Uranium prices recently hit a nine-year high. It’s therefore not surprising that uranium stocks have surged.
Let’s first discuss the factors that have driven the so-called yellowcake higher.
Besides some improvement in fundamentals, there are two reasons for the uranium surge.
In July , RBC opined that social media activity has boosted uranium prices. According to RBC’s report, “uranium market fundamentals have improved only modestly in the past 6 months compared to the sharp rise in equity values.”
Sprott Asset Management’s aggressive buying of uranium is another reason that has boosted prices in the recent past. The Financial Times reports that Sprott holds more than 28 million pounds of uranium, which it says is enough to power France for a year.
Coming back to fundamentals, there seems to be a fear that the demand-supply gap will widen. Data from Statista indicates a potential demand of 209 million pounds of uranium concentrate by 2035. However, supply is likely to be restricted to 114 million pounds of uranium. Clearly, new assets will be needed over the next decade to fill the demand-supply gap.
It therefore seems fair to conclude that uranium might be overheated, but is likely to remain in an uptrend in the next few years.
Let’s talk about four uranium stocks that are worth considering as retail investor interest has ensured that the yellowcake remains a hot commodity.
- Cameco (NYSE:CCJ)
- Energy Fuels (NYSEAMERICAN:UUUU)
- NexGen Energy (NYSEAMERICAN:NXE)
- Denison Mines (NYSEAMERICAN:DNN)
Uranium Stocks to Buy: Cameco (CCJ)
CCJ stock is possibly the top name among uranium stocks. The stock has been in an uptrend backed by higher uranium prices. However, there seems to be more upside potential with the company having a robust asset base.
Currently, the company has the licensed capacity to produce more than 53 million pounds of uranium concentrates. Further, with 455 million pounds of proven and probable mineral reserves, the company has long-term growth and cash flow visibility.
For the second quarter, the company reported revenue of $359 million and a gross profit of $12 million. As operations scale up, it’s likely that key margins will improve. In the uranium segment, the company has guided for full-year revenue of $995 million (mid-range).
Production for the year from owned and operated properties is expected at 6 million pounds. Considering the company’s licensed capacity for production, there is ample scope for scaling up operations if uranium continues to remain in an uptrend.
From a financial perspective, Cameco Corporation reported cash and equivalents of $1.2 billion as of the second quarter. The company also has an undrawn credit facility of $1 billion. Therefore, there is ample financial flexibility to pursue aggressive exploration and production growth.
Energy Fuels (UUUU)
With uranium prices trending higher, UUUU stock has is up 64% so far this year. The stock can be accumulated on corrections with the company positioning itself as a producer of rare earth element products. Besides uranium, Energy Fuels is also in the production of vanadium and thorium.
The company claims to be the largest producer of uranium in the United States. By the end of 2021, the company expects to have a total uranium inventory of 691,000 pounds. Further, the company has 1.67 million pounds of vanadium inventory.
Energy Fuels has a strong financial profile. The company has $79.4 million in cash with no debt. Therefore, there is ample headroom to pursue organic and acquisition driven growth.
In the second quarter, the company opined that “uranium prices have not risen enough to date to justify uranium production at the Company’s mines and ISR facilities.” With uranium trending higher in the recent past, it seems likely that production will be ramped up.
Further, the company is also looking for an agreement with the U.S. government to buy uranium for the proposed U.S. uranium reserves. Any such agreement can be a game changer.
Uranium Stocks to Buy: NexGen Energy (NXE)
NXE stock seems like an undervalued name among uranium stocks. Even after a rally of 69% for the current year, there is more upside potential as uranium trends higher.
As an overview, NexGen Energy is a development stage company engaged in the exploration and evaluation of uranium reserves in Canada. The company believes that its Rook I Project is the largest development-stage uranium deposit in the world.
To put things into perspective, studies show that the asset can deliver average annual production of 28.8 million pounds between the first and fifth year. Further, the mine has a total life of 10.7 years. Through the life of the mine, average annual production is expected at 21.7 million pounds.
NexGen Energy currently trades at a market capitalization of $2.2 billion. The after-tax net present value of the Rook I Project is estimated at $3.47 billion. Clearly, the stock seems attractively valued.
It’s also worth noting that the NPV is based on the current uranium price. If the yellowcake remains in an uptrend, the annual after-tax net cash flow from the mine can exceed $1 billion. NXE stock is therefore worth accumulating on correction for investors bullish on uranium.
Denison Mines (DNN)
Denison is another company that’s involved in uranium exploration and development. The company’s asset is likely to deliver production in 2024. For the current year, DNN stock has been among the industry out-performers. The stock has trended higher by 111%.
The company’s flagship Wheel River development project has probable reserves of 109.4 million pounds. Further, the all-in-cost is $22.82 per pound. Therefore, if uranium continues to trend higher, the project has attractive economics.
As a base case scenario, the pre-tax NPV of the project is $1.31 billion. However, if uranium price is at $65 per pound, the NPV is likely at $2.59 billion. With production still few years away, the project seems to have a NPV of over $2 billion. This is with the basic assumption that uranium price remains firm. Therefore, DNN stock looks attractive at a current market capitalization of $1.1 billion.
In terms of risks, Denison has cash and equivalents of $84.8 million. It seems likely that further equity dilution will be needed to raise funds for project development. However, considering the attractive economics of the project, the stock is worth considering on corrections.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.