RHJ
Investment Thesis
Uranium Energy Corp. (NYSE:UEC) is one of the biggest pure-play uranium companies in the world. It’s not the biggest, as Kazatomprom (listed on the London stock exchange) in Kazakhstan is the biggest in the world, and makes up around 40% of the global uranium production.
Meanwhile, Canadian Cameco Corporation (CCJ) is also interesting and already generating strong free cash flows. However, Cameco is not a pure-play uranium player.
And this leads me to the crux of this thesis. UEC is a story stock. UEC is not in production today. But that doesn’t mean it won’t ever be in production. In fact, UEC contends that at uranium prices of $60 per pound it can get into production in a matter of months.
While in the background, there are fundamental catalysts that I believe could get us to $60 per pound sooner, a lot sooner, than the market is presently pricing in.
On balance, there’s a lot here to be bullish about, so let’s get to it.
Why Uranium?
Here’s the full interview of Uranium Energy’s CEO, Amir Adnani. I believe that it’s a worthwhile listen.
The bull case is fairly simple. Adnani contends throughout the interview that there are 200 million pounds of annual demand. This is higher than what I had previously noted, at 180 million pounds.
Moreover, Adnani states that there are today approximately 440 operable uranium reactors around the world. While China is looking to increase its nuclear reactors by 150 over the next 15 years. Think about that. That’s going to see demand increasing from 200 million pounds per year to 250 million pounds. That’s a huge increase.
But this is not a China story. Just as it’s not a Japan story, as they pivot on their uranium outlook. Also, this is not about the EU changing its energy taxonomy to include nuclear as a green energy source. What I’m referring to here, too, is a global story, as countries seek out reliable, low-carbon energy sources.
While on the supply side there are around 130 million pounds coming onto the market by the 440 production facilities across the world. Even without any further growth in the uranium market, anyone can understand that there’s a deficit between demand and supply.
Why Now?
The point that Adnani makes, which I fully agree with, is that Russia had absolutely nothing to do with tightening the uranium market. They are a player along with every other global participant.
Every major economy, from China to the U.S., the UK to Japan, all countries are working to minimize carbon emissions while reconfiguring policies to increase the electrification of their countries.
Today, as countries face an energy crisis, it will only take a spark for countries to turn to uranium as a preferred energy source.
How to Value UEC?
Adnani makes it very clear that until the price of uranium stays sustainably above $60 per pound, UEC is not in production. And how do you even start to reasonably value a business that may or may not get into production?
Well, I look at it from the other side. UEC and others have just survived the most disastrous uranium bear market that lasted more than 10 years. Think about that!
Just how self-selecting is that? Anyone that has survived anything for 10 years, has put in place measures to survive. Think about other businesses, think about the shale industry. As soon as that market turned south, there was a cleansing of weaker participants. The same happened with the uranium sector. Only the winning companies survived.
Meanwhile, UEC today notified the market that it has completed its acquisition of UEX, leading to UEC holding now 5.5 million pounds of uranium in its Physical Portfolio with deliveries out to 2025. All the while, UEC holds no debt.
The Bottom Line
UEC is now the largest diversified North American-focused uranium company. At a time when the world is looking to get hold of energy security when all participants in this sector have been left for dead, we are on the cusp of a new dawn. This is not hyperbole. The conversation is now shifting. And countries are now considering ”all of the above” energy sources.
That being said, the argument of there being a supply-demand imbalance has percolated through the industry for a good number of years. So, investors should not believe that being on the cusp of a new dawn will mean that UEC is going to benefit in the next quarter or the next 6 months.
Investors would do well to appropriately size their portfolios to balance giving them exposure to this stock, while at the same time being able to hold this position in their portfolio without heartache.
In sum, I believe that investors will be rewarded for investing in UEC, as I am. But investors should not expect to see rapid returns in this stock, either. This is a story stock, where the story is clearly improving, but tempering enthusiasm and having realistic expectations are also important.
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