Uranium Energy: Profit from the rising uranium price!

The share price of Uranium Energy, the No. 2 uranium company in North America after Cameco, has risen tenfold since its low in 2020, from 50 cents to over $5. Investors are currently taking profits at this level. CEO Amir Adnani is brimming with self-confidence and told investors in Frankfurt that the share price could still rise to “over twenty dollars”.

An extremely cyclical share

No question: Uranium Energy ($5.64 | $UEX) is an extremely cyclical share that could make – or lose – a lot of money. The share price is extremely volatile and essentially follows the price of uranium. The sector has been in crisis mode since 2011, because the price of uranium oxide was usually far below the high production costs of western industrialized countries. It was often cheaper to mothball mines and processing plants than to produce the radioactive material. The supply of uranium came from republics of the former Soviet Union. The damage to the industry’s image caused by the Fukushima disaster was huge anyway.

Uranium Energy’s share price performance is not for investors with weak nerves. After crashing from its interim high at the end of 2010, the share price fluctuated around the one US dollar mark for seven years. From 2021, stock market turnover suddenly exploded. Hard-nosed speculators had obviously come to the realization that uranium could only go up again. They drove Uranium Energy’s share price upwards amid wild fluctuations. The company’s market capitalization now stands at an impressive $2 billion.

Brought back to life

“The uranium price only came back to life 45 days ago, after eleven years of decline,” said Amir Adnani during the interview in Frankfurt. An interesting statement. He was referring to the fact that it has only been worthwhile mining and processing uranium in North America again for about six weeks. He continued: “73 dollars per pound is a good price to get into production.” His company’s break-even point is $40, he explained when asked. However, the uranium price would have to be constantly much higher to really make money.

With his aggressive bets, Amir Adnani is not a manager that everyone has to like. However, he has done a good job at Uranium Energy in recent years. Where others were timid, he took bold action. He bought uranium mines and processing plants in the US states of Texas and Wyoming at ridiculously low prices, which had been shut down by their previous owners due to the low price. He also acquired development projects with existing operating licenses. He also acquired Rough Rider, one of the best uranium properties in the world, and other exploration projects from Rio Tinto in Canada.

These acquisitions cost several hundred million dollars. Nevertheless, Uranium Energy is debt-free. We asked how that works. Amir Adnani: “We used our shares to finance this.” When cash was required for takeovers, capital increases were carried out. Or the seller was paid directly with shares. Of course, this led to capital dilution, which is always bad for existing shareholders. The management of Uranium Energy was well aware of this fact, and also that its own share price was at rock bottom. Nevertheless, added value was created from the company’s perspective because assets were acquired that were even more undervalued than the company’s own shares, according to Adnani.

Start of production in mid-2024

Amir Adnani assumes that production can begin in mid-2024 at the currently decommissioned but fully operational plants in Texas and Wyoming. However, he is still waiting for the uranium price, which has shot up far too quickly in recent weeks, to stabilize at an attractive level. About the technology: The uranium is extracted using in-situ recovery (ISR). In this process, liquid is injected into uranium-bearing sandstone and the metal dissolved in the liquid is pumped out. This solution is then purified in the processing plant in several steps until marketable uranium oxide remains at the end.

Profits and cash flows still a dream of the future!

Uranium Energy has 8 million pounds per year of approved capacity. In 2024, 1 million pounds are to be produced and output is to be increased to five to six million pounds per year over the next four to five years. Large profits and free cash flows are therefore still dreams of the future.

Uranium Energy sees itself as the “fastest growing uranium company”. The aim is therefore more likely to be to increase the net asset value (NAV). Despite the sharp rise in the share price, the ratio of share price to NAV is only 0.7. By comparison, Cameco has a ratio of 1.5. Amir Adnani: “Whether you buy our shares depends on your opinion of the uranium price. I have a personal price target of over 20 dollars. This should be reached if the uranium price rises to over 100 dollars.”

A growing supply deficit

At least the developments on the market suggest that Adnani could be right:

• Demand for uranium oxide is estimated at 195 million pounds this year, while supply is estimated at 143 million pounds, which corresponds to a supply deficit of 52 million pounds. This is expected to rise cumulatively to 113 million pounds by 2025 and to around 476 million pounds by 2033 – the strongest argument for higher prices.
• Almost half of current uranium production is located in three former Soviet republics: Kazakhstan (54.6 million pounds), Uzbekistan (8.8 million pounds) and Russia (7.7 million pounds). Production in North America is to be increased for political reasons. The USA is the world’s largest operator of nuclear power plants and the largest consumer of uranium at 44.4 million pounds per year. However, it does not rank among the top 10 uranium producers worldwide.
• There are currently 436 nuclear reactors in operation worldwide, 60 are under construction and 69 have been completed since 2013. The annual growth in uranium demand (2021-2041) is estimated at 3.1%.
• The highest uranium price was $138 per pound in 2005 (after problems at two of the world’s largest mines). The lowest price was recorded in November 2016 at $17.75 per pound, which was a 12-year low. Amir Adnani: “The 138 dollars from back then is equivalent to 200 dollars today due to inflation.” Fundamentally, therefore, there is a lot to be said for a multi-year bull market.

One of the few sectors to perform well

Conclusion: Alongside oil and gas, uranium has recently been one of the few sectors in the commodities sector that has performed well on the stock markets. This positive trend should be able to continue for a few more years, although strong price fluctuations are to be expected. When uranium is booming, Uranium Energy, one of the most popular stocks, is certainly not a bad choice. However, we are currently seeing profit-taking on the market.

Please note: Investments in the capital markets are associated with a high level of risk. Investors can lose all of their capital – and more. Remember to do your own due diligence! The content of this website is intended exclusively for readers who are permanent residents of Germany. The German disclaimer applies (see below). 

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Graphics: Das Investor Magazin, Uranium Energy

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