Uranium names rise as Granholm says reserve plans moving forward
Jun. 15, 2021 1:15 PM ETCCJ, UEC...By: Carl Surran, SA News Editor4 Comments
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Shares of Cameco (CCJ+3.1%) and other uranium producers trade mostly higher after U.S. Energy Secretary Jennifer Granholm tells a Senate panel that the Biden administration will move forward with a uranium reserve, even though the latest proposed federal budget eliminates funding for the initiative.
According to Bloomberg, Granholm says the administration plans to use previously appropriated funding for the reserve.
China says radiation levels are normal around the Taishan nuclear power plant in Guangdong province, following media reports of a leak at one of its reactors.
Jun. 04, 2021 4:54 AM ETEnergy Fuels Inc. (UUUU)22 Comments WYCO Researcher
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B.A. in Economics; M.S. in Finance. I usually write about distressed companies and companies in Ch.11 bankruptcy. I am semi-retired after spending decades in investments. Summary
$75 million for the uranium reserve was deleted under Biden's budget.
Some senators want to establish a $15/MWh credit for existing nuclear-powered utilities.
The Gates/Buffett natrium nuclear reactor venture selected Wyoming as their location this week.
Energy Fuels continues to issue massive amounts of new shares to raise cash to cover current expenses.
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President Biden's budget released last week which deleted previous funding for a $75 million uranium reserve was a major blow to Energy Fuels Inc. (UUUU) and other domestic uranium companies. It seems to indicate that uranium, as an energy source, is not part of the administration's plan to move away from fossil fuels. The wording of the budget also created widespread misinformation on social media. Even though Energy Fuels is trying to diversify away from uranium into REE-rare earth elements, the company faces a very difficult future that requires them to frequently sell additional shares to raise cash to cover overhead costs. $75 Million Uranium Reserve
The stimulus bill from earlier this year included funding for a $75 million uranium reserve, but that specific legislation did not actually establish the reserve-only funding, if a reserve was eventually established by a different law. I covered this technical issue in an article about Uranium Energy Corp. (UEC). Last week, the White House released their budget that deleted the $75 million:
WEAPONS ACTIVITIES For Department of Energy expenses... necessary for atomic energy defense weapons activities in carrying out the purposes of the Department of Energy Organization Act (42 U.S.C. 7101 et seq.)...: Provided, [That of such amount, $75,000,000 shall be available for the Uranium Reserve Program: Provided further,]... (Energy and Water Development and Related Agencies Appropriations Act, 2021.)
The confusion in social media was the use of brackets [ ]. These brackets mean the items within the brackets are deleted from existing legislation. There was a tweet posted by John Quakes, who covers uranium and has a very large following, that stated the $75 million was included. It seems that he did not understand the meaning of [ ] brackets. Uranium stocks, including Energy Fuels, dropped on the budget news, but rose the following trading day possibly because of the incorrect Twitter post. I posted comments on a Seeking Alpha news article which I hope clarified the misunderstanding.
Even if a $75 million reserve fund is eventually established, it is uncertain if Energy Fuels can even sell any of their uranium inventory to this fund because Energy Fuels is incorporated in Ontario, Canada. If the wording of the establishment of the reserve restricts uranium to only U.S. uranium companies with uranium produced from U.S. uranium facilities, this could be a problem for Energy Fuels. I think the Wyoming congressional delegation, who are the major supporters of this reserve, would want the uranium from Energy Fuel's Nichols Ranch uranium facility in Wyoming to be a possible supplier - actually existing uranium inventory produced from Nichols Ranch.
I think the real problem with the $75 million reserve funding deletion is that it could indicate domestic uranium is not an alternative to fossil fuels in Biden's green new deal. The administration seems to support domestic nuclear power plants, but that may not mean directly supporting domestic uranium companies since most of the uranium currently used is imported. It could be a political issue because most of the domestic uranium facilities are in Republican-leaning states. Uranium Purchased By U.S. Power Reactors
Source: EIA Table 3
There was a proposal on May 26 by a small group of senators to amend the Clean Energy for America Act, that is being considered by the senate, to include a $15/MWh credit for nuclear power utilities. (The actual amendment had not been filed yet when this article was submitted for publication.) This could indirectly help domestic uranium companies eventually, but it would benefit foreign producers who supply these domestic utilities. Even if there is congressional support to include a requirement of buying domestic uranium to get the credit, it is logistically almost impossible because most utilities buy uranium under long-term contracts. The domestic price needs to increase significantly before domestic production is restarted. Spot Uranium Price
Source: YCharts Continued Massive Dilution By New Stock Sales
Energy Fuels has a large annual negative cash flow that is financed by selling new stock to raise cash to cover expenses. At year-end 2016, there were 66.2 million shares outstanding, and as of May 13, there were 143.4 million shares. At least they currently do not have any debt outstanding, which reduces the risk for shareholders. Source: Author
The increase in the number of shares outstanding has also been impacted by various other factors besides selling of new stock, such as using shares to directly pay expenses.
The number of outstanding shares will most likely increase by 3.975 million and an additional $9.7 million cash will be raised, when warrants to purchase shares at $2.45 expire at the end of September.
According to statements in their latest quarterly report, they have sufficient cash for the next 12 months. The problem, however, for current UUUU shareholders is how long before the uranium market improves? During the wait, Energy Fuels will have to sell more and more shares to raise cash to cover expenses. While I do not expect the wait to be as long as Red Sox fans had to wait, it could still be a few years. Operations - Almost Nothing
This statement from their latest quarterly report reflects the current reality for Energy Fuels: "Revenues for the three months ended March 31, 2021 and 2020 totaled $0.35 million and $0.39 million, respectively, which was primarily related to fees for ore received from a third-party uranium mine." - no sales of uranium and no sales of vanadium. Any near-term production will just go into inventory. For the remainder of this year, there could be a very modest amount of revenue from their new segment of REE carbonate. (For a complete analysis of their new REE segment read Gold Panda's article.)
If rare earth elements are going to become a major business line, where is the capital coming from? It takes cash to make cash. Total capital expenditures, which were expensed - not capitalized, in 1Q were $3.37 million and were mostly for their REE carbonate program at White Mesa Mill. There seem to be a lot of risks involved here that are not reflected in the stock price. The market is valuing the company as a "battery play" (REE are used in batteries) and has already priced in a successful transition to REE, in my opinion. Gates' and Buffett's Natrium Reactor
There are also new developments this week regarding the Bill Gates' and Warren Buffett's natrium 345-megawatt reactor joint venture. It was announced that this next-generation nuclear plant will be built in Wyoming, with a specific site to be selected late this year.
There are a number of Wyoming towns/cities on the list, but I am expecting the selected site will be next to the coal-fired Dave Johnston power plant owned by Buffett's Pacific Power near Glenrock, which is about 20 miles from Casper. Casper would have available lodging facilities needed during construction and has an international airport. The new power facility could use existing power lines at the Dave Johnston plant to transmit power into the power grid. Energy Fuels' Nichols Ranch facility is between the Dave Johnston Power Plant and Gillette, another site on the list.Source: 10-K
(Note: The Dave Johnston power plant is located at the "N" - North Platte River in the above map.)
I plan to support this venture, but I know there are some local residents who are already very much against building a "potential nuclear bomb" close to their homes. Those opposed will most likely assert in public relations campaigns that a natrium power plant is much more risky than current nuclear power plants.
It will be years before this becomes operational - if ever. The news release stated it could take 7 years just to build. There are many permits and regulatory issues that could delay the process for years. Conclusion
While I am strongly in favor of nuclear power and Energy Fuels has some interesting positive potential developments in the distant future, the current UUUU stock price does not fully reflect these three negatives:
1) Most of the future developments are "could, might, and potential" - too much uncertainty/risk.
2) Even assuming some of these developments actually happen, these future profits have to be discounted back to present values using a high-risk rate.
3) Massive amount of new shares will be needed to be issued to raise cash to cover expenses, which will result in massive dilution for current UUUU shareholders.
I, therefore, rate UUUU a sale at current prices, but to be placed on the closely watched list for any future developments.
Source: Author
Source: 10-K
(20min delay)
