The Haiku of Finance for 08/26/15

Get uranium
Just find the highest grade ore
Cash glows in the dark

Uranium Energy Corp. May As Well Be Radioactive

Uranium Energy Corp. (UEC) used to be named something related to gold. Another company now has their old name, so that's just water under the bridge. The global nuclear power is healthy enough to support strong demand for uranium production. It's too bad UEC isn't successfully meeting that demand.

UEC has 23 projects in motion as of this writing, with all but two in the US. Their problem is that almost all of these projects are still under exploration. They have one operational plant, one producing mine (sort of, depending on permits), and one project at the development stage. That's all they have after a decade.

Consider the numbers for those projects that have NI 43-101 reports. Anderson will require almost $44M initial capex, with a recovered production cost of $33.65/lb.  It is sobering to see the base case NPV estimate (at a 10% discount rate, $65/lb market price) of $142.2M, when the total capex commitment is estimated at $139.2M in the 43-101.  That's barely worth doing at all.  Infomine reports the uranium price for Aug. 26, 2015 as $36.75/lb.  If the Anderson project is barely worthwhile at $65/lb, it cannot be viable at current market prices.

I grabbed UEC's Q3 2015 10-Q dated June 9, 2015.  The company had $1.4M in cash on hand as of April 30 and inventory of $2.2M.  Their monthly burn rate is about -$1.8M, so they're pretty much surviving one quarter at a time.  Note the negative retained earnings of nearly -$187M, because that's about how much investor capital the company has thrown down a bunch of holes in its lifetime.  Further capital raises will be needed to fund the capex for projects like Anderson, so shareholders can expect further dilution.

I will hazard a guess about why this company is losing money.  If they had focused on a handful of decent projects with grades of at least 0.10%, they could have succeeded by now.  The World Nuclear Association notes that the largest uranium mines in the world produce most of the world's uranium with average grades over 0.10%.  UEC has spent a lot of time and money exploring many projects whose MII grades do not cross that 0/10% threshold, meaning their ultimate 2P grades will likely be lower in a 43-101 PEA.

Uranium mining and processing can be a radioactive business. Companies that try to do it for a decade without financial success may as well be radioactive themselves. I will not have money-losing companies like UEC in my own portfolio. Financial losses are radioactive to my ROI.

Full disclosure:  No position in Uranium Energy Corp. (ticker UEC) at this time.

America Needs Nuclear Fuel Of Some Sort

Every time I attend a materials conference, somebody mentions the American nuclear energy sector's need for uranium.  The Megatons to Megawatts program ends this year.  The Russian government will be free to sell its surplus warhead uranium on the world market.  The US nuclear sector will need a new source of supply.  I see four options.

1.  The US government liberalizes permitting for uranium deposit exploration.
2.  US utilities operating nuclear reactors buy more uranium on the world market.
3.  North American uranium miners rapidly expand production at existing mines.
4.  The US energy sector explores alternatives to uranium-fueled fission reactors.

Option #1 is in keeping with the federal government's liberalized approach to granting permits for oil and gas exploration on federal lands.  The problem is that the whole uranium fuel cycle has become a political football thanks to the Fukushima disaster and the renewed controversy over storage at Yucca Mountain.

Option #2 pits US energy companies against other utilities around the world.  This is how the free market normally works.  The risk is that the inevitable hyperinflation of the US dollar will make it prohibitively expensive for any US companies to source raw materials outside the US.  This includes energy sources.  I do not expect uranium to be exempt from this dynamic.

Option #3 is probably feasible in the short term, given that increased demand from utilities for uranium supply will drive the price up in the US and encourage miners to produce more.  This will of course cause them to exhaust proven mineral reserves at an accelerated rate.  We're back to option #1 for more exploration.

Option #4 is a no-brainer.  Notice the title of this blog article says "nuclear fuel," which does not necessarily mean uranium.  I'm intrigued by the possibility of thorium fuel cycle reactors, which cause fewer problems than reactors powered by uranium.  The EPA has clear standards for handling thorium.  It's not like you can eat the stuff, but the safety standards are known to industry and thus not a barrier to operations.

Watch this blog for more commentary on thorium developments.  I would attend the Thorium Energy Alliance annual conference if there were enough hot chicks there to make it worth my while.  

The Haiku of Finance for 11//17/12

Uranium stock
Needs shortage of reactors
Handle ore with care

Athabasca Uranium (ATURF) Digging Brand New Sites

The eventual end of the program that extracts fissionable material from decommissioned Soviet-era nuclear warheads will require nuclear plant operators to find new uranium supplies.  Uranium producers can expect no shortage of capital to chase new deposits.  Athabasca Uranium (ATURF) is going after uranium in Canada.

I have concerns about the relevance of the management team's expertise.  There is little room for doubt about their collective talent, although I'm having difficulty looking up the operating histories of some of their previous companies (specifically Kinetex Resources and Choice Resources Corp.).  The thing about uranium is its uniqueness among energy sources.  Its radioactivity requires special handling far above and beyond normal mining safety protocols.  Its potential use in the most lethal weaponry possible make it subject to stringent controls on reporting and transportation.  I truly believe there only a small number of mining people on the planet with expertise that is germane specifically to uranium and other radioactive resources.  It's kind of nice that one ATURF director has nine years of experience with uranium explorer Northern Continental Resources (merged with uranium explorer Hathor in 2009).  Another director has a long background in nuclear energy.  I still wish the company had more nuclear bench strength in its management rather than its board.

All of the company's projects are still in the early surveying and drilling phases, so evaluating any of them is impossible for now.  At least they're digging in an area known to be productive.  I wish they had more capital because $4M doesn't sound like much for the number of sites they need to drill.  ATURF needs some 43-101 reports in 2012 on what they find.  Stay tuned.

Full disclosure:  No position in ATURF at this time.

Quest Rare Minerals (QRM) Goes Heavy Into HREEs

It's time to check out a rare earth stock.  Quest Rare Minerals (QRM) mines heavy rare earths in Canada.  They were formerly known as Quest Uranium (QUC) until they rebranded themselves for the rare earths sector.  The rebranding made some kind of sense in that Quest was originally spun off from Freewest Resources Canada (which in turn became part of Cliffs Natural Resources) so the parent company could focus on finding precious and base metals.  Quest inherited Freewest's uranium exploration projects in 2008.  Let's consider how they performed before they switched gears to hunt REEs.

Net Income (from annual reports):
2007:  ($23.9K)
2008:  ($419K)
2009:  ($1.62M)
2010:  ($4.6M)
Nine months ended July 31, 2011: ($9.5M)

This company excels at losing money.  Maybe that's what prompted them to switch from uranium to rare earths.  Maybe they realized their rare earth deposits were more valuable than their uranium.  Maybe they got caught up in all of the excitement generated these past few years over China's export quotas on REEs.  I can't read management's minds, but I can read their financial statements and pitchbooks. 

Their October 2011 pitchbook is the one I decided to mark up with notes.  Pages 7-14 have a lot to say about the global rare earths market and nothing to say about the company.  Page 15 reveals that the entire Strange Lake deposit is far enough north on the Quebec-Labrador border that inclement weather may close off access during winter months.  Since I've never lived that far up north, maybe a local could tell me how long roads are closed due to snowdrifts.  Page 17 indicates that the Main Zone of their historical discoveries is over 2.5km from the nearest body of water (Lac Brisson) at its closest point.  Water for leaching operations must be pumped that distance, leading to higher production costs for any producer who wants to join the party.  The newly discovered B-Zone is much closer to the lake, so perhaps extraction costs will prove to be lower there.  Page 19 indicates a rudimentary road network runs through the B-Zone property.  That's potentially good news if it can handle daily truck volume, although the sloped elevation and lack of nearby ground cover make me wonder about the effects of erosion.  Page 25 has a bullet referencing a proposed air strip and a potential access road; it's easy to read between the lines to determine that logistical access from the outside world to the entire deposit is extremely poor.  A passing mention of Plan Nord does not indicate whether the Quebec government will spend money to improve infrastructure in the Strange Lake area. 

Quest should consider emphasizing its LREE deposits as much as it touts its HREE deposits.  If the LREE mineralization is closer to the surface then the HREE, as some of the data indicates, it will be extracted first and thus have a more immediate impact on Quest's bottom line.  Hey, Quest, investors will want to see some progress on that bottom line at some point. 

In fairness, Quest has always been an exploration company.  It does not extract or refine ore but must have drill results of sufficiently heavy grades to convince larger partners to pay for working interests in its properties.  Only recently has Quest discovered such promising deposits in the B-Zone.  The next step is for Quest to convince larger miners to sign up for development. 

Full disclosure:  No position in QRM (or other companies mentioned) at this time.