26.8%; and solar 18.8%.
Many environmentalists have now turned pro-uranium. That is because every one pound of uranium used instead of coal decreases CO2 emissions (CO2E ) by around 45,000 pounds. Let us put that into perspective. A passenger vehicle produces, on average, 4.8 metric tons of CO2E every year, or roughly 10,582 pounds. That means every pound of uranium used instead of coal removes the equivalent CO2E that four cars produces every year.
According to the World Nuclear Association, current reactors require approximately 176.7 million lbs. of uranium each year. If we were to remove all of the nuclear power plants that are currently in operation and replaced them with coal plants, the CO2E added would be like adding more than 706.8 million cars onto the road! No wonder that public opinion on the nuclear sector is suddenly turning positive.
Even environmentalist Robert Stone, an award-winning documentary filmmaker, has now changed his views on nuclear energy:
“I have considered myself a passionate environmentalist for about as long as I can remember It is no easy thing for me to have come to the conclusion that the rapid deployment of nuclear power is now the greatest hope we have for saving us from an environmental catastrophe.”
He recently released his latest documentary, “Pandora”s Promise”, which explores the transformation of anti-nuke environmentalists into believers of the benefits of nuclear power. The documentary aims at debunking a lot of the nuclear myths that came post-Fukushima.
Japan, Fukushima and Abe
A resource-poor nation, Japan’s economic growth potential is limited by demographic decline and its dependence on energy imports. That is why nuclear power has been a key part of Japan’s energy diversification and security strategy for well over 40 years. Since the Fukushima meltdown in 2011, which devastated the nuclear sector, all but two of the country’s 54 reactors have been taken off-line. As a result, imports of fossil fuels have risen dramatically to compensate. The high cost of continued fuel imports is destroying Japan’s current focus on restoring economic growth and achieving the 2% inflation that Japan Prime Minister Shinzo Abe has promised.
Abe wants to see Japan’s inflation rate at 2% and has told the Bank of Japan (BOJ) to hit that target by printing more money and doing whatever it can to stimulate the cause. Despite the insane monetary policy, there is no way Japan can achieve growth without first lessening the effects of energy on the economy. Power utilities in Japan have already increased liquefied natural gas imports by 18% year-on-year in 2011 and by 5% year-on-year in 2012.
According to BP’s 2013 Statistical Review of World Energy, Japan consumed 41% more fuel oil in 2012 compared to 2011, from 577,000 barrels per day to 811,000 barrels per day.
In May 2013 alone, Japan spent $5.4 billion on imports of liquefied natural gas, $11 billion on crude oil (electricity accounts for just under 20 percent of oil product consumption), and nearly $2 billion on coal. If Abe wants to achieve his 2% target of inflation, he needs get those reactors back on-line.
Abe Gets His Wish
Last month, Japanese voters gave Abe and his Liberal Democratic Party (LDP) control of the upper house of parliament, meaning that, for the first time in six years, the LDP will have control of both chambers of The National Diet, Japan’s bicameral legislature. Essentially, Abe’s control over both houses would be like Obama gaining control of both the Senate (upper house) and the House of Representatives (lower house). With this new control, Abe will undoubtedly make turning nuclear reactors back on a priority.
Growing Demand Worldwide
Despite the growing rhetoric of countries - such as Germany and Switzerland - phasing out of nuclear power, nuclear power continues to march forward. While Germany immediately took eight reactors off-line and has publicly stated it will phase out its remaining nine reactors by 2022, starting in 2015, it ironically still supports foreign nuclear power and will use public money to guarantee the construction of power plants in other countries. Since Fukushima, Germany has become a net importer of power from France, relying on more costly French nuclear power.
For now, Germany has enough money to continue this for some time. But I do not believe the nation will continue paying for expensive imported French nuclear electricity when it can do it on home turf at a much cheaper price.
China - The Next Largest Consumer
It is impossible to talk about world energy without talking about China. The nation, like many others, reevaluated its nuclear power program since Fukushima, and suspended nuclear plant approvals for a couple of months. However, that did not last long as the government has already decided to continue with its nuclear power developments. That means they are on track to quadruple their nuclear capacity by 2020.
The country already has 26 reactors under construction. By 2050, mainland China is looking to ramp up to 400 gigawatt (GW). In order to fuel 400 GW, China will need 195.4 million pounds of uranium per year for its power plants - that is more uranium than all of the world’s current consumption per year.
Do Not Believe Everything You Hear
Despite what you hear, nuclear is not shrinking - it is growing rapidly.
Since 2007, total new reactor builds (under construction, planned, and proposed) have increased by 57%, from 349 to 548 as of September 2012.
The U.K. has already announced that it will build 8 new nuclear reactors; Saudi Arabia announced it will build 16; Brazil will build 9 (with one already under construction).
Meanwhile, China, India, and Russia have all re-affirmed their support for nuclear power. Combined, those three powerhouses will represent 50% of world nuclear reactor construction.
The World Nuclear Association shows that there are currently 433 operational reactors worldwide, with the U.S.A. leading the way with 100 reactors.
Here is where the hurt begins.
The Biggest Energy Consumer
The U.S.A. is the world’s largest supplier of uranium energy. Every year, the United States consumes over 51M lbs. of U3O8 at its 104 reactors, with the power representing nearly 20% of the nation’s total electric energy generation in 2011. Yet the nation only produces 4.3M lbs. of uranium per year at home - meaning they have to rely heavily on imports.
Clearly, nuclear energy is a massive part of U.S. society and security. That is why the head of the Department of Energy (DOE) announced a fresh start to its nuclear-disposal issue on January 10, 2013, emphasizing the importance of nuclear power to U.S. energy security.
Despite being the largest consumer of nuclear energy, the USA imports the majority of its uranium supply - just like oil. As a matter of fact, the U.S. is more dependent on foreign uranium supplies than it is on oil. We have already seen what happened to oil prices.
Herein lies a massive problem for Americans. Much of the oil imported into the USA comes from friendly sources, and is either under the control or direct influence by America.
Uranium, on the other hand, is mainly controlled by a nation that will likely not be willed into uncomfortable terms by the United States.
Russia - The Energy Powerhouse
Russia already maintains significant control over oil and gas supplied to the European Union, and it has already used this control to gain political advantage. As the most energy-dependent country in the world, the USA will soon be at the mercy of Russia when it comes to uranium supplies. Knowing this, Russia has taken advantage of the severely depressed uranium price by leading the acquisitions of uranium assets all over the world.
In 2011, ARMZ, a Russian state-owned company, bought Australian junior Mantra Resources for C$1.15 billion. Earlier this year, they purchased Uranium One for C$1.3 billion. With its purchases, it will gain control of major uranium assets in Kazakhstan, Australia, Tanzania, and the U.S.A.
Earlier this year, Russia signed the long awaited nuclear power agreement, financing $500M for the supply of two 1000 Megawatt reactors with Bangladesh. The deal was immediately followed days later by a major arms purchase agreement worth a billion dollars for the delivery of armored vehicles and infantry weapons, air defense systems, and Mi-17 transport helicopters.
While Russia continues to snap up uranium assets, the United States has not done much in terms of moving nuclear forward. Unfortunately, that is going to be a major disadvantage for Americans.
More than 40% of U.S. uranium imports come from Russia, or from locations under the influence of Russia. Russia and Namibia also plan to launch joint development of uranium deposits, while Niger has already granted Gazprom (another Russian-owned entity and the largest extractor of natural gas in the world) uranium-exploration licenses in return for guaranteed investments.
Around 16% of U.S. uranium imports come from Africa.
That means Russia could have influence or control over 56% of U.S. uranium supply. Remember that nearly 20% of U.S. energy comes from nuclear energy. That mean a whopping 10% of American energy currently relies on Russia for its power.
But that is just the start of the hurt.
Megatons to Megawatts Set to Expire
The Megatons to Megawatts program was a US-Russian agreement implemented in 1993 to convert 1.1 million pounds of highly-enriched uranium (HEU) taken from dismantled Russian nuclear weapons into low-enriched-uranium (LEU) for nuclear fuel. Over the past years, up to 10% of the electricity produced in the United States has been generated by fuel fabricated using LEU from the Megatons to Megawatts program. The contract ends at the end of this year. So what happens when this contract runs out?
The Transitional Supply Contract
The Transitional Supply Contract is a multi-year contract that allows the USA to purchase about 21 million separative work units (SWU) through 2022 with a mutual option to purchase up to another 25 million SWU during that period.
However, according to the deal terms from USEC, the United States Enrichment Corporation:
“The low-enriched uranium supplied by TENEX (a state owned Russian company which trades uranium fuel and fuel processing services abroad) will now come from Russia’s commercial enrichment activities rather than from down-blending of excess Russian highly-enriched uranium.”
I want to stress the word “commercial” within that paragraph. Commercial means doing something for profit. Furthermore, “The pricing terms for SWU under the contract are proprietary, but are based on a mix of market-related price points and other factors.” In other words, the Russians will begin to sell uranium to the U.S. for profit. And they get to set the price.
Tension between Russia and the United States continue to grow, and Obama recently cancelled his Moscow Putin Summit visit because of their growing differences. Do you think Russia will sell uranium to the United States for cheap?
Uranium Prices: Not All As It Seems
Uranium prices differ dramatically from other commodities and resources such as oil and gas. While many often reference the spot price of uranium, the long-term price is what really counts. That is because less than 15% of uranium is actually traded at spot price. That means more than 85% of uranium is traded in long-term prices.
Consider the following graph, courtesy of The UxC Consulting Company and the World Nuclear Association:
We are now at the tipping point where both reference demand and upper demand will outpace current production, the secondary supply market, and even the supply by mines that are currently under development.
It is no wonder that the world’s richest people are investing in the sector.
The Richest People on Earth
Both Bill Gates and Warren Buffett are strong advocates of nuclear power, and both believe that the markets have over-reacted after the Fukushima meltdown. They are both actively investing in the sector.
Gates is a strong believer in the safety of nuclear reactors and has put his money where his mouth is by investing millions into the private company TerraPower, which is developing a new nuclear design.
During Berkshire Hathaway’s annual meeting, Warren Buffett stated just how important nuclear power is for the world. MidAmerican Energy, a Buffet company, has applied to build a nuclear plant in Iowa and currently operates a 1,760 MW facility in Illinois.
Unlike gold miners, uranium miners have been moving in an inverse relationship to spot commodity price. Despite spot uranium prices dropping below $40, uranium miners, such as Cameco Corporation, are up over 30% since the November low. That is because uranium does not trade large volumes on a futures exchange and the spot price of uranium does not actually reflect the actual price of uranium that is being sold in the market. Unlike other metals such as copper or nickel, uranium is traded in most cases through contracts negotiated directly between a buyer and a seller. That means the only viable way to play the uranium sector is to invest in companies that mine and explore for it.
But there is a problem. There are not many uranium producers that trade in North America.
The Supply and Demand Gap
As I mentioned earlier, current nuclear reactors require about 176.7M lbs. annually to operate. On a global scale, mine supply is only around 137M lbs., while secondary sources (mainly supplied by HEU) add another 26M lbs. That is a shortfall of nearly 14M lbs. per year. When HEU ends, secondary sources will be almost halved, bringing an even bigger shortfall.
New mine production is very much needed, but simply will not happen due to a low spot price and the growing costs of production worldwide. I believe that a spot price of at least US$70/lb. will be required to truly spur new mining production; JP Morgan estimates US$80/lb.
What to Do
In the current low spot price environment, in-situ recovery (ISR) mines are preferable over conventional open pit uranium mines simply because the average production cost for a typical ISR mine is US$15-$40 per lb., whereas an open pit mine can average $30-$70 per lb.
Because of lower costs and political security, I prefer to bet on U.S.-based ISR uranium producers.
That is why I am about to introduce you to a Company that I believe is poised for considerable growth.
- is working with the Wyoming State administrators to complete the documentation for a $2oM financing that is expected to close in the fall;
- is poised to be the next U.S. uranium producer;
- owns one of the largest uranium land packages in one of the most prolific uranium regions in America, the Powder River Basin; and
- has a management team that has put many uranium projects into production
It is no wonder why a Dundee analyst is saying this Company “appears to have amongst the best potential to provide long-term sustainability from its cluster of projects on a large land package.”
The analyst is also saying that this Company “is well positioned to take full advantage of the uranium market for the long-term due to its strategic land holdings.”
That is because this Company not only owns one of the biggest land packages in one of the most prolific uranium regions in America, but it is en route to production - just as a major international contract for uranium expires.
What happens when you combine an extremely capable and experienced management team, a near-term uranium producer, and one of the most significant land packages in one of the most prolific regions in America?
You get ...
Uranerz Energy Corporation
(TSX: URZ) (NYSE MKT: URZ)
The Beginning of a New Era
Uranerz Energy Corporation is focused on near-term commercial ISR uranium production, and is currently constructing its first ISR mine in the Powder River Basin of Wyoming.
Led by President and CEO Glenn Catchpole, Uranerz’s management team has done it all before. They specialize in ISR uranium mining, and have a successful track record of licensing, constructing, and operating ISR uranium projects. Together, the management team has more than 100 years of ISR mining experience - the bulk of it in Wyoming.
With current spot prices, uranium producers are not very profitable - especially those selling uranium at spot prices, like many of Uranerz’s peers. This is where Uranerz has a special advantage. Uranerz made a wise decision in 2009. They strategically entered into uranium sales contracts for a portion of its planned production with two of the largest nuclear utilities in the USA, including Exelon, which has the largest fleet of nuclear reactors in the United States (third-largest worldwide). This was during a time when long-term uranium prices were much higher - in the $60-70/lb. range.
Both contracts are over a five-year period and may account for 40%-50% of Uranerz’s initial forecast production, and both contracts have flexible start dates for deliveries - meaning they come into effect when Uranerz is ready to produce. One contract has a fixed price with built-in price escalation levers, while the other uses a combination of spot and long-term prices with a predetermined floor and ceiling.
That means Uranerz will come out of the production gates with much stronger revenues than the average ISR projects in the USA and, thus, should have better margins than their peers. Should the price of uranium climb higher, Uranerz will still be able to capture some of the potential upside going forward. That is a great way to start production.
But that is not the only thing that separates them from their competitors. Their total resource base (measured and indicated + inferred) has nearly twice the grade of the total resource base of their nearest U.S. publicly-traded competitors. Let’s talk about that.
The Powder River Basin
Uranerz’s current focus is in the prolific Powder River Basin in Wyoming, known for producing all kinds of energy, from oil and gas , to coal and uranium.
Most people do not know that the USA, despite being a small producer, actually has the fourth largest uranium resources in the world, behind Australia, Canada, and Kazakhstan. However, grade becomes a major issue as it means that many of the uranium resources in the United States are not sustainable at current prices.
In other words, United States uranium reserves are strongly dependent on price. At $50 per lb., uranium reserves are estimated to be 539 million lbs.; however, at a price of $100 per lb., reserves are an estimated 1227 million lbs. (based on US Energy Information Administration, U.S. uranium reserves estimates, July 2010.)
While rising uranium prices over the last decade have increased interest in uranium mining in Arizona, Colorado, Texas, and Utah, the state with the largest known uranium ore reserves is Wyoming. Not only does Wyoming hold the largest known uranium ore reserves of any state in the USA, it is also the leading uranium producer in the United States, thanks to Cameco’s Smith Ranch-Highland ISR operation in the Powder River Basin.
Cameco Corporation, the largest U.S. uranium producer, and Uranium One Inc., one of the world’s largest uranium producers, both have a strong foothold in the Powder River Basin, an area in the north-eastern quadrant of Wyoming that hosts many of the state’s high-grade, ISR-amenable uranium deposits.
Cameco produced 15.9 million pounds in the Powder River Basin from 2002 to 2012 and, along with their satellite operations, provide direct and indirect employment for about 445 people in Wyoming. It is aggressively looking to increase production in the area.
Uranium One has also decided to focus on its Wyoming operations, after selling their Palangana project in Texas to buy Areva’s Christensen Ranch Project (now part of its Willow Creek Project) in the Powder River Basin.
Higher grades, better mining conditions, and political safety have made Wyoming the clear choice in the USA for two of the world’s largest uranium producers, and explains why the Powder River Basin is the most prolific uranium play in the United States to date.
One of the Biggest Land Owners in the Powder River Basin
While both Cameco and Uranium One have a strong base in the central Powder River Basin, neither of them come close to controlling the amount of land in the region that Uranerz does.
The Uranerz land holdings are shown on the following map:
Uranerz controls seven properties that collectively host 19 million lbs. of U3O8* (measure and indicated plus inferred, please see notes below). Of course, none of this would matter if the assets just sit there. But they are not. Uranerz is about to become the next uranium producer in America.
The Flagship Nichols Ranch
The Nichols Ranch project is Uranerz’s flagship asset located in Wyoming’s Powder River Basin. It currently has an indicated resource of 2.95M lbs. (0.114%) of U3O8. It is already licensed and permitted for up to 2 million lbs. of U3O8 production every year, and is expected to produce between 600,000 - 800,000 lbs./year once it ramps up commercial production.
The project broke ground in August 2011 and is now well on its way to becoming one of the United States’ next uranium producers.
While the Nichols Ranch facility has the capacity and approval to contain a full plant to process uranium-loaded resin, an agreement to process the resin at Cameco’s Smith Ranch Highland facility has been negotiated, which helps Uranerz avoid several million dollars in upfront capital costs, and speeding up significantly the process of going into production.
Of course, Uranerz may eventually need its own capacity as uranium prices move up and their other assets come online. By that time, Uranerz should have strong cash flows to expand operations.
The Nichols Ranch Processing Plant current design is very robust and development is already underway. Much of the plumbing has been completed and the majority of the large/long lead-time items have already be done. This plant is cutting edge and very well thought out. For example, most plant operating parameters are monitored and data is warehoused in real time. The built-in automation offers much better opportunity for optimization and predictive maintenance than in older implementations, and allows staff to base future well designs and operating parameters on past performance on the micro-scale (flow rates, grades, automatic reporting for regulators, etc.). Uranerz did not take any shortcuts, and has gone above and beyond to make sure everything is the best that it can be.
As a matter of fact, according to Dundee:
“OSHA (Occupational Safety and Health Administration) will likely invite Uranerz as the first uranium mining company in the USA to be part of SHARP (Safety and Health Achievement Recognition Project).”
The ISR process creates non-hazardous by-product fluids, which needs to be put somewhere. Two deep disposal wells are required in order for Uranerz to enter production. These wells are currently being drilled and developed, with the first well already drilled. Both of these wells should be completed before the year is over.
As Nichols Ranch moves into production, it will act as a hub for many of Uranerz’s other uranium assets.
Other Properties - Hub and Spoke
Uranerz has employed a unique hub and spoke model for its projects. Nichols Ranch, the centralized uranium processing facility, will act as the hub. Its other deposits and the transportation lines between them create the spoke network.
Well fields are built over the deposits with the first stages of processing done on site within satellite plants. These plants will then first filter the fluids coming from the well fields, and then IX columns load the uranium on to resin, which is then brought by truck (or pipe) to the central processing plant
Given that many of Uranerz’s projects are within 30 km and are close to the central hub of the Nichols Ranch processing facility, the short distance can ensure that additional feedstock may be piped, reducing time and, ultimately, costs.
Hank currently has a Measured and Indicated (M&I) resource of 2,236,050 lbs. (0.123%) and an inferred resource of 246,753 lbs (0.087%).
This satellite property is expected to commence production in 2015, but may also host a second ion exchange concentrating facility.
Jane Dough Unit
Jane Dough is almost a replica of the Nichols Ranch asset, except that it is still in the permitting phase. It currently has a Measured and Indicated (M&I) resource of 2,735,432 lbs. (0.108%) and an inferred resource of 240,246 lbs (0.081%).
The property is only 5 km away from the Nichols Ranch processing facility and may be the next satellite property offering feedstock to the plant. Once permitted, it has the potential to double the size of the Nichols Ranch operation.
These satellite facilities generally require a capex of $13.5M and are expected to have an allin operating cost of $32/lb.
Reno Creek and West North-Butte
Both of these properties are still in the exploration phase. Together, they currently have an initial resource of nearly 10M lbs. of U3O8.
Reno Creek: M&I: 4,292,948 (0.056%), Inferred: 142,167 (0.039%)
West North-Butte: M&I: 2,837,015 lbs. (0.154%), Inferred: 2,681,928 (0.120%)
The close proximity of all of these assets to the Nichols Ranch facility means multiple feedstock sources and the potential development of lower grade, low capex satellite facilities.
While industry heavyweights Cameco and Uranium One are active in the Powder River Basin, Uranerz remains one of the dominant landowners in the region, controlling over 87,000 acres. That not only means Uranerz is one of the largest land-owners in the best uranium region in the USA, but also means that, as the Company heads into production, it could be a takeover target for one of the uranium majors, such as Cameco.
Would a major uranium producer want a producing junior to own a large land position in its own backyard?
The Time of Consolidation
There has been an abundance of activity in the uranium space over the last few years. In January 2013, Denison Mines acquired Fission Energy in a stock-swap deal valued at $70 million. In late 2011, Rio Tinto bought Canadian uranium explorer Hathor Exploration for $654 million. We just witnessed the purchase of Uranium One by AMRZ for $1.3B, and also saw them purchase Australian-based Mantra Resources Limited for $1.2B.
There is likely to be more consolidation as supplies around the world tighten.
While large economies, such as Japan and Germany, have pledged to move away from nuclear power in the aftermath of the tragic events at Fukushima, uranium supply and demand fundamentals continue to be robust. The only way to meet the growing demand, especially given the end of the HEU program, is for world production to rise. However, the global ramp up in uranium production has not been easy with many delays and hiccups around the world, including Cameco’s Cigar Lake mine and the declining grades at Energy Resources of Australia’s massive Ranger mine.
That means both the spot and long-term uranium price needs to be much higher to meet uranium demand, as numerous mines are uneconomic at the current US$$35.75/lb. spot uranium price. Unless we experience another incident like Fukushima, it is not likely that uranium prices will be down here for much longer.
Both Cameco and Uranium One have adjacent properties to Uranerz in the Powder River Basin and both of these companies are looking to aggressively expand their operations in the area. The quickest and easiest way for them to do that is to acquire Uranerz and its massive land holdings in the area.
Of course, like all projects transitioning to production, there are risks. But the biggest risk for Uranerz may not be the price of uranium since much of Uranerz’ off-take contracts are at much higher prices and those companies are obligated to purchase uranium from Uranerz at those contract rates.
So, for Uranerz, while commodity price is a risk, it does not seem to be a big risk - especially when compared to other commodity plays and especially at current price levels.
For Uranerz, the biggest risk is capital. As a company moving into production, the construction phase can be very capital intensive. Uranerz has received approval in principle for its application for a loan of $20 million under the State of Wyoming’s Industrial Development Revenue Bond program. The Company is currently working with the State administrators to complete the documentation for the Bond. However, we are still waiting for the final go-ahead before the loan is on its way to Uranerz’s bank account.
Even with the loan, Uranerz will likely have to raise more money to ensure start-up success. That means there is a risk of dilution.
However, production start and growth will significantly outweigh the risks of current dilution. As a result, the current overhang on Uranerz shares - which I believe is due to financial risk - may be removed.
The second risk for Uranerz is start-up risk. It is never easy to transition from developer to producer status, as there is always a potential for the unexpected to happen which could lead to delays, lower production numbers, and slower production ramp-up - all of which could initially affect short-term cash flows. However, management has done this many times before and the current project seems like a pretty straightforward ISR project.
On the political front, permitting is always a risk. Jane Dough permitting is currently underway. This will be the first test of amending the Nichols Ranch license and the Wyoming Department of Environmental Quality (WDEQ) permits. However, this provides more upside than downside.
Several of Uranerz’s sites have continuous borders and continuous geology, which should make permitting these projects as an amendment to its Nichols Ranch, as opposed to starting from scratch. One can assume the process will be grandfathered into other Uranerz assets and, thus, permitting of the other assets will likely go much smoother and in a shorter time frame than the first permitting process of the Nichols Ranch.
Lastly, there is a risk of the United States Nuclear Regulatory Commission (NRC) preoperating inspection. This is more of a timing risk, as Uranerz must give 90 days’ notice to the NRC to do their pre-op inspection. Once the inspection is complete, the NRC may decide if it wants Uranerz to make some changes before it signs off on the license. However, the inspection cannot be completed until the two Deep Disposal Wells are completed, and these are not set for completion until December. Luckily, the wells are straightforward and Uranerz should not run into any time frame problems.
So, yes, there are risks; there always are. But bigger risks may lead to bigger rewards.
Once the issuance of the Wyoming State Development Bond goes through, which is expected within the next few months or sooner, a lot of the risk will be removed from the project and it should reflect in Uranerz’s share price.
Also, pre-commercial production at Nichols Ranch is expected by the end of the year, and that means Uranerz will soon transform into one of the very few uranium producers in America, at around the same time when America needs it the most. That leads to one of the biggest catalysts for Uranerz: the start of what could be an extremely aggressive bull market for the uranium sector - especially as we move closer to the end of the HEU arrangement. This will mark the end of an era, and the dawn of another - with Russia the dominant player and the potential price-setter of uranium.
It is extremely important for the USA to produce more uranium on its home turf for its own energy security. No other state has produced more uranium than Wyoming, and the state remains the largest producer of uranium in America.
Uranerz owns one of the biggest land positions in the Powder River Basin, Wyoming, along with Uranium One and Cameco. The Company should be ready for production around the same time the Megatons to Megawatts expires.
The stars are aligning.
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