RHJ
Investment Thesis
Energy Fuels (NYSE:UUUU) has seen its stock trickling higher since my previous bullish call. The bull case is straightforward. There are around 130 million tons of uranium being produced globally per year, compared with approximately 180 million of demand per year.
The demand figure is believed to go higher in the coming years. Particularly if China remains on its path to increase its total nuclear reactors by 150 over the next 15 years. That’s going to see demand increasing from 180 to 200 million pounds per year to 250 million pounds per year.
Simply put, there’s a supply-demand imbalance, made worse as governments have come to realize that the need for reliable low-cost energy can’t only come from renewable energy and fossil fuels.
Consequently, I believe that uranium energy is going to be slowly perceived in a better light, which will lead to uranium being a more widely accepted alternative to fossil fuels.
What’s Happening Right Now?
There’s a serious energy crisis affecting the world. All walks of life have slowly come to terms with this realization.
Uranium is not the only solution, but it is one solution. Uranium energy is extremely reliable and doesn’t emit CO2 back into the atmosphere. All its bi-product is contained within the uranium rock.
Certain countries, such as France, already rely on uranium’s nuclear energy for a majority of their energy use. The technology is old and has been out of favor because we have (or better said had), fossil fuel alternatives that were a lot cheaper.
Today, as you know, that’s no longer the case. Uranium is being seriously considered a green energy source by many countries.
As governments look to act on this energy crisis, many countries from Japan to Germany, the UK to the US, and China, are now rapidly reconsidering their stance on uranium. Indeed, recent news points to China rapidly increasing reactor production (0:20 secs).
All this news is leading to uranium prices trickling higher.
Why Energy Fuels?
Energy Fuels is not pureplay on uranium. For some investors, that is a positive. Why? Because even if all indications are that uranium is going to become back in vogue and has all the reasons to go higher over the medium term, between the medium term and right now, it could still be a while.
Even if I’m extremely bullish on uranium prospects, I have to acquiesce, that the uranium market has been ripe and waiting to move higher for a few years, and so far, it’s always the Spanish ”mañana” (just around the corner, but not quite yet).
Playing for Survival?
The overall theme that we are discussing here is that Energy Fuels, like many of its uranium peers, has been around for a while. And that can be viewed in two manners.
Yet again, it can be viewed negatively, that Energy Fuels is always on the cusp of offering jam tomorrow.
Or perhaps, a more measured way to assess this investment is to consider that Energy Fuels has managed to overcome the extremely long bear market of the past decade.
This was a period when Energy Fuels had to do everything in its power to survive. And to come out of all that prolonged decade-long bull market with no debt, reflects its modus operandi, one of survival at all costs.
The Bottom Line
The way that I previously summarize Energy Fuels is as an extremely long date option. If uranium doesn’t pick up, then investors are only going to lose whatever they put into the equity.
But if the uranium market does ultimately pick up strength, then Energy Fuels could fairly easily return to shareholders a more than fair return from its $1 billion market cap.
Again, this is not a particularly ”easy” blue-chip investment. Indeed, even investing in Cameco (CCJ) has proven last month not to be an easy investment, with the stock embracing a 20% plunge in one day of trading.
That being said, Cameco’s shares do appear to have found support and are now returning to back into investors’ favor. And I believe this action around Cameco depicts what’s really at play here.
There’s a nascent market that investors are too soon to pull out their investment if the news flow on that day is poor. But for investors that are truly capable and willing to have a longer-term time frame of at least 12 months, news flow right now appears to be rapidly improving, which could see Energy Fuels move higher in the coming year. If not sooner.
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