Uranium Stocks: Buy or Sell?
Uranium has a nasty reputation, but the truth is nuclear power produces less carbon than most traditional forms of energy production. Climate change regulations have made clean energy a priority, and many countries are turning to uranium-powered reactors to meet emission standard deadlines. Our picks for the best uranium stocks will introduce you to the major players in North America and explain the basics behind the market.
The uranium sector is unique for several reasons. Unlike silver, gold – as described here, and other precious metals; uranium doesn’t trade on an open exchange. The industry relies on two companies that specialize in pricing uranium: TradeTech and UxC. These firms periodically release price reports based on long-term contracts and average selling prices. As a result, the market moves more erratically than traditional commodities.
The uranium industry is multi-faceted and complex, so trying to understand the market can be intimidating at times. This brief, simplified breakdown of the uranium industry should shed some light on this misunderstood sector.
Best Uranium Stocks: Our Top Picks
For the best uranium stocks, we focused on North American uranium producers. These companies are some of the biggest players domestically, and each has a market cap greater than $100 million. If the U-232 review comes back with recommendations that are favorable to the domestic uranium industry, these uranium stocks could go up in value significantly. Please note that these figures are based on the most recent production statistics available from the U.S. Energy Information Administration
Energy Fuels Inc. (UUUU)
Energy Fuels Inc. operates in the U.S. with a headquarters in Lakewood, Colorado. The company owns several subsidiaries that are developing uranium mines across the U.S., including facilities in Wyoming, Texas, and Utah. If the U-232 review comes back with findings that benefit American miners, this uranium stock could be a big winner. The company owns one of only four uranium mills operating in the U.S. so it’s an important link in the domestic supply chain. The firm is also increasing vanadium production. Vanadium is a rare metal that is used to produce special industrial alloys, and UUUU is seeking to “re-establish the Company as the only primary producer of vanadium in North America.” (Energy Fuels Inc.)
Another American uranium producer, Ur-Energy operates 13 projects across the U.S. Its flagship asset is the Lost Creek project, sprawling over 37,500 acres in the Great Divide Basin, Wyoming. Ur-Energy is another key American producer that could be a huge beneficiary of government intervention in the uranium industry. In fact, URG was one of two companies that submitted the petition to the White House that led to the U-232 review (the other was Energy Fuels). The company’s Lost Creek property is one of only a handful of fully-operational uranium mines in the U.S., and the property has an output capacity of approximately 2 million pounds of U308 annually. To offer some perspective, U.S. U308 production totaled approximately 1.45 million in 2018, according to the U.S.E.I.A.
Cameco Corp. (CCJ)
Cameco is perhaps the most influential uranium stock in the North American uranium market. Its fully-owned subsidiary, Cameco Resources, is one of the world’s largest uranium producers and owns the largest production facility in the U.S. based on licensed ISR production capacity. The mine, located near Glenrock WY, has an annual production capacity of 5.5 million pounds, and Cameco has additional operations in Nebraska at its Crow Butte project. The only company on our list with a market cap over $1 billion, Cameco is more likely to survive a prolonged bear market. It’s one of only a few companies that is ACTIVELY producing domestic uranium and shares currently trade for less than one times its book value. Cameco could be the best value on our best uranium stock lineup.
Uranium Mining: How It Works
Uranium is abundant in the Earth, but extracting is an expensive and resource-intensive task. There are two ways to extract uranium: open-pit mining and In-Situ Recovery (ISR). Pit mining is exactly what it sounds like, dig a hole and mine the uranium out of the ground.
When it’s extracted from the ground, natural uranium is comprised mostly of uranium oxide concentrate (U₃0₈). Miners extract, store, and trade uranium in this raw form. U₃0₈ only has a 0.7% energy content and needs to be enriched for commercial use.
Open Pit / Underground Excavations
Miners extract uranium from U-bearing minerals like uraninite. Once it’s out of the ground, the rock is crushed and treated in a specialized mill that extracts the uranium from the minerals. According to the U.S. Energy Information Administration’s 2018 Domestic Uranium Production report, there are no open-pit uranium mines currently operating in the United States.
The ISR Method of Mining Uranium
On the other hand, the ISR method drills down to reach the uranium and then injects a solution that separates the uranium from the rocks. Then, large pumps bring the uranium back up to the service where processing begins.
The ISR method costs less to deploy but is more expensive to maintain over time. The output from a mine or other natural resource slows over time as the resources are extracted. Decline rate measures just how fast that output slows over time, effectively measuring how fast a resource gets used up. ISR decline rates are fairly high in comparison with other methods.
The Uranium Fuel Cycle
Once the uranium is brought to the surface, it gets processed and dried into drums. The finished product has a yellow color, so it’s commonly referred to as yellowcake within the industry. Once processed, the yellowcake needs to be processed into a gas called UF6.
The UF6 is then enriched to between 3% and 5% energy content and becomes DUP, which is fabricated to pellets. Then, the pellets go to power plants to be used in nuclear reactors. From the time it gets mined to the time it’s used in a reactor, aka the fuel cycle, takes about 18 to 24 months.
Nuclear reactors can’t use natural uranium because it doesn’t have enough energy content. Nuclear reactors require energy levels ranging from 3% to 5%. Enriching uranium to these levels creates low-enriched uranium; also known as reactor-grade uranium.
Uranium Supply and Demand Basics
Most of the demand for uranium comes from civilian power plants. According to uranium fund manager Mike Alkin, there are 450 “operating” nuclear reactors in the world. Ironically enough, not all of those are actually operation, so we’re closer to 420 active reactors. There are approximately 55 reactors currently under construction and hundreds more in the planning phase.
The Kazakh government owns the world’s largest uranium producer. Just 20 years ago, KazAtomProm was a small player in the uranium industry. Today, the company is helping Kazahkistan dominate the uranium market. Today, Kazakhistan produces roughly 44% of the global uranium supply and KazAtomProm constitutes half of that production.
According to Cameco Corp (CCJ), one of the largest uranium producers in North America, there are security concerns relating to the global uranium supply. “Almost 90% of uranium production comes from countries that consume little-to-no uranium,” the company says on its website. “the issues highlight the fact that nearly 70% of primary production is in the hands of state-owned enterprises.”
United States Uranium
The United States has 104 nuclear reactors that use about 55 million pounds of uranium every year; representing 25% of the global supply. On the other hand, U.S. uranium production only comprises 5% of the global supply. The U.S. imports over 90% of the uranium it uses from abroad. As this imbalance continues to grow, some experts say our reliance on foreign uranium is a national security concern. Recently, the White House undertook an effort to review and possible address the issue.
The White House recently reviewed the domestic uranium market. The probe began after major U.S. producers submitted a petition to impose import quotas under Section 232 of the Trade Expansion Act. The investigation, commonly referred to as U-232, gets its moniker from the section of trade law it’s based upon. The Administration initially declined to place restrictions on foreign uranium, but the matter is still up for review. Uranium investors should keep an eye on this developing story.
Many uranium manufacturers can’t survive with spot prices at current levels. U-232 proposed pushing up uranium prices in order to protect the domestic supply chain. Although the administration declined to take immediate action, it acknowledged the national security threat and designated the matter for a more detailed review.
Uranium Stocks: Closing Thoughts
If you’re a long-term believer in nuclear energy or you think U-232 could have a favorable outcome for these companies, U.S. uranium stocks could be a tremendous value at their current price levels. However, there are some concerns facing this industry. Regardless of whether it’s justified, negative sentiments plague the nuclear energy industry.
That being said, there are only a handful of U.S. uranium producers operating and it seems unlikely that this White House will allow its domestic uranium supply chain to crumble under its watch. Officials have already acknowledged that the current state of U.S. uranium is a threat to national security so one can logically assume that there will be some kind of government intervention to support the industry. The U-232 verdict hit these uranium stocks hard, but the downside could be overdone. If the government comes back after the 90-day review concludes and decides to take action, there could be a parabolic reaction in these uranium stocks.