New Focus on Clean Energy Boon for Uranium

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Apr 20, 2021, 08:30 ET

NEW YORK, April 20, 2021 /PRNewswire/ -- The world is hearing a growing chorus of urgency to change the curve of carbon emissions. Calling it a "climate emergency," "Scientific American" recently said, "the adverse effects of climate change are much more severe than expected. . . . Every effort must be made to reduce emissions and increase removal of atmospheric carbon." It will take a concerted global effort to turn the tide, and nuclear energy is an integral part of the solution. Nuclear energy has been safely and quietly powering America with clean, carbon-free electricity for more than 60 years. The most reliable energy source in the country, nuclear power provides electricity to about one in five American homes and delivers more than half of the nation's carbon-free electricity. Clean, safe and carbon free, nuclear power has all the attributes needed to help bend the curve on carbon — except that the United States is at the mercy of foreign sources for uranium. U.S. production has fallen to only a fraction of the uranium needed to fuel even one of the U.S. commercial reactors. The U.S. has become overdependent on foreign supplies, with about half of annual requirements now being imported from countries such as Russia, Kazakhstan and Uzbekistan. These state-supported uranium mining companies from the former Soviet Union have been flooding the market with cheap uranium. Unable to compete, American companies have been forced to idle their plants, and the country is dangerously close to losing its uranium fuel industrial base. Recently, however, nuclear has gained government support and is included as one of the power sources eligible for a national clean-energy mandate sought by the White House as part of its Clean Energy Standard. The infrastructure plan could be a boon for uranium companies. A leading pure-play, production-ready American uranium company, Uranium Energy Corp. (NYSE: UEC) (Profile) has been investing in the next generation of low-cost and environmentally friendly in-situ recovery (ISR) mining uranium projects. UEC properties are primarily located within the United States, and the company controls one of the largest historical uranium exploration and development databases in the country. Others that may benefit from the government's clean-energy push could be the iShares S&P Global Clean Energy Index Fund (NASDAQ: ICLN) or perhaps an alternative energy company such as First Solar Inc. (NASDAQ: FSLR), or the electric vehicle maker Tesla Inc. (NASDAQ: TSLA) or even a miner like Freeport-McMoRan Inc. (NYSE: FCX), which supplies raw metals critical to solar and EV manufacturers.

America faces a national security threat; the nation imports almost all its uranium despite operating the world's largest nuclear reactor fleet.
The White House has a goal to "reclaim" domestic uranium production.
UEC has amassed the largest resource base of fully permitted ISR projects of any U.S.-based uranium companies.
UEC's projects contain 58 million pounds of U3O8 Measured and Indicated reserves, with another 45 million pounds in the Inferred category.

Click here to view the custom infographic of the Uranium Energy Corp. editorial.

All Signs Point to Brighter Skies for Uranium

President Joe Biden has energy on the mind as part of his plan to bring U.S. infrastructure (currently ranked 13th globally) on par with its ranking as the wealthiest nation in the world. As the official White House website states, "the recent Texas power outages demonstrated, our aging electric grid needs urgent modernization," further noting a Department of Energy study that found power outages cost the U.S. economy up to $70 billion annually. To that point, the White House wants to see nuclear as part of the Clean Energy Standard to be included in "whatever bill emerges as a vehicle in Congress."

One of Biden's first moves in office was to re-join the Paris Climate Accord, a demonstration of his administration's commitment to affect regulations meant to thwart climate change. That's good for uranium companies, as the Biden/Harris energy platform recognizes nuclear as part of critical clean-energy technologies. Currently, the U.S. production of uranium is virtually nonexistent, instead primarily relying upon imports to meet demand. That's an amazing fact, considering the U.S. operates the world's largest fleet of nuclear reactors and has over a billion pounds of proven and probable uranium reserves.

Clearly, the lack of uranium production in America poses a national security threat with the utter reliance on foreign uranium sources to power nuclear plants that supply about 20% of the country's total electrical output and more than half of the nation's carbon-free power. During his testimony in March at the Full Committee Hearing on Nuclear Energy for the Senate Committee on Energy & Natural Resources, Scott Melbye, Uranium Energy Corp (NYSE American: UEC) EVP and president of the Uranium Producers of America, warned that "America is dangerously close to losing our uranium fuel industrial base" and that the country must re-establish its once robust nuclear infrastructure "that has been eroded by Russia, China, and state-owned uranium entities in recent years."

For its part, Texas-based UEC is production ready and eager to provide the much-needed fuel. UEC is vertically integrated with a processing facility, physical reserves and an impressive portfolio of uranium mining and exploration projects (uranium, titanium, vanadium) domestically and abroad, including the largest resource base of fully permitted ISR projects of any U.S.-based uranium company. UEC specializes in ISR mining projects, where the uranium (U3O8) can be extracted in a more environmentally friendly and cost effective manner than conventional mining techniques. This process is likely to become a clear differentiator as the U.S. market re-emerges.

Ready for Strategic Uranium Reserves Initiative

The DOE's Office of Energy last year noted that it is possible to "pull America's nuclear industrial base back from the brink of collapse and restore our place as the global leader in nuclear technology." The first step in rebuilding is the establishment of a strategic uranium reserve, sourced through a competitive bid process that, according to UEC's president and CEO Amir Adnani, likely will come with requirements, such as domestic ownership with major permits in place. The U.S. Uranium Reserve has been designed as a 10-year $1.5 billion program for the Department of Energy to buy uranium from domestic producers. Initial funding of $75 million was authorized by Congress for fiscal year 2021 purchases.

UEC has four near-term U.S. uranium production projects: three in Texas and one in Wyoming. The Texas assets are part-and-parcel to the hub and spoke model that has the Hobson processing plant – with its 2 million pounds of annual capacity – flanked by the fully permitted Goliad, Burke Hollow and Palangana projects in the heart of Texas' uranium belt. In aggregate, the Wyoming and Texas projects contain a pipeline of fully licensed, low-cost ISR projects with a potential production profile of 4M lbs./year. UEC is currently developing the newest and largest ISR production area in the U.S. at its Burke Hollow project in South Texas.

A Bird in the Hand. . .

Seeing the future of uranium, UEC management made the prescient move to start stockpiling a corporate inventory of physical uranium with spot purchases below most industry production costs. Earlier this month, the company secured 705,000 pounds of U.S.-warehoused uranium, with delivery dates out to December 2022. That was in addition to previous contracts to acquire 1.4 million pounds of uranium concentrates, giving the company purchase contracts for a total of 2.105 million pounds of U3O8 at a volume weighted average price of ~$30 per pound.

The timing of the purchases dovetails with steadily rising prices for uranium, which now are averaging about $31 per pound (spot price, long-term ~$35/lb) with projections estimating the cumulative global supply deficit between production and reactor requirements is expected to widen from 47 million pounds in 2021 to almost 250 million pounds over the next five years. As a result, uranium prices, which reached $138 per pound in 2005 amid mine disruptions, should continue to rise, especially in the U.S. as it strives to meet carbon-free energy goals and re-establish an independent uranium fuel cycle again.

Full Coffers

Back in 2019, UEC added to its asset base with an initial public offering of Uranium Royalty Corp., raising CDN$30 million in the process. UEC owns 19.5%, or 14 million shares of URC, which have seen a nice ascension in value lately to currently trade around $3.80 each, making UEC's stake worth about $53.2 million.

Additionally, UEC this month completed a registered direct offering that raised gross proceeds of $12 million. The influx of cash has been added to the coffers that now include more than $110 million in cash, equity and inventory holdings. Management says part of the cash could be used for "additional uranium purchases."

Other Ways to Play the Plan

While uranium and a group of well-positioned companies is certainly one way to capitalize on infrastructure spending, the plan is quite diverse. The proposal directly addresses reenergizing the power infrastructure, achieving 100% carbon-free electricity by 2035, creating jobs through electrification of vehicles, modernizing schools and public transit, and more.

iShares S&P Global Clean Energy Index Fund (NASDAQ: ICLN) has been around since 2008 providing investors exposure to companies that produce energy from solar, wind and other clean, renewable sources around the world. The fund currently has 37 holdings and net assets of $5.58 billion. In general, clean-energy funds have been quite popular, as measured by fund flow analytics from ETF Database, which show ICLN as easily at the top, followed by two other clean energy peers.

First Solar Inc. (NASDAQ: FSLR) is the only U.S.-headquartered company among the world's largest solar manufacturers and a global provider of responsibly produced eco-efficient solar modules advancing the fight against climate change. The panel maker has recently developed its Series 6 CuRe, the next-generation photovoltaic (PV) technology that has a warranted degradation rate of 0.2% per year, the lowest rate for any commercially available PV product today and up to 60% less than conventional crystalline silicon produces.

Tesla Inc. (NASDAQ: TSLA) is the name everyone knows in electric vehicles, and for good reason. In the first quarter of 2021, Tesla produced just over 180,000 vehicles and delivered nearly 185,000 vehicles. With respect to the Biden plan, though, Tesla checks multiple boxes as more of a clean energy ecosystem than just an electric car maker. Tesla, which spent $2.6 billion to acquire SolarCity in 2016, has its Tesla Energy division that CEO Elon Musk has long said goes overlooked as a value driver for the company.

Freeport-McMoRan Inc. (NYSE: FCX) is the biggest American-based copper producer and third largest in the world. Copper is part and parcel to the clean-energy transition due to its high electrical and heat conductivity and extensive use in EVs, renewable energies and energy efficient buildings. One of North America's largest copper deposits is Freeport's Morenci mine in its home state of Arizona. In total, Freeport operates seven copper mines in North America and produced 1.45 million tonnes of copper in 2020, trailing only BHP and Codelco.

There will almost certainly be some political posturing with the $2-plus trillion infrastructure proposal. The final draft may come out looking a little different than its current form, but there is plenty of support for what is arguably only of the largest efforts ever to mitigate emissions by incentivizing clean energy.

For more information about Uranium Energy Corp (NYSE American: UEC), please visit Uranium Energy Corp.

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