Uranerz Energy Corporation (NYSEMKT:URZ) is a U.S. uranium exploration and production company with an advanced stage uranium development in Wyoming. The company has stated they are very excited about opportunities with respect to uranium demand and its outlook on pricing. As of January, there were 441 reactors operating worldwide with an additional 58 under construction. Some 537 reactors are currently under construction or in planned or proposed stages. According to the World Nuclear Association website, China is by far the leader of reactors under construction, planned or proposed. China is followed by India, Russia, the United States, and South Africa. Uranerz is a small company by market cap, but its rise over the last year has been exponential. It has $36 million in cash and no debt. About 9.5% of its shares are owned by directors and management.
In January, Uranerz received a state permit to mine from WDEQ. This was not surprising as historically Wyoming has been a cooperative mining state. In November of last year, it received the draft NRC materials license. Uranerz is focused on near term productions and expansion to increase current resources. Most importantly, this company has engaged in-situ recovery in the Powder River Basin. Uranerz has a very large holding in this area of Wyoming, which has the largest uranium resource of all 50 states. This area has had continual production since 1957. Wyoming has two ISR processing plants, one is owned by Cameco (NYSE:CCJ) and the other by Uranium One (OTC:SXRZF).
In-Situ recovery uranium mining is optimally used with deposits located in aquifers with underground permeable rock. ISR utilizes ground water fortified with oxidizing agents pumped into deposit ("in-situ") dissolving the contained uranium. This dissolved uranium (U3O8) solution pumped to the surface to be processed into yellowcake. Yellowcake is then shipped to the conversion facility. The NA states that ISR was 36% of all global uranium production in 2009. ISR has emerged for several reasons. ISR has low capital and operating costs. It has a low environmental impact and increases the speed of mine construction. Many other uranium exploration and production companies use ISR including:
- Crosshair Exploration (CXZ);
- Uranium Energy (NYSEMKT:UEC);
- Uranium Resources (NASDAQ:URRE);
- Ur-Energy (NYSEMKT:URG); and
- Denison Mines (NYSEMKT:DNN)
Uranerz is positioned well as the Powder River Basin has some of the highest grade ISR amenable deposits in the state. This area's potential is validated by Cameco and Uranium one's presence. The Powder River Basin has had mines utilizing ISR since 1986. Uranerz bought properties in this area of known uranium mineralization. These properties are and their reserves are:
- Nichols Ranch - Indicated 2949546 lbs. (.114%)
- Hank - Measured & Indicated 2236050 lbs. (.123%) Inferred 246753 lbs. (.087%)
- Reno Creek - Measured & Indicated 4292948 lbs. (.056%) Inferred 142167 lbs. (.039%)
- West North Butte - Measured & Indicated 2837015 lbs. (.153%) Inferred 2681928 lbs. (.120%)
- Jane Dough - Measured & Indicated 2735432 lbs. (.108%) Inferred 240246 (.081%)
The Arkose mining venture is owned jointly with Uranerz (81%) and United Nuclear (19%). This area is approximately 67000 acres. This venture has additional mining targets still being explored and there may be considerable upside. Drilling has affirmed favorable uranium mineralization.
Wyoming continues to be a good location for uranium mining. To date seven commercial ISR projects were licensed since 1981 with six in the Powder River Basin. Uranerz was directly involved in obtaining the WDEQ and NRC licenses in three of the seven mentioned. It takes considerable time to get permits for a uranium mine. This is important as the upcoming nuclear renaissance will position those already mining to contract uranium while other companies try to get their licenses and permits. It seems Uranerz has prepared for increased uranium pricing and demand and this places their company in a great position as the United States has more nuclear reactors than any country in the world. It would seem that domestic companies will be more apt to set up contracts with companies that are closer with respect to locale.
The Nichols Ranch processing facility permitting is underway for a maximum annual production level of 2 M lbs. of U3O8. In 2012 production will begin. This should lead to cost savings in satellite operations. The Nichols Ranch ISR project should have a production life of a little over five years with capital costs of $35 million and operating costs of $24/lb. of U3O8. If taxes and royalties are included it reaches $35/lb. IRR is estimated at 56% if $64/lb of U3O8 is used with respect to amount the metal is sold.
These satellite economics with a central processing plant allows all locations to send resin. Each additional satellite will have an IRR of 65% with capital costs of $13.5 million per satellite and operating costs of $32.70/lb. of U3O8.
Uranerz has signed two agreements to provide uranium for five years to Exelon (NYSE:EXC) and another domestic nuclear reactor operator. It is also in the final stages to commence mine construction with commercial production beginning sometime next year. Along with making acquisitions in the area, Uranerz is planning to further explore the Powder River Basin.
In summary, Uranerz is in the process to begin domestic production of uranium. Currently, nuclear reactors in the United States have been importing a good portion of their fuel. Due to the discontinuation of the HEU program with Russia to convert ICBM warheads into reactor fuel in 2013, it would seem timely for this mine to begin production approximately one year prior. Not only do they have contracts in hand, they have ISR mines that have low costs, while uranium pricing continues to push upward.
Disclosure: I am long DNN, URRE.
Additional disclosure: Source: World Nuclear Association