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Analyst Report: Uranium Energy Corp (NYSE:UEC)

|Includes: Uranium Energy Corp (UEC)

Uranium Energy Corp is a uranium mining, development and exploration company operating the newest in situ recovery (NYSEMKT:ISR) uranium mine in the U.S. The company, which has $26 million in cash and no debt, is one of only 5 U.S. uranium producers. Compared to conventional uranium mining, ISR is a less costly and environmentally unobtrusive method of mining that poses virtually no risk to human life.

Uranium Energy's cumulative production, as of April 30, 2012, was 273,000 pounds of uranium at an average cash cost of $18 per pound. The company has sold 120,000 pounds of uranium at an average price of $52 per pound, generating $6.2 million in revenues while retaining 153,000 pounds of uranium with a current spot market value of approximately $8 million. The company's production is un-hedged. The company plans to reach an annual production rate of 1 million pounds of uranium per year.

The company's currently operating Hobson uranium processing plant is central to its ISR projects in the South Texas Uranium Belt, which include the producing Palangana project, the much larger Goliad project, the development and exploration stage Salvo project, and the exploration stage Nichols, Burke Hollow and Channen projects. The company's six South Texas projects span 45,965 acres and contain approximately 13.2 million pounds of NI 43-101 compliant uranium resources.

In addition to achieving production status in Texas, the company has capitalized on lower uranium prices to aggressively expand its project portfolio.

Outside of the company's hub-and-spoke operation in Texas, the company has an additional 19 projects in the U.S. with total NI 43-101 compliant resources of approximately 47.8 million pounds of uranium, not including historical resources. The company controls one of the largest historical uranium exploration databases in the U.S.
As a practical matter, the world needs nuclear energy. Despite the 2011 nuclear disaster in Fukushima, Japan, approximately 433 nuclear reactors remain online in 30 countries worldwide. In recent years, crude oil prices have risen, substantially because of China's growing demand for energy. There are 63 new nuclear reactors are currently under construction and 26 of them are located in China. Uranium is a strategic resource in North America. Over 100 nuclear reactors are currently operating in the United States. There are more than 150 nuclear powered naval vessels worldwide.

Uranium mine supply is inadequate to meet existing demand. The Megatons to Megawatts uranium recycling program, resulting from the 1993 Highly Enriched Uranium (HEU) treaty between the U.S. and Russia, increased uranium supply to the market for roughly 2 decades, but the program will end in 2013. A uranium supply gap is developing that will become evident in 2014. Higher uranium prices will be necessary for uranium mine supply to increase.

Low uranium prices and the Fukushima disaster led to an indiscriminate sell off in uranium mining shares in 2011. In response to the depressed share market, Uranium Energy began an aggressive series of acquisitions, increased the scope of its exploration activities and more than doubled its resources without losing focus on its expanding operations in South Texas. The company has been successful in developing a very large project pipeline with enormous resource expansion potential without excessive share dilution. Having sacrificed near term profitability in exchange for long term resource growth, the company's share price, which recently fell to a new 52-week low, has suffered heavily. Nonetheless, Uranium Energy has a strong balance sheet with no debt and has shown consistent operational and business execution, while greatly expanding its resources and increasing its production.

ISR is a low cost, low risk, environmentally friendly method of uranium mining that is operationally profitable at or below current uranium prices. Uranium Energy is well positioned as a fast growing, low-cost producer in the U.S. with a strong production growth profile and a large project pipeline. Uranium Energy is a strategic resource play. Over the next two years, the company will be in a winning position vis-à-vis uranium supply and demand fundamentals and higher uranium prices. As its production and revenues continue to ramp up, the company is likely to be revalued in the next 12 to 18 months.

Uranium Energy Corp (NYSE:UEC)

Disclosure: I am long UEC.