Uranium Plays for U.S. Investors

by: Matthew Smith

For years we have been spreading word of the uranium miners and their future prospects. Many thought that the crash in 2008 was a fundamental breakdown, however we warned against that. Our logic was that bull markets simply do not crash overnight, those moves are reserved for corrections. It turns out that it was a correction and the uranium market has since recovered, thus offering an excellent opportunity to US investors to add uranium to their portfolios.

Much has changed over the years, with a few new issuers appearing on the reputable US exchanges. Those are the companies we are going to discuss today, while highlighting what they are doing to bring production to market or while in production.

Cameco Corporation (NYSE:CCJ)

One of the two 800 pound gorillas in this industry, the company has the world’s two richest uranium mines. Located in the prolific Athabasca Basin in Canada’s Saskatchewan province, these mines are both mined via the latest underground mining techniques. Due to their depth and the surrounding rock, the mines are susceptible to flooding as has happened at each one, one time delaying work at Cigar Lake and pushing back its opening date. Cameco is one of the western companies allowed to purchase HEU from the Russians, at below market prices, and down-blend it into uranium fuel suitable for civilian nuclear purposes.

The company has been reluctant to purchase companies bringing mines into production or purchasing uranium juniors; however it has entered into a few joint venture agreements whereby it will pay exploration costs to earn into various projects.

As uranium prices rise, Cameco’s bottom line will not benefit as much as the smaller players due to the long-term legacy contracts that they have. As these expire though, the company should benefit. This is the bluest of blue chips for the industry.

Denison Mines Ltd. (NYSEMKT:DNN)

The company is an international player with assets in the US, Canada, Mongolia and Zambia. Most of these assets are not revenue producing but rather exploration targets. Now that the uranium market has improved, we would expect to see Denison allocate more resources toward Zambian exploration. The company continues to advance various small-scale mines in the western US, however the environmentalists have been causing problems. The White Mesa Mill is the only mill currently in production in the US west, and provides further revenues for the company via toll milling agreements with other miners.

Denison owns 60% of the Wheeler River project, which hosts the Phoenix Deposit (35 million+ lbs. Indicated and 3.8 million+ lbs. Inferred resource, which is NI 43-101 compliant). Cameco owns 30% of this project and the other 10% is owned by a Japanese concern. The company will continue exploration work on the project, which hosts uranium at an 18% grade. Further drilling should increase the size of the deposit, but production from this project will be years down the road.

Uranium Energy Corporation (NYSEMKT:UEC)

UEC is the first company to get into production on a meaningful scale in the US in many years. It is focused on exploiting the uranium deposits down in Texas, and is implementing a ‘mill and satellite’ strategy. The company has built one mill, Hobson, and will develop various projects to supply the uranium to process. UEC uses ISR mining techniques, and moving forward has an advantage over the competition as Texas has different resource laws than the rest of the country, which makes it easier to bring projects into production.

Ur-Energy Inc. (NYSEMKT:URG)

The company could reach production within the next 12 months at its Lost Creek project. Once production has fully ramped up the company should have a production rate at about one million pounds U3O8 per annum. The LC South project located beside Lost Creek will be able to piggy back on the licenses granted to Lost Creek, so the company will develop that next, which will give it another one million lbs U3O8 per year in production. The mill it is building will initially be capable of handling two million lbs. per year of production, but the company has designed it to be able to add an additional one million lbs. in production capacity in order to handle production from other projects when they come online.

The company is fully funded into production and we have been told through our conversations with the company that it has been stockpiling the materials it will need to build the mill. It is our opinion that this is the best ISR team in the world and going forward this will be a valuable asset.

Uranerz Energy Corporation (NYSEMKT:URZ)

Uranerz Energy is another uranium junior focused on Wyoming. The company is currently advancing two projects, both of which will use ISR mining techniques. Like the other ISR miners, URZ is going to implement the central mill with satellite projects strategy.

Nichols Ranch will be first to production. However, with only 2.49 million lbs. U3O8 in the Indicated category of the NI 43-101 report, its production rate will not be high enough to fill the capacity (up to two million lbs.) of the mill it is constructing. The company will need to bring on a few of its projects to get to full capacity, however with its strategy each additional project should be quite profitable to bring online.

Already the company has contracts in place for its production. One of the parties is none other than Exelon (NYSE:EXC), operator of the largest nuclear reactor fleet in the United States. These contracts, both long-term and lasting five years, effectively hedge URZ’s production, which will limit upside for investors as uranium prices increase.

URZ expects to be in production in 2012, and will continue to develop its project pipeline. URZ is similar to UEC with the smaller size of the deposits and the focus on many satellites providing material for the one mill. The company has a low float, which can provide for some volatile moves on news and has made it quite popular with the day trading crowd.

Crosshair Exploration & Mining Corporation (CXZ)

CXZ listed just before the correction in the uranium market, leaving a sour taste in the mouths of many investors. The company recently purchased a near-term production asset from Strathmore Minerals and recapitalized the company, part of which involved the 1 for 4 reverse split. The company is now advancing a US project named Juniper Ridge with a historic resource of 6.97 million lbs. of U3O8, which is located in Wyoming. The company also has the right to earn a 75% interest in the Bootheel Project from URG, which has an NI 43-101 compliant resource of 1.09 million lbs. indicated and 3.25 million lbs. inferred. The project’s resources should increase after further drilling as the entire historical data was not computed when compiling the NI 43-101 report.

The company has large land holdings in the Central Mineral Belt located in Canada’s province of Labrador. Currently the natives have placed a moratorium on all work taking place on native land, but this original moratorium is set to expire soon.

Uranium Resources, Inc. (URRE)

When you look back at this company's history, you are dumbfounded. It has had issues with projects ranging from lawsuits with natives in the southwestern US to geology. Recently the company won its suit involving one of its projects in New Mexico, which paves the way for it to move forward.

Although the company has projects with large resources, there are just as large royalties associated with these properties, and as uranium prices rise, so too do the royalties. The company will not be as leveraged to the price increases of uranium oxide due to this fact and as prices move through $80/lb. the highest royalties kick in. Currently this is a play for day traders, as there are too many questions still lingering regarding long-term prospects.

There are many other junior uranium explorers available for investment by American investors, but these are ones that trade on the reputable exchanges. As China continues to stockpile uranium in anticipation of its reactors coming online and more reactors around the world come online, uranium prices will escalate. This is not just a 2011 story, but a multi-year story due to the coming withdrawal of cheap Russian HEU from world markets in the next two years. Physically mined uranium currently does not meet the world’s demand, and a shortfall is anticipated by 2013, providing solid fundamentals for investors looking at uranium as an investment opportunity.

Disclosure: I am long URG.