by Travis Johnson, Stock Gumshoe | July 17, 2017 4:34 pm
Welcome back, me! I’ve been vacationing for a week or so, and I’m ready to dive back into the teaser swamps to see what little morsels we might find to discuss.
This one was an easy pick for the Thinkolator’s first project of the week: Nick Hodge[1] is pitching one of his newsletters, Wall Street’s Underground Profits[2], by holding out the promise of an “emission free oil[3]” — so what’s the story?
Well, as he does indicate once you get a bit further along in his presentation, he’s talking about uranium[4] — which is, of course, not an “emission free oil”… but it’s a catchy turn of phrase for their ad, and nuclear power is certainly the most promising large-scale base load power source that doesn’t generate carbon emissions or air pollution.
So… what is the investment he’s pitching for this “clean energy breakthrough”…. and what’s the company that he thinks could turn a $10,000 investment in to $1,165,000? Let’s check the clues and get you some answers… from the ad:
“Right now, a technology revolution is brewing in the most neglected corner of the energy industry. Insiders are calling it Fracking 2.0.
“Thanks to this once-in-a-lifetime breakthrough, a tiny company you’ve never heard of is now sitting on 4.1 billion barrels of “emission free” oil.
“That’s equal to half the oil reserves of Mexico[5]. It’s nearly as much as Norway — and more than Vietnam[6], Egypt, Malaysia, Indonesia[7], and Yemen.
“With this fuel, you could generate 2.3 billion megawatt-hours of electricity.
“Enough to power a city the size of New York for 14.5 years.”
And then on to the specific investment he’s hinting at…
“The energy windfall I’m talking about isn’t locked in the ground overseas. It doesn’t belong to Russia[8] or Syria or Iran. The entire resource is safe and secure in South Texas….
“… this clean-burning wonder fuel was pumped out of the ground very near the legendary Eagle Ford shale formation.
“But it’s much more powerful than oil or natural gas[9].
“By weight, it has 10,000 times the energy potential of petroleum.
“It has 14,000 times the potential of coal[10].
“Now — thanks to Fracking 2.0…
“One company can suck it out of the ground for 50 cents on the dollar!”
And apparently this company, thanks to “Fracking 2.0”, is ready to jump on the next (inevitable, they claim) super-cycle surge in uranium prices, because they can get their operations online for only $10 million (not hundreds of millions for building a mine). He describes that “Fracking 2.0” here:
“The process is called In Situ Recovery, or ISR for short.
“Instead of open-pit or underground mining, they pump a special water[11]-based solution into the sandstone formation that contains the uranium with an injection well.
“It then circulates through the formation, oxidizing and dissolving the uranium, and gets pumped back up to a production well.
“The water is then pumped to an on-site facility where the solution is introduced to tanks containing tiny resin pellets. The uranium bonds to the resin via ion exchange.
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just click here...“The pellets are then put on a truck and driven to a processing facility. There the uranium is stripped off the pellets, precipitated into a sort of uranium slurry. It’s washed… then dried… and the final product is the same as if it had come from a giant uranium pit.”
And apparently this is much cheaper than mining…
“… this company boasts production costs in the lowest quartile industry-wide — with a mere $21.77 cash cost of sale per pound….
“This company already has a fully licensed and permitted production facility with a 2-million-pound annual capacity. At $75 uranium — that’s $150 million per year in revenue.
“That’s several times what the entire company is trading for right now!”
So what’s the stock? Thinkolator sez that this is the oft-teased Uranium Energy Corp (UEC), which has seemingly been the darling of lots of newsletter folks over the years, from Marin Katusa[12] to Kent Moors[13] to Frank Curzio[14].
UEC is run by Amir Adnani[15], a very promotional guy who also heads GoldMining (GOLD.V, the former Brazil[16] Resources), and it is indeed an in-situ recovery company set up specifically to bide its time and wait for the next uranium supercycle. And the photos in the ad show a barrel of yellowcake between Nick Hodge and someone who looks unmistakably like Amir… so all of the clues match the company perfectly, including the 2 million pound capacity of their production facility and the $21.77 cash cost per pound…
…though, I should note, $150 million (the revenue number Hodge pulls out as an example) is NOT “several times what the entire company is trading for right now.” UEC’s current market cap is about $240 million, and has been above $150 million essentially since the election… though it was down as low as about $70 million in early 2016. So perhaps the ad is just using old text, I don’t know.
UEC has been pitched as a natural beneficiary of the next uranium supercycle several times over the years — really, since things started to normalize a little bit after the Fukushima disaster (if that name doesn’t ring a bell, that was the Japanese nuclear power plant that was destroyed in an Earthquake/Tsunami-fueled disaster in March, 2011, with massive fallout and the abrupt shutdown of essentially all of Japan’s nuclear fleet). The most vociferous proponent of this has probably been Dr. Kent Moors, who aggressively pitched UEC in 2014 and 2015[17]… though he switched to a different uranium company last year[18] when he again pitched the inevitability of a surge in uranium prices.
All of those arguments about the resurgence of nuclear power and the need for higher uranium prices make good sense — and they’re all roughly the same, whether it’s Nick Hodge or Rick Rule[19] or Kent Moors who’s making the argument… here’s how I sum it up:
To that list we could have added the end of nuclear warhead recycling, which is a major secondary source of uranium — but that was the catalyst that was supposed to drive uranium prices higher back in 2011, when the “megatonnes to megawatts” deal with Russia was expiring, and the shutdown of German and Japanese reactors in the years after that deal expired were enough of a “demand negative” that the “supply positive” of no more Russian recycled warheads failed to offer much support to uranium prices.
And we should also add to the list, on the negative side, that many more US nuclear power plants are likely to be decommissioned than built over the next decade, as the first generation plants of the 1960s and 70s reach the end of their useful lives and as other aging[23] plants face costly repairs that aren’t worth the capital in this era of very low-cost natural gas and relatively low electricity prices (Vermont Yankee, up the river from me here in the Pioneer Valley of Massachusetts, finally cooled its last rod about 2-1/2 years ago, despite the fact that it provided more than 2/3 of Vermont’s electricity for decades).
So the bull argument for uranium is quite compelling and very logical and well-supported by charts and projections and facts, and every uranium miner or explorer will have very similar big picture arguments about uranium prices being destined to head higher as part of their investor presentations. And I believe most of it, frankly.
But the timing, unfortunately, is a bit of a challenge. It has been very obvious that uranium prices must go higher for about eight years… with the brief interlude of 2011 and 2012, post-Fukushima, when there were so many negatives that the long-term attractiveness of the sector couldn’t overcome the Fukushima fallout stories. But from 2009-March of 2011, and then from probably early 2013 to today, it has been “inevitable” and logical and perfectly argued that uranium prices must rise.
It was logical that uranium prices must remain above $50 in 2009, it was logical that uranium prices must go to $60 in 2013, it was logical that $40 was too low in 2014, and that $30 was ridiculous in 2014, and that $18 was crazy last Summer, and today it’s obvious that the current price of $20 per pound on the spot market is completely unsustainable, since no miner can make a profit at that price (the long-term contract price is now down to $32, also near a decade low — almost all uranium is sold to power plant operators on long-term contracts).
So “uranium must go higher again someday” seems to be a fair argument — but “uranium is going to go up in some particular six-month period” has so far been a failed argument from the many experts who have trotted it out. Does that make Uranium Energy Corp a reasonable bet?
Well, a lot of that depends on whether there really is another huge spike in uranium prices — if uranium does go back to $70, or $110, or to the all-time highs of $140, then I’m pretty sure UEC will surge dramatically higher… but so will all other small uranium companies, and the big players (mostly Cameco, CCJ, which is as as close as we get to having a uranium “blue chip” company) will almost certainly also rise sharply. I can’t tell you which little uranium speculation will go up highest or fastest, but likely no one will be complaining about holding pretty much any uranium stock IF we get that kind of a price surge.
So… is another surge coming? That mostly depends on whether demand grows frantic enough that nuclear plants — or state actors, when it comes to Chinese and Indian utilities[24] — begin placing orders at higher prices and competing with each other for what they perceive to be an increasingly scarce resource.
And that can happen, for sure, but it has only happened twice in the past thirty years, and I have no way of predicting if or how or when it might come again. I expected prices to rise in 2013 and 2014 and 2015 and 2016, and instead they fell in each of those years… so clearly listening to me on this is not going to provide a clear glimpse into the future. I do have a personal position in CCJ call options[25] (the Leaps, January 2019), because Cameco is the one company I’m pretty comfortable with in the space, with the most reliable high-grade reserves and established production profile and the best leverage[26] for making long-term contracts with customers. I expect it to be the recipient of lots of mainstream institutional investor money if uranium prices surge, and I hope that options will give me the kind of leveraged exposure that you’d otherwise get from a junior explorer or producer (like UEC, for example), but I don’t have a huge amount of confidence that this position will be a profitable one.
So sure, I agree, uranium should rise. It only makes sense. But I wouldn’t bet the farm on it happening within any particular timeframe — or, indeed, happening at all if there’s some further disaster in the nuclear power business. Having logical arguments fail to lead to profit for four years in a row is a sign that there’s probably another thumb on the scale that we don’t fully appreciate — whether that’s just inventory from German and Japanese surpluses that will be worked off, or politically driven increases in production capacity in Kazakhstan, or less demand than conventional wisdom would indicate, or simply that everyone’s limping along because the long-term contracts are still profitable and they have hopes of better prices by the time those contracts from five and ten years ago really expire en masse… well, I don’t know. You can make your own call on that.
Uranium Energy Corp. isn’t really an operating company at this point — they haven’t generated any revenue in the past year, and haven’t ever really had a meaningful amount of revenue (with the possible exception of 2012). They’re a company in waiting — they promote themselves and sell shares to keep their exploration and development budget stocked and to keep building up their potential reserves with a mind to having lots of uranium available to produce when it becomes economically worthwhile to start commercial production. I don’t know how attractive their in situ recovery operations are, but the production capacity is relatively small and, as far as I can tell, not really proven at a long-term operating scale, so they might not have the leverage to sign attractive long-term deals with power companies — if they did have that capacity, it would have made sense, in retrospect, to sell all they could when long-term prices were in the $40s and a profit on their stated $20 cash cost would have been all but certain.
My suspicion is that they need a sharply higher price to make meaningful profits, particularly given the $200 million or so they’ve likely invested in acquiring and developing properties over the years, and that they’d like to be able to use their relatively nimble production profile to ride a volatile spot price if and when the market goes into a real supply deficiency (they can probably start production within six months of the “go” signal, where a hard rock miner would require a year or two to reach commercial production for a shuttered mine), but that’s just my opinion after checking in on this company every now and then for several years.
Your opinion and perspective might vary, of course, and it could easily be that I’m a little too jaded after hearing the “uranium must rise” argument perennially trotted out (and, specific to this case, seeing the overly promotional promises of riches for UEC shareholders for several years). If you’ve got a take on Uranium Energy Corp, or on nuclear power or uranium prices in general, please let us know with a comment below — I’m quite sure that there are many in the great Gumshoe Universe with better crystal balls than mine when it comes to commodity prices.
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Uranium Resources INC, The Company has two developed mining properties – Kingsville Dome and Rosita – both located in South Texas. symbol- URRE (NSDQ) close today July 17, 2017 up $1.62 $0.11 (7.29%)
I think your idea of playing the leaps makes sense as a lower risk way of taking some kind of a position amid the uncertainty of commodity pricing.
In all the years of using Uranium, we still have the problem of dangerous waste or spent materials that will remain active for years & we still have no really safe way to store.
Dumping it in the oceans, deserts or on old mines just makes it more difficult to retrieve.
Using the available thermal energy below the earth’s crust seems to be a better alternative.
The problem with the vast thermal energy below the crust is that it isn’t *easily* available in most of the world. It’s a complex and expensive PITA to exploit and only makes economic sense in the few places where the heat is very close to the surface. Travis did a good geothermal write-up recently.
Long term disposal of commercial “High Level” nuclear waste has been a political issue ever since President Jimmy Carter prohibited the “reprocessing” of “spent” nuclear fuel. Most recently, Senator Harry Reid blocked all attempts to resolve the issue of spent nuclear fuel disposal. By contrast, ALL the nuclear Navy vessels periodically need refueling, and their spent fuel IS reprocessed, and the resulting High Level waste is being stored on US soil. This little known fact is never mentioned when the “No Safe Way” to store fission products is presented. When a uranium atom splits, it behaves the same way, and has the same fission productes whether it is in a naval vessel reactor or a commercial nuclear electrical generation plant.
Sorry but I have nothing to say that would make any money for anyone that reads this comment.
White Rabbit
There is already technology available and more advanced to re use the
burned fuel of nuclear reactors. There is a new generation of nuclear reactors being developped that can run on this type of fuel. This will indeed extend our available uranium resources. Thorium reactors will
come in play to in future and fusion reactors are now in experimental fase.
Read some about wendelstein nuclear fusion in Germany there is a team in the Usa with different design but both teams are working together too.
The fuel (uranium) is just a very small tiny fraction of the costs of building and running a nuclear plant. All commodities are cyclic uranium as well
now with so little uranium mined the cycle will turn , when me too have no chrystal ball but my best guess is 2018.
The engineering pitfalls are challenging and the economics are not competitive with carbon fuels or nuclear power and is only suitable for isolated situations like in Iceland. Miniature thorium reactors are on the horizon and offers many advantages to current power generation. The other local power generation option is produced by Bloom Energy– but its implementation is currently restricted to Fortune 500 companies in what I would call a massive Beta Test roll-out.
I think they could ramp up production to 4 mlbs within a short time
A lot has been written about how production is being reduced across the board and this will help the recovery. In my opinion the critical issue is what effect the Kazakstan will have. Late this year they will stop selling on the spot market and go thru a marketing company in Switzerland they are setting up. This will allow them to avoid selling at spot all their production. Until now they could only sell through the spot market and as they controlled over 40% of world production in had a huge negative effect. They also plan to IPO their state company, I think they will make 10% available and for sure they will want this to be a success. So they need a higher price. This could be a game changer and spoke the market and create a snowball. A lot of the off take contracts expire in the next 2/3 years and they will have to be negotiated, but this will take longer. Time will tell
I like you idea of the Leaps,
Thermal has a place in the market, but unfortunately it tends to be a local affair, its available or it isn’t.
I plan tomonitor this thread. Please “post” info for the IPO when it becomes available – thanks.
I am sold on UEC. FYI……….Former US Energy Secretary, Spencer Abraham, has joined UEC and is Chairman of the Board. Rick Perry and Pres. Trump are advocates of nuclear Energy and it is considered a green energy. China and India are scheduling many nuclear plants to be constructed soon. Japan screwed up big time in maintaining safety requirements and many naysayers should get reacquainted with this opportunity. UEC is ready to go and will be a thorn in the side of Cameco.
Of course one must expect Spencer Abraham and Rick Perry to be among the usual suspects still promoting nuclear power as a “green” alternative. Trump is or at least was right about one thing, suddenly sporting glasses doesn’t make one smart. A pity he doesn’t want anybody conspicuously smart in his cabinet.
Wikipedia has a very good overview on planned nuclear power plant construction, and facilities currently in operation.
Travis,
The USA has some of the biggest, easiest to recover, deposits of uranium in the world. Kerr McGee company has recovery operations in Oklahoma, Texas,
New Mexico and other places where they found Uranium Sulphate in underground formations…..usually capped with Helium gas …..like in the panhandle of Texas south of Amarillo. Basically they pump hot water into the
the uranium sulphate formation, dissolving the salts (uranium sulphate is a salt) and pumping it to the surface where the water is evaporated from the
slurry….leaving Yellow Cake….Uranium. It’s relatively cheap to mine this way and produces plenty of Uranium to enrich into fuel rods for reactors.
Kerr McGee has been doing this sort of thing for over 50 years.
There ARE many ‘undiscovered, unexploited’ formations of Uranium salts all over Texas, New Mexico, part of Arizona, and other states of the USA.
It has NOTHING to do with Fracking. I am in the middle of the Delaware
Basin of west Texas where we do a LOT of horizontally drilled gas and oil
wells and compound frack them to stimulate them to produce thousands of
barrels of oil and millions of cubic feet of gas daily.
Suffice it to say, the USA sits on more fuel/energy resources than the rest of the entire world.
ol’ Lawrence in west Texas
Interesting comment that you make Lawrence.
I don’t quite understand how you can state that the USA sits on more fuel/energy resources than the rest of the world though.
If the USA had the largest land mass, then perhaps you could be correct, but it doesn’t. Not by a long shot.
How do we know what’s under the big deserts of the world for example? And even here in Canada, we are still finding resources on a regular basis.
The USA is still importing more oil than it is producing, just to keep up with daily demand. Last I read I think it was around 4 million barrels a day.
Once your production is ramped up, that may well change. It wouldn’t hurt my feelings one bit if you were able to cause financial worries to the oil Sheiks of the world. They have been getting away with being too greedy for too long.
Given the current depressed price of oil, it might be smarter to import their cheap stuff and save ours for later use when and if supplies tighten and the price goes up. I don’t see a lot of point in contributing to a glut…
Yes Travis very great to see you back! Hope you enjoyed Scototland. One destination I would like to go visit. I’ve heard that before about oil/ gas. Having more reserves . And wonder why we never used our own oil. Do you know? And as for going “green” I don’t see with today’s technology any other way of meeting the the demand of electricity except going nuclear. Solar energy maybe some way with a better way of harnessing it. Put contaminated cooling water and spent rods on the moon or Mars like they got the Mars rover on Mars.
Lawrence , I doubth very much that the usa has the most reservces in the world.
The middle east is combined number 1 in the world (gas & oil) and can produce most economic long life wells. Fracking only provides short time producing wells. That is
why most fracking companies in the usa fracking themself to bankruptcy with these present prices. Just a small detail Venezuela has the most proven oilrserves in this world not the easiest crude to refine though. Uranium really Kazakhstan is the number one with this resources by far.
The Vermont Yankee decommissioning that Travis mentioned is being done by a French company, Areva, which we used to own. It specializes in recycling and clean-up in the interval between building nuclear power plants but it may not make money with either line of business (it is government owned but there is an ADR, ARVCF.) I think the only sensible way to play uranium is with CCJ from boring old Canada which operates in Kazakhstan and other places where political risks rule out buying a local firm. Cameco is the one
At least one new nuclear plant being built in China uses Thorium, NOT uranium. One of the benefits of this molten salt reactor is that it can use
up the wasted rods from uranium plants!
What about Fission Uranium Corp. (FCUUF)?
Also interesting, though more of an exploration/mine development story — it will take a long time for them to turn their deposit, appealing though it is, into a producing mine. Like most of Cameco’s resources, they’re in the highest-grade uranium deposit area in the world, in central Canada.
My concern is the lack of demand for uranium at this time. I don’t see the demand going up in the near future for any given reason. Oil is cheap and getting cheaper, electric and batter use is increasing but they increasing solar and wind at the same time. So until there is demand I feel price will remain low.
Interestingly, two of the more prominent “mature” uranium players were downgraded by Credit Suisse this week (Denison and Cameco). Haven’t seen the actual reports, but presumably that indicates a weak uranium price outlook from that analyst.
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Home / Information Library / Current and Future Generation / Nuclear Power in the World Today
Nuclear Power in the World Today(Updated January 2017)
The first commercial nuclear power stations started operation in the 1950s.
There are over 440 commercial nuclear power reactors operable in 31 countries, with over 390,000 MWe of total capacity. About 60 more reactors are under construction.
They provide over 11% of the world’s electricity as continuous, reliable base-load power, without carbon dioxide emissions.
55 countries operate a total of about 245 research reactors, and a further 180 nuclear reactors power some 140 ships and submarines.
Nuclear technology uses the energy released by splitting the atoms of certain elements. It was first developed in the 1940s, and during the Second World War to 1945 research initially focussed on producing bombs which released great energy by splitting the atoms of particular isotopes of either uranium or plutonium.In the 1950s attention turned to the peaceful purposes of nuclear fission, controlling it for power generation. Today, the world produces as much electricity from nuclear energy as it did from all sources combined in the early years of nuclear power. Civil nuclear power can now boast 17,000 reactor years of experience and supplies almost 11.5% of global electricity needs, from reactors in 31 countries. In fact, through regional transmission grids, many more than those countries depend on nuclear-generated power.Many countries have also built research reactors to provide a source of neutron beams for scientific research and the production of medical and industrial isotopes.Today, only eight countries are known to have a nuclear weapons capability. By contrast, 55 countries operate about 245 civil research reactors, over one-third of these in developing countries. Now 31 countries host some 447 commercial nuclear power reactors with a total installed capacity of over 390,000 MWe (see linked table for up to date figures). This is more than three times the total generating capacity of France or Germany from all sources. About 60 further nuclear power reactors are under construction, equivalent to 16% of existing capacity, while over 160 are firmly planned, equivalent to nearly half of present capacity.
Nuclear Electricity Production column graphSixteen countries depend on nuclear power for at least a quarter of their electricity. France gets around three-quarters of its power from nuclear energy, while Belgium, Czech Republic, Finland, Hungary, Slovakia, Sweden, Switzerland, Slovenia and Ukraine get one-third or more. South Korea and Bulgaria normally get more than 30% of their power from nuclear energy, while in the USA, UK, Spain, Romania and Russia almost one-fifth is from nuclear. Japan is used to relying on nuclear power for more than one-quarter of its electricity and is expected to return to that level. Among countries which do not host nuclear power plants, Italy and Denmark get almost 10% of their power from nuclear.In electricity demand, the need for low-cost continuous, reliable supply can be distinguished from peak demand occurring over few hours daily and able to command higher prices. Supply needs to match demand instantly and reliably over time. There are number of characteristics of nuclear power which make it particularly valuable apart from its actual generation cost per unit – MWh or kWh. Fuel is a low proportion of power cost, giving power price stability, and is stored onsite (not depending on continuous delivery). The power from nuclear plants is dispatchable on demand, it can be fairly quickly ramped-up, it contributes to clean air and low-CO2 objectives, it gives good voltage support for grid stability. Reactors can be made to load-follow. These attributes are mostly not monetised in merchant markets, but have great value which is increasingly recognised where dependence on relatively unpredictable intermittent sources has grown.Need for new generating capacity Improved performance from existing nuclear reactors World overview Other nuclear reactors
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Bought it for way less than a buck. Sort of a speculation play as nuclear simply has to be an energy play in India and China. Solar et. al. doesn’t have the energy density and won’t for some time. We’ve got oil and nat gas. Now looking for a coal play! I like to buy hated commodities…just a matter of picking the entry and where.
Now that the man made climate change has moved slowly into the fake news realm, coal I expect will make somewhat of a comeback. There’s some really hated equities there:-)
As Travis noted, the price of U was supposed to up for the last half decade, but hasn’t moved much. I waited and bought in a short while ago, well before this Nick Hodge write up. Point of fact, I researched the vertical personally and came to a conclusion and placed my bet as I assume all Gumshoe’s do.
Like Travis’s calls, my view is like it’s an “IRA” stock; that is, I expect to do quite well, just not tomorrow, although it’s well off my buy price. As the India and China picture begins to play out it will add more clarity.
Morningstar has rated Cameco (CCJ) a 5-star stock since mid June with a fair value estimate of $18. I took a small position at the time.
can you provide us the strike price of your CCJ call options (the Leaps, January 2019)???
The last uranium stock I bought was at 4$ and sold at 2$ the next day because 3 mile Island happened overnight!