An Explosive Opportunity:
Uranium and Uranerz Energy Corporation
There is a remarkable opportunity emerging in a market where demand growth is running into a serious wall of tightening supplies.
And we’re 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; one that will be controlled by a major world player that doesn’t play ball with the West.
Major institutions, such as JP Morgan, are predicting that prices will more than double within the next few years.
But I think that’s 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.”
But before we get into the details of the Company, let’s 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, its 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 its ability to produce constant and uninterrupted energy, it is perfect for baseload capacity – meaning that it’s 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’s because every one pound of uranium used instead of coal decreases CO2 emissions (CO2E ) by around 45,000 pounds.
Let’s 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 why 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’ve considered myself a passionate environmentalist for about as long as I can remember…It’s 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’s why nuclear power has been a key part of Japan’s energy diversification and security strategy for well over 40 years.
But 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 online.
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 offline 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 don’t 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’s 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 didn’t last long as the government has already decided to continue with its nuclear power developments.
That means they’re 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’s more uranium than all of the world’s current consumption per year.
Don’t Believe Everything You Hear
Despite what you hear, nuclear is isn’t shrinking – its 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.
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. leading the way with 100 reactors.
Here’s where the hurt begins.
The Biggest Energy Consumer
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.
The U.S. is the world’s largest supplier of uranium energy.
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’s 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 U.S. 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’ve already seen what happened to oil prices.
Herein lies a massive problem for Americans.
Losing Control of Energy
Much of the oil imported into the U.S. come 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 U.S.
Russia – The Energy Powerhouse
Russia already maintains significant control over oil and gas supplied to the European Union.
It has already used this control to gain political advantage, as I mentioned in my Letter, “The Brink of War“.
As the most energy-dependent country in the world, the U.S. 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.
Russian Buying Spree
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.
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 hasn’t 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’s 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 percent 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 U.S. 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 downblending 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 U.S. 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 U.S. 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’s 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.
Take a look, courtesy of UxC and the World Nuclear Association:
(*Note that the Euratom long-term price is the average price of uranium delivered into the EU that year under long term contracts. It is not the price at which long-term contracts are being written in that year.)
We’re 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’s no wonder 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 overreacted 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 are up over 30 percent since the November low.
That’s because uranium doesn’t trade large volumes on a futures exchange and the spot price of uranium doesn’t actually reflect the actual price of uranium that’s 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’s a problem.
There aren’t 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’s 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 won’t 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.
To learn more about how ISR Mining works, expand the picture below:
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 the closing of a $20M financing; expected to close in the fall
- is poised to be the next U.S. uranium producer
- owns one of the largest uranium land package 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’s no wonder why a Dundee analyst is saying this Company “appears to have amongst the best potential to provide long term sustainability form its cluster of projects on a large land package.”
He’s 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’s because this Company not only owns one of the biggest land packages in one of the most prolific uranium regions in America, but it’s 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?
Uranerz Energy Corporation
(TSX: URZ)(NYSE MKT: URZ)
The Beginning of a New Era
Uranerz Energy Corporation (TSX: URZ)(NYSE MKT: URZ) 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.
A Special Situation
With current spot prices, uranium producers aren’t very profitable – especially those selling uranium at spot prices, like many of Uranerz’s peers.
But this is where Uranerz has a special advantage.
Uranerz made a very 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 U.S., including Exelon, which has the largest fleet of nuclear reactors in the U.S. (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 U.S., 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.
And that’s a great way to start production.
But that’s 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.
So 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 don’t know that the U.S., 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 aren’t 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 U.S., it’s also the leading uranium producer in the U.S., thanks to Cameco’s Smith Ranch-Highland ISR operation in the Powder River Basin.
Cameco, the largest U.S. producer, and Uranium One, one of the world’s largest publicly-traded uranium producers, 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.
From 2002 to 2012, Cameco has produced 15.9 million pounds in the Powder River Basin, and along with their satellite operations provide direct and indirect employment for about 445 people in Wyoming. It’s aggressively looking to increase production in the area.
Uranium One has also decided to focus on their Wyoming operations in the U.S., 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 U.S. for two of the world’s largest uranium producers, and explains why the Powder River Basin is the most prolific uranium play in the U.S. 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 than Uranerz.
Take a look:
Uranerz controls seven properties that collectively hosts 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’re 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.
Cameco Toll Milling
Uranerz has negotiated an agreement with Cameco that allows them to process their uranium resin at Cameco’s Smith Ranch Highland plant, thus speeding up the process of going into production significantly.
Of course, Uranerz may eventually need its own capacity as uranium prices move up and their other assets come online. But by that time, Uranerz should have strong cash flows to expand operations.
Nichols Ranch Processing Plant
The current plant 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.
I won’t go into too many details about how the facility works, but I can tell you that their 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.
The guys at Uranerz did not take any shortcuts, and have 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).”
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.
Their 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 5km 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 all-in 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 means Uranerz is not only one of the largest land owners in the best uranium region in the U.S., but it also means that as the Company heads into production, it could be a takeover target for one of the uranium majors, such as Cameco.
If I was a major uranium producer, I wouldn’t want a producing junior to own a large land position in my 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. And 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.
I fully expect 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, there is no way in my opinion that uranium prices will be 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.
While one can say the biggest risk for Uranerz is uranium price, I would have to disagree.
As I already mentioned, 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 while commodity price is a risk, it doesn’t 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’re still waiting for the final go-ahead before the loan is on its way to Uranerz’s bank account.
I expect that 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, I believe that 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 is start-up risk.
It’s 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, I see this as more upside rather than down.
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) pre-operating 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 aren’t set for completion until December.
Luckily, the wells are straightforward and Uranerz shouldn’t 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.
And that of course leads to one of the biggest catalysts for Uranerz: the start of what I believe to 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 U.S. 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.
And the Company should be ready for production around the same time the Megatons to Megawatts expires.
The stars are aligning.
Uranerz Energy Corporation
We’re biased towards Uranerz Energy Corporation because they are an advertiser and we own options. We don’t currently own shares at the time of this writing, but are looking to buy shares following this report. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Uranerz Energy Corporation. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will. Furthermore, Uranerz Energy Corporation and its management have no control over our editorial content and any opinions expressed are those of our own. We’re not obligated to write a report on any of our advertisers and we’re not obligated to talk about them just because they advertise with us.
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The Equedia Letter
Uranerz (TSX: URZ)(NYSE MKT: URZ) Investment Highlights
- Have all permits necessary for uranium production at the Nichols Ranch ISR Uranium Project
- Low impact In-Situ Recovery Uranium Mining (“ISR”)
- Commenced ISR uranium mine construction in August 2011 with objective of commencing production as soon as practical
- Experienced management and operations team
- Control a large strategic land position in the Powder River Basin, WY
- Continuing to expand resource base through drilling and/or acquisitions
- Signed toll processing agreement with Cameco
- Signed long-term off-take agreements with two major U.S.-based nuclear operators, including Exelon
The People Behind Uranerz Energy Corporation
Dennis Higgs, Executive Chairman of the Board (B.Com.)
- 28+ years in financial and venture capital markets
- Millions of dollars raised
- Involved with the founding and initial public offering of Arizona Star Resource Corp. (sold to Barrick for $805 million, $18/share) and the listing and financing of BioSource International Inc.
Glenn Catchpole, President & CEO (P.Eng., M.S.)
- 35+ years of ISR uranium sector; 25 years in Wyoming
- M.S. in civil engineering from Colorado State University.
- Held various positions including well field engineer, project manager, general manager and managing director of several uranium solution mining operations.
Kurtis Brown, Senior VP Geology, Development & Safety (B.A. Geology, P.Geo)
- 17+ years of ISR experience in Wyoming
- 35+ years in the mineral extraction industry
Glenda Thomas, Senior VP Operations (B.S.)
- 16 years of mining experience, 6 years of ISR mining in Wyoming
Hilton Ballinger, Operations Supervisor
- 20+ years of ISR uranium sector experience in Wyoming
Wyoming State – Powder River Basin (PRB)
- Hosts some of the highest grade ISR-amenable deposits in the State
- Property potential validated by the presence of Cameco and Uranium One Since 1986, all Wyoming ISR production has been sourced from the PRB
- Project acquisitions concentrated on areas of known uranium mineralization
- Nichols Ranch: Indicated: 2,949,546 lbs (0.114%)
- Hank: M&I: 2,236,050 lbs (0.123%), Inferred: 246,753 lbs (0.087%)
- Jane Dough: M&I: 2,735,432 lbs (0.108%), Inferred: 240,246 lbs (0.081%)
- Reno Creek: M&I: 4,292,948 lbs (0.056%), Inferred: 142,167 lbs (0.039%)
- West North-Butte: M&I: 2,837,015 lbs (0.153%), Inferred: 2,681,928 lbs (0.120%)
Redox Boundaries for the Nichols Ranch, Hank, and Jane Dough Projects
Nichols Ranch: Near-Term ISR Production
Nichols Ranch processing facility:
- Licensed for maximum production level of 2M lbs yellowcake (U3O8) per year
- Initial targeted production level of 600,000 – 800,000 lbs U3O8 per year
- Direct Operating Cost Estimate: $24/lb U3O8 or $35/lb w/ taxes and royalties*
- Signed toll processing agreement with Cameco
- Cost savings/synergies with potential satellite operations:
- Jane Dough (with wellfield only; potentially pipeline solutions directly to Nichols Ranch plant)
- Reno Creek
- West North-Butte
- North Rolling Pin / Willow Creek
* Based on 2008 Preliminary Economic Assessment
- Uranerz has entered into three uranium off-take agreements with two major U.S. nuclear operators, including Exelon which operates the largest nuclear fleet in the country and the third largest fleet in the world
- All agreements are long-term contracts with deliveries over a five year period for a portion of planned production
- The contracts include: two with fixed escalating prices, and the other uses a combination of spot and fixed prices with a floor and a ceiling
2012 Wellfield Drilling Results*
- Cantor Fitzgerald (Formerly Versant Partners)
- Haywood Securities
- Dundee Securities
- Cowen Group (Formerly Dahlman Rose)
- Laurentian Bank Securities
Highlights and Comments
Dundee Capital Markets:
“We recommend Uranerz as a BUY.”
“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).”
“Overall we were impressed with many aspects of the site visit and discussions with management. In fact, concerns we have had with URZ for some time have somewhat been appeased.”
“Senior staff have extensive uranium mining and ISO Standards experience.”
“Uranerz appears to have amongst the best potential to provide long term sustainability form its cluster of projects on a large land package.”
“We believe URZ has considerable upside from projects located within a short distance of its planned infrastructure.”
“At the current rate, we believe first production in early calendar Q1’14 is achievable.”
“Excellent progress on both the plant and wellfield is evident and deep disposal well work is advancing.”
“We believe Uranerz can commence pre-commercial uranium production in the fourth quarter of 2013…and as such will join a select group of US-based producers.”
“The management team has extensive experience with the successful permitting, development and operation of ISR facilities in Kazakhstan and the USA, including Wyoming.
“Uranerz is well positioned to take full advantage of the uranium market for the long-term due to its strategic land holdings in the Power River Basin combined with aggressive development and exploration programs.”
“Our Discounted Cash Flow Model at 8% of Uranerz Nichols Ranch Project produces an NPV of $242 million, which together with corporate adjustments provides a total corporate NPV of $222 million.”
“Post-Fukushima, uranium miners have seen their share prices plunge. However, the fundamentals of supply and demand have remained largely unchanged. As the spot uranium price ultimately resumes its upward trajectory, we can see a scenario where either consolidation takes place in the Powder River Basin, or due to tightness of supply, utilities themselves take active ownership in producing uranium mines.”
“In Uranerz we see a compelling combination of near-term production, valuation, and solid uranium fundamentals on the supply and demand side.”
“Uranerz has signed two off-take agreements with large U.S. utilities that account for 40% of its initial production. These contracts were negotiated in 2008-2009, when the uranium pricing environment was higher than it currently is today.”
“At 51M lbs. of U3O8 annually, the U.S. is the world’s largest consumer of yellowcake. However, the country only produces about 4.3M lbs. U3O8 annually. With nuclear power accounting for 19.2% of the U.S. energy mix, sourcing U3O8 from a domestic source is of great importance for U.S. energy security.”
Uranium Sector Resources
Is Fear of Nuclear Power Overblown?
Once anti-nuclear, Filmmaker Robert Stone has changed his mind. He discusses the safety of nuclear energy and use as an alternative to fossil fuels on Bloomberg television.
In this first-ever TED debate, Stewart Brand and Mark Z. Jacobson square off over the pros and cons of nuclear energy. A discussion that’ll make you think – and might even change your mind.
A detailed video explanation look at what happened at the Fukushima Nuclear Disaster in Japan on March 11, 2011.
The atomic bomb and meltdowns like Fukushima have made nuclear power synonymous with global disaster. But what if we’ve got nuclear power wrong?
Center for Strategic and International Studies’ Andrew Kuchins and Firebird Managements’ Ian Hague on the deteriorating U.S.-Russia relations.
Ravi Krishnaswamy, VP for Asia Pacific Energy & Power Systems at Frost & Sullivan, explains why nuclear is back on the energy agenda of many Asian countries, just two years after the Fukushima disaster in Japan.
Uranium is set to rebound from its worst slump in seven years as Japan, once the world’s third- biggest nuclear-power producer, starts reactors after safety requirements are put into effect.
Yuuki Sakurai, President & CEO at Fukoku Capital Management says when it comes to the Japanese nuclear market, there is a growing customer base outside the country.
Uranerz Energy Corporation Cautionary Statements
This report contains or refers to “forward-looking information” and “forward-looking statements” within the meaning of applicable United States and Canadian securities laws, which may include, but are not limited to, statements with respect to anticipated progress or outcome of the Company’s permitting and development activities, construction activities, the projected construction and production timeline, future production estimates, future pursuit of uranium sales contracts, anticipated exposure to uranium market price fluctuations and pricing diversification, expected development, capital and operating costs and other projections, including resource estimates, our planned exploration and drilling programs and anticipated results, commodity recovery rate projections, the expected availability of future financing for acquisitions or exploration, anticipated regulatory approvals in respect of our planned operations, the expected advantages of in-situ mining in relation to capital costs, operating costs and environmental impact and all statements which set out future plans, projections, estimates or expectations. Such forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, the risks and uncertainties outlined in our most recent financial statements and reports and registration statement filed with the United States Securities and Exchange Commission (the “SEC”) (available at www.sec.gov) and with Canadian securities administrators (available at www.sedar.com). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. We do not undertake to update forward-looking statements, except as required by law.
Cautionary Statement for US Investors concerning estimates of mineral resources and potential target mineral resources:
Mineral resources disclosed in this presentation and in the NI 43-101 technical reports referenced herein have been estimated in accordance with the definition standards on mineral resources and mineral reserves of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in National Instrument 43-101, commonly referred to as “NI 43-101”.
Our NI 43-101 technical reports may include estimations of potential mineral resources for further targeted exploration by Uranerz, disclosed pursuant to the applicable provisions of NI 43-101.The NI 43-101 technical reports referenced herein are a requirement of NI 43-101 and includes estimations of mineral resources and potential mineral resources for further targeted exploration by the issuer disclosed pursuant to the applicable provisions of NI 43-101. As a company listed on the TSX, we are required by Canadian law to provide disclosure in accordance with NI 43-101. US reporting requirements for disclosure of mineral properties are governed by the United States Securities and Exchange Commission (“SEC”) and included in the SEC’s Securities Act Industry Guide 7 entitled “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” (“Guide 7”).
NI 43-101 and Guide 7 standards are substantially different. For example, the terms “mineral reserve”,”proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with NI 43-101. These definitions differ from the definitions in Guide 7. The NI 43-101 technical reports and this presentation use or may use the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource”, “Inferred mineral resource”, “potential uranium exploration target”, “potential mineral resource”, “potential mineral deposit” and “potential target mineral resource”. US Investors are advised that these terms and concepts are set out in and required to be disclosed by NI 43-101 as information material to the issuer; however, these terms and concepts are not recognized by the SEC or included in Guide 7, and these terms and concepts are normally not permitted to be used in reports and registration statements filed with the SEC. US Investors should be aware that the issuer has no “reserves” as defined by Guide 7 and are cautioned not to assume that any part or all of an inferred mineral resource or potential target mineral resources will ever be upgraded to a higher category or confirmed or converted into Guide 7 compliant “reserves”. US Investors are cautioned not to assume that all or any part of a potential target mineral resource exists, or is economically or legally mineable.
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