Uranium's Moment to Shine: Bull Run Powers Up Nuclear Opportunity

• Uranium prices have increased dramatically recently due to supply concerns and geopolitical events like the coup in Niger. Prices could continue to rise to $70-80/lb long-term.
• Ur-Energy has 3 long-term contracts for 3.75 million lbs over 6 years, giving $220 million in revenue. This is only 25% of their licensed capacity.
• Production is ramping up at Lost Creek mine, but building out the Shirley Basin facility will take 2 years due to equipment supply chain issues.
• Ur-Energy is looking to grow through M&A, focused on quality assets in safe jurisdictions that can be produced soon.
• Many catalysts could impact uranium prices like production issues, government policy changes, and small modular reactor demand. Market volatility is expected.

Uranium’s Moment in the Sun

After years of low prices, the uranium market is seeing a dramatic turnaround, with prices more than doubling in the last 12 months. Supply shortages, geopolitical instability, rising demand, and market dynamics have combined to push uranium to levels not seen in nearly a decade. While volatility is expected to continue, industry experts see strong long-term fundamentals supporting higher prices. For investors, uranium producers with quality assets and growth potential represent exciting opportunities.

“By far this is the most exciting time that I’ve seen in my career,” says John Cash, CEO of uranium miner Ur-Energy.

The coup in Niger was a wake-up call, highlighting the precarious nature of supply. With mines providing just over half of uranium needs, geopolitics can roil the market. But even absent shocks, the market is tight. Top producer Cameco expects shortfalls to continue at key mines this year. Bringing new projects online takes time, with Ur-Energy’s Shirley Basin expansion requiring two years.

Demand is also rising as nuclear power grows globally, while small modular reactors represent potential new markets. With few projects in the pipeline, the supply gap will persist. Cash believes prices could hit $70-80 in the long run, compared to around $60 currently.

Riding the Uranium Bull

For investors looking to ride the uranium bull, timing and stock selection are key. Producers able to grow production offer compelling exposure. One such company is Ur-Energy. Having just entered commercial production at its Lost Creek in-situ uranium mine, Ur-Energy is poised to benefit from higher prices.

The company has locked in contracts for 3.75 million pounds over six years, worth $220 million in revenue. But with a licensed capacity of 2.2 million pounds annually, this covers just 25% of potential output, leaving substantial capacity to profit from rising spot prices. Once permitting is secured, Ur-Energy can expand low-cost production by developing the Shirley Basin property, acquired in 2014. By adding an extra 1 million pounds annually, the company could leverage its existing Lost Creek infrastructure and operational expertise. However, supply chain issues mean a two-year timeline before production begins.

While ramping up, Ur-Energy is hunting acquisitions to add quality assets that can quickly transition to generating cash flow. The company boasts a strong balance sheet, with modest debt and over $40 million in cash. With sector-leading costs and existing infrastructure, Ur-Energy is positioned to consolidate assets in a small industry.

Risky Business

In such a tight market, shocks to supply can drive sharp volatility. The 2011 Fukushima disaster led uranium to plunge from $70 to below $20. While volatility brings risks, it also creates opportunities to buy into high-quality miners at discount prices.

Investing in uranium requires strong nerves, but the thesis remains compelling. Nuclear power is ideal for providing stable low-carbon baseload electricity. China, India and others are building reactors rapidly, while smaller innovative designs open new markets. With mines supplying just half of the demand, higher prices are needed to incentivize exploration and new projects.

For insightful investors, uranium offers a way to play the global energy transition. As the cheapest and greenest baseload power, nuclear’s role is growing. Established low-cost miners like Ur-Energy benefit from higher prices while minimizing risks. The uranium bull still has room to run.

The Investment Thesis for Ur-Energy

• Expanding production capacity at low-cost operations as market shifts into deficit
• Locked in $220 million in revenue from the first set of long-term supply contracts
• Exploring M&A opportunities to consolidate assets in a tight supplier market
• Leveraging existing infrastructure and expertise to bring new acquisitions into production
• Industry-leading low costs insulate against price volatility