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Energy Fuels offers existing uranium revenue and plenty of upside if the price strengthens

Energy Fuels continues to develop the potential of its uranium portfolio
Energy Fuels offers existing uranium revenue and plenty of upside if the price strengthens
Uranium demand could rise later in the year

Drilling adds value at Canyon and new wellfield at Nichols Ranch

 

Recent drilling at two projects held by Energy Fuels Inc (NYSE:UUUU) (TSE:EFR) have delivered encouraging results. The company’s shares moved up nicely after drilling at the Canyon mine in Arizona hit 8.5 feet of 6.88 U3O8, 48 feet of 1.02% U3O8, and 35 feet of 1.39% U3O8.

The Canyon mine is not yet in production, unlike the subject of Energy Fuels’ other ongoing drill campaign, Nichols Ranch.

Nichols Ranch is situated in prime uranium country in Wyoming, USA and, with an established resource of 2.8 mln pounds of uranium, has been central to Energy Fuels ongoing production since 2014.

The company mines at Nichols Ranch using the in-situ leaching method - wells are sunk into the ground and the uranium is leached out of the host rock and pumped to surface. The current drilling relates to the newest wellfield being sunk into the project, termed Header House 9. This has already hit good thicknesses and grades across a number of sites, and Energy Fuels expects the field to be up and running and in production later this year.

 

Production delivers revenues and gross profits

 

Production from the new wellfield will bolster the company’s ongoing production, which comes both from Nichols Ranch and from other conventional mines elsewhere in the USA.

Energy Fuels sold 100,000 pounds of U3O8 during the second quarter to June 30, pursuant to a long term contract priced at US$70 per pound. That’s considerably higher than spot and accounts in part for Energy Fuels’ relative strength compared to other junior uranium peers.

In total the company recovered 80,000 pounds of uranium from Nichols Ranch uranium project and 108,000 pounds from its other conventional mines elsewhere in the US.

Not all the mined uranium was sold, as prices have been weak. As a result the company has been building a uranium inventory, which currently stands at 360,000 pounds. In addition, Energy Fuels also has cash and cash equivalents of US$14.4 mln.

 

Wider portfolio continues to offer potential

 

Elsewhere, shaft sinking operations continue at the Canyon project. The shaft is currently at a depth of approximately 1,100 feet and is likely to penetrate as deep as 1,470 feet. An underground drilling programme to evaluate the further potential of Canyon has commenced.

And a new project has lately come into the company via the acquisition of Alta Mesa in a 4.55 mln share deal. This project includes a fully-licensed in-situ leaching plant currently on care and maintenance. This project is poised for re-start pending an improvement in uranium prices.

Energy Fuels has also acquired the remaining 40% of the Roca Honda project through the issuance of 1.21 mln shares and an undertaking to pay US4.5 mln in cash on the commencement of commercial mining.

 

Uranium price remains key to future profitability, says CEO

“Unfortunately, the price of uranium continues to disappoint in 2016,” says chief executive Stephen P. Antony.

“Put simply, the world is over-supplied with uranium today and end-user demand is not yet sufficient to catalyze an uplift in prices. Amid this market uncertainty, we continue to deliver into our above-market long-term contracts, control costs, rationalize our asset portfolio, and preserve Energy Fuels’ optionality to significantly increase production when prices improve.”

 

Analysts highlight vast undeveloped resources

Dundee Securities has had a price target of C$5.80 for Energy Fuels for some time now, implying the potential for a near-doubling of the share price in the medium term. The reasons for the optimism are pretty straightforward.

 

“Due to vast undeveloped resources and a number of permitted and ready to go projects, EFR remains a top pick for leverage in a rising price environment,” wrote Dundee in early August 2016.

 

Separately, Roth Capital has maintained its “buy” rating on the expectation of an improvement in uranium market conditions later this year.

 

Certainly there is some ground for such optimism. Japan has recently announced the restart of its 5th nuclear reactor, with a further 20 moving through the restart progress. Two new nuclear reactors have also recently been green-lit in Iran, to be built by Russia, and Iranian leaders are contemplating the construction of 10 more. Meanwhile, the Chinese building programme continues.

 

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