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Summary

  • Uranium stocks, nearing all time lows, represent a unique value investing opportunity.
  • Cameco Corp. has unearthed record hauls in 2013 and the 4th quarter of 2013 and has a clean balance sheet with high income and little debt.
  • Ur-Energy Inc. has been steadily increasing its production and profitability over the past year and offers less risk and higher reward for a longer investment than meets the eye.
  • Uranium Energy Corp. has a large potential payoff in store from future project sites.

Uranium Industry

The uranium production industry is one which has not seen much growth in the past three years. The Fukushima disaster in 2011 has been a major catalyst in the declining share prices of uranium mining stocks, as recent public opinion of nuclear energy has been quite negative. However, as the demand for alternate forms of energy grows further within the next few years, I see a very strong potential for growth in this industry.

Prices for three of the largest uranium producing companies are nearing all-time lows in share price, and at this point I believe present a strong buy for the risk-aversive value investor. Given improvements in the safety and monitoring of nuclear power plants across the U.S. and the recent approval of nuclear power facilities in China, the uranium production industry has the potential to see growth it has not seen in many years.

I believe that there are three top players in the uranium producing industry that deserve to have their future expectations examined a little closer. Taking a look at key components such as resource estimates and yearly/quarterly performance and comparing them can help us get a better look at how these companies are performing and will help make a strong analysis.

Top Players In The Uranium Mining Market

Ur-Energy Inc. (NYSEMKT:URG)

URG is a U.S. based junior uranium mining company that, like most uranium mining companies, specializes in its "in situ" mining technique to retrieve the mineral from the ground. URGs' largest mining project is its Lost Creek property. However, recently, in 2013, URG acquired two more mining sites that are currently in the process of getting started, these sites are the Shirley Basin and Lucky Mc Mining site.

Lost Creek:

The Lost Creek project is the largest project that URG is currently operating for the mining of uranium deposits. Lost Creek was acquired by URG in 2005 and is located in the Great Divide Basin, Wyoming. Since 2013, there are no remaining royalties that are to be paid back by URG, decreasing their liabilities associated with that. Lost creek property currently consists of Lost Creek, LC east, LC north, LC south and LC west. Lost creek has been outputting impressive numbers since it was acquired in 2005 and is expected to increase in 2014.

Lost Creek property 2013 resource summary:

MEASURED

INDICATED

INFERRED

PROJECT

AVG GRADE

SHORT TONS

POUNDS

AVG GRADE

SHORT TONS

POUNDS

AVG GRADE

SHORT TONS

POUNDS

% eU3O8

(X 1000)

(X 1000)

% eU3O8

(X 1000)

(X 1000)

% eU3O8

(X 1000)

(X 1000)

LOST CREEK

0.058

3,116.9

3,589.9

0.052

2,350.1

2,443.9

0.057

1,836.4

2,085.3

LC EAST

0.054

1,175.3

1,260.3

0.040

1,689.3

1,360.8

0.046

1,665.8

1,533.0

LC NORTH

-----

-----

-----

-----

-----

-----

0.049

489.1

481.6

LC SOUTH

-----

-----

-----

-----

-----

-----

0.042

710.0

602.6

LC WEST

-----

-----

-----

-----

-----

-----

0.109

17.2

37.4

EN

-----

-----

-----

-----

-----

-----

-----

-----

-----

GRAND TOTAL

0.057

4,292.2

4,850.2

0.048

4,039.4

3,804.7

0.051

4,718.4

4,739.8

MEASURED + INDICATED =

8,331.6

8,654.9

2014 expectations:

During the month of January alone, 80,396 pounds of tiuranium octoxide was pulled from the ground at Lost Creek. During the year of 2014 URG is expecting to produce 1 million pounds of tiuranium octoxide. On current contracts they plan on selling off 1/3 of the total 1M pounds of production. URG is also expecting cost of pounds sold to decrease anywhere from 5%-15% over the course of 2014.

Q1 2014 results:

110,000 pounds of u308 were pulled from the ground at the Lost Creek property. This seems to be following the path of the expected results of 1 million pounds in total at the end of year ending 2014.

Net Losses:

2014 Q1 net loss: 1.9 Million

2013 Q3 net loss: 3.2 Million

2013 Q2 net loss: 3.9 Million

2013 Q1 net loss: 3 Million

2.9 million in gross profit based off of the total amount of mineral pulled from ground, net sales of 6.1 million, operating expenses of 3.9 million for a total net loss of 1.9 million during Q1. Looking at previous quarters this is an improvement. URG is on the road to profitability!

Pathfinder Mines:

Picked up by URG in December of 2013, Pathfinder Mines consists of the Shirley Basin and Lucky Mc mine site. According to URG's website, at one point, the Pathfinder Mines location produced a historic 72 million pounds of uranium from the 1960's through the 1990's!

Production Royalty as Shirley Basin is 5% under the following conditions:

(I) if the reported spot price exceeds $55 prior to June 30, 2016 the 5% gross royalty is capped at $6,625,000.

(II) if the reported spot price exceeds $45, but does not exceed $55 prior to June 30, 2016 the royalty cap is reduced to $3,700,000.

(III) if the reported spot price does not exceed $45 prior to June 30, 2016 the royalty is terminated. 5% is going to be a sizable portion of the income taken from the minerals at the Shirley basin mine site and until the royalty is paid off in full it will take away significantly from the overall profitability of the Shirley Basin mining site.

Once production at the two mining sites begins, it is possible to assume mineral production could possibly be as high as it was when production ceased in the 90's. If this is the case, within a few years URG could be a potential leader in U.S. uranium production.

Uranium Energy Corp. (UEC)

Uranium Energy Corp. is a U.S. based uranium mining company which operates out of properties in Texas, Wyoming, New Mexico, Arizona and Colorado.

Hobson Processing Facility:

Hobson is an "in situ" processing plant located in Texas. ISR mining technology is capable of mining for uranium with lower production costs and less of an impact on the environment. This process involves injecting uranium deposits in the sandstone with oxygenated ground water. The solution dissolves the uranium and the dissolved solution is then taken from the ground and separated.

During the fiscal year of 2013, the Hobson facility has processed 194,000 pounds of uranium and completed sales totaling in 9 million dollars in revenue.

Palangana Mine:

The Palangana mine is an 8,796 acre mining site located in south Texas.

Resource Estimates - Palangana Mine

Resource Category

Cutoff GT

Tons

Grade % eU3O8

Pounds eU3O8*

M&I Resource

0.5

393,000

0.135

1,057,000

Inferred Resource

0.5

328,000

0.176

1,154,000

* Disequilibrium Factors Applied

GT - is grade-thickness determined by multiplying the grade of mineralization expressed in percentage terms by mineralized thickness measured in feet.

Future Outlook:

Given the anticipated future price of U3O8 per pound of around $45 and an average cost per pound sold of around 35 dollars, the Palangana Mining site can be expected to produce revenues of around $11.54 million, should the resource estimates for Palangana be correct.

Goliad:

The Goliad mining site is a project currently under construction by Uranium Energy Corporation. Something special about this site is that is offers an expected resource yield of 5,475,200 pounds of uranium! That's just a little more than 4 times the expected yield of the Palangana mining site. Should this site be successful it would bring years of uranium flowing through the site producing consistent revenue.

Resource Estimates - Goliad Project

Resource Category

Cutoff GT

Tons

Grade % eU3O8

Pounds eU3O8*

M&I Resource

0.3

3,790,600

0.05

5,475,200

Inferred Resource

0.3

1,547,500

0.05

1,501,400

* Disequilibrium Factors Applied

GT - is grade-thickness determined by multiplying the grade of mineralization expressed in percentage terms by mineralized thickness measured in feet

Burke Hollow:

Burke Hollow is another mining site owned by UEC. Total initial inferred estimates of resources contained are 2.89M pounds of u3o8. With an additional exploration target that is estimated to contain anywhere from 1.8 - 7.2M pounds of u3o8.

Estimate of Inferred Mineral Resources

Cut-off Grade
U3O8%

Ktons

U3O8 (%)

Contained
U3O8 (Mlbs)

UPPER ZONE RESOURCES

0.005

3,768

0.035

2.64

0.010

3,170

0.040

2.56

0.015

2,828

0.044

2.48

0.020

2,437

0.048

2.35

0.025

2,087

0.053

2.20

0.030

1,705

0.058

1.99

0.035

1,453

0.063

1.83

LOWER ZONE RESOURCES

0.005

815

0.037

0.61

0.010

797

0.038

0.60

0.015

749

0.040

0.59

0.020

592

0.046

0.54

0.025

515

0.049

0.50

0.030

455

0.052

0.47

0.035

379

0.056

0.42

EXPLORATION TARGET SUMMARY

tons

Grade % U3O8

Pounds

Lower Limit

3,000,000

.03

1,800,000

Upper Limit

6,000,000

.06

7,200,000

Net Income:

UEC went on a serious decline in net income from 2011 to 2012, but I believe that within the next few years that will be creeping up into the positives as new projects such as Burke Hollow and Goliad begin to output large quantities of uranium.

Cameco Corp. (CCJ)

Cameco is currently the largest uranium producer harboring mining sites throughout the US, Canada and Kazakhstan. They account for more than 15% of the worlds' uranium production. And own 40%+ of the total market share of uranium produced.

Resources:

As of December 31st 2013, 345.7M Pounds of u3o8 have been taken from all of CCJs' combined properties.

Proven and probable

(tonnes in thousands; pounds in millions)

Proven

Probable

Property

Mining method

Tonnes

Grade %U3O8

Content
(lbs U3O8)

Tonnes

Grade %U3O8

Content
(lbs U3O8)

McArthur River

underground

465.2

21.42

219.7

572.2

11.17

140.8

Cigar Lake

underground

233.6

22.31

114.9

303.5

15.22

101.8

Rabbit Lake

underground

43.0

0.29

0.3

1,599.1

0.57

20.0

Key Lake

open pit

67.5

0.50

0.7

Inkai

ISR

1,947.1

0.08

3.6

57,742.6

0.07

84.0

Smith Ranch-
Highland

ISR

1,100.8

0.10

2.5

1,498.3

0.08

2.7

North Butte-
Brown Ranch

ISR

925.1

0.09

1.8

1,361.9

0.07

2.0

Crow Butte

ISR

928.6

0.11

2.3

Total

5,710.8

-

345.7

63,077.6

-

351.5

Reserves Continued

(tonnes in thousands; pounds in millions)

Highlights for 2012 and 2013:

Highlights
December 31 ($ millions except where indicated)

2013

2012

Change

Revenue

2,439

1,891

29%

Gross profit

607

540

12%

Net earnings attributable to equity holders

318

253

26%

$ per common share (diluted)

0.81

0.64

27%

Adjusted net earnings (non-ifrs)

445

434

3%

$ per common share (adjusted and diluted)

1.12

1.10

2%

Cash provided by operations (after working capital changes)

530

579

(8)%

2013:

2013 yielded record uranium production of 23.6 million pounds and a record 4th quarter production of 7.5 million pounds.

Investments:

During the year of 2013, CCJ has invested around 70 Million for exploration purposes in uranium rich areas in Australia, Saskatchewan and the United States.

Closing Thoughts:

The uranium mining industry is one with its own set of unique risks and with its unfavorable use as a form of energy within the general public currently has it sitting in a grey area among alternative forms of energy. However with the demand for alternate forms of energy increasing year after year, it would be prudent to say that an investment in this area would be a strong preemptive decision.

URG and UEC are both on the smaller end as compared to CCJ, however I believe as they continue to grow they have the potential to become top players in the uranium mining industry as well. I believe that URG and UEC are both worth watching as nuclear power emerges from the depths as demand for alternate forms of energy strengthens.

Source: 3 Uranium Producers Worth Watching

Additional disclosure: I have no positions in UEC or CCJ, and no plans to initiate any positions within the next 72 hours.