If you're not looking at uranium companies because you’re worried about cheap spot prices, you could be making a big mistake. The industry is looking at a confluence of factors that could serve as the catalyst to cause prices to spike again like they did across 2005-2007 when U3O8 shot from $20 a pound to over $140 per pound. When it comes to looking for companies in the space, there is no place better to look than at those with property in the United States.
The Washington, D.C. Factor
U.S. President Donald Trump has ruffled feathers worldwide through implementing tariffs on steel and aluminum. These latest levies are part of the Trump administration’s agenda to force re-writing trade agreements that are more favorable to the U.S. than the current fashion. In the same vein, Trump has threatened to abandon the North American Free Trade Agreement, a trade accord between the U.S., Canada and Mexico.
These trade ultimatums can easily spill over into the uranium market, where Russia (another country Trump is at odds with) directly or indirectly controls nearly half of the world’s supply. What if Moscow turns off the tap? Historically, the Russian government is known to play hardball with commodities. Just ask Ukraine, who has seen its natural gas pipeline from Russia closed four times in the past 12 years over disputes.
The U.S. is the world’s biggest uranium consumer, using over 50 million pounds every year, mostly as the key material for nuclear power plants that provide about 20 percent of the nation’s electricity. In 2016, the U.S. imported nearly 90% of the uranium used in nuclear reactors. 24% of that came from Kazakhstan and 4% came from Uzbekistan, two former Soviet republics still subsidized by Russia. Another 14% came directly from Russia, meaning 42%, or about 21.3 million pounds, of the nation’s uranium needs came from Russian-controlled entities.
The supply chain paradigm so heavily favors imports that producers Ur-Energy Inc. (NYSE American: URG)(TSX: URE) and Energy Fuels Inc. (NYSE American: UUUU)(TSX: EFR) in January filed a petition with the Commerce Department seeking limitations on imports as a matter of national security. This petition came on the heels of President Trump issuing an Executive Order in December calling for all efforts to be made to support domestic production of materials critical to national security, a list that includes uranium.
Producers Ready to Pressure Utilities
Most people focus on the spot price for uranium, which around $21 is near a 12-year low, but the fact is that spot uranium is only about 10%-15% of the market. Most uranium sales are negotiated in long-term (5-10 years) agreements between utilities and producers. These prices are generally substantially higher than the spot price currently.
That said, producers are taking steps to support uranium prices. Earlier this year, Cameco (TSX: CCO)(NYSE: CCJ) suspended production from its flagship McArthur River mining and Key Lake milling operations in northern Saskatchewan. Analysts estimate that Cameco shuttering the mine for 10 months this year will strip 13.7 million pounds of uranium from the market.
Starting in January, Kazakhstan’s state-owned uranium giant KazAtomProm said it was trimming production by 20 percent for the next three years to better align output with demand. KazAtomProm is also the top supplier to the spot market and has been reducing its build there as well in order to bolster prices.
Paladin Energy, another leading uranium supplier, last month put its Langer Heinrich mine in Namibia on care and maintenance because of stubbornly low prices.
More Reactors Coming
Nuclear reactors have gotten a bad rep because when things go wrong, they are of disaster status. Consider Chernobyl, Fukushima and Three Mile Island, to name a few. Fact is, though, that nuclear is one of the best sources for energy in the world. It is emission-free, zero-carbon energy that is part of a growing market forecasted by Energias Market Research to reach $205.2 billion by 2024.
More reactors coming online drive part of the 8.9% compound annual growth rate for the nuclear market. According to the World Nuclear Association, about 450 nuclear reactors are operating today, with 58 more currently under construction. The Commerce Department shows it has 20 applications seeking approval to build new reactors.
China, the world’s most populous country and biggest source of air pollution, has earmarked $78 billion to build seven nuclear reactors per year through the year 2020 as it look to transition away from fossil-fuel dependence for its energy.
Anfield Energy – The Name to Get to Know
“I don’t think the markets are taking into account all the uranium that the world is going to need,” said Corey Dias, CEO of Anfield Energy (TSX-Venture: AEC) (OTCQB: ANLDF), in a phone conversation with Baystreet.ca. Anfield has the potential to be a near-term producer from its massive portfolio of more than two dozen uranium and vanadium projects, all of which are in the located in the Western United States.
Vancouver-based Anfield is focused on two production centers: the Irigary ISR (in-situ recovery) processing plant in Wyoming and the Shootaring Canyon Mill in Arizona/Utah.
Based upon the company’s assets and partnership, investors would probably never guess that Anfield has a tiny market capitalization of C$5 million. Anfield has a Resin Processing Agreement with Uranium One, a Russian-Canadian uranium-mining giant headquartered in Toronto. Per the deal, Anfield would process up to 500,000 pounds annually of its mined material at Uranium One’s Irigaray processing plant.
Furthermore, the agreement stipulates that Anfield can both buy and borrow uranium from Uranium One if the need be to fulfill sales contracts. This is an important component of the contract because it ensures that Anfield never comes up short in supplying a utility, the type of guarantee that utilities ordinarily would never get from a small producer. In layman’s terms, nuclear power providers can have a “warm and fuzzy” feeling working with Anfield because Uranium One is backstopping supply.
Anfield has 24 ISR mining projects in the Black Hills, Powder River Basin, Great Divide Basin, Laramie Basin, Shirley Basin and Wind River Basin areas in Wyoming. NI 43-101 resource reports have already been completed for the Red Rim, Clarkson Hill and Nine Mile Lake uranium projects, with two more expected to be completed shortly, including one on the vaunted Charlie project acquired earlier this year from Cotter Corp. and one for the Taylor Ranch uranium project acquired from Uranium One.
The Charlie project is a low-cost production project located directly between two Uranium One plants. All the infrastructure is in place and all Anfield will need to do is tie-in a pipeline to be producing yellowcake in short order.
Conventional uranium assets include the Velvet-Wood Project, the Frank M Uranium Project, as well as the Findlay Tank breccia pipe. An NI 43-101 Preliminary Economic Assessment has been completed for the Velvet-Wood Project. All of these assets are located within a 125-mile radius of Anfield’s Shootaring Canyon Mill, one of only three licensed conventional uranium mills in the country.
According to Dias, Anfield is devoting most resources to the ISR projects because they have lower capex and opex, which, as an integrated producer (thanks to the Uranium One agreement) will make the company extremely competitive.
Adding to its growing library of data on its uranium and vanadium, Anfield in April acquired an extensive exploration database of mining projects focused primarily on uranium and vanadium properties throughout the region of Anfield’s properties. In aggregate, the company’s uranium database constitutes one of the largest depositories of uranium exploration data in the Western U.S.
The Shootaring Canyon Mill alone more than covers Anfield’s market cap. The mill was originally built by U.S. Energy in the 1980’s and sold (along with certain uranium fields) to Uranium One in 2007 in a deal worth about $101 million. In 2015, Anfield bought the mill and uranium assets from Uranium One for about $7.5 million in cash and stock.
According to Dias, getting a license for a uranium mill is an arduous task. Building a mill from the ground up could take 7 or 8 years and cost about $200 million. He thinks that the rehab work the mill needs will cost his company significantly less.
Poised for a Market Rebound
With the projects, partnership and mills in tow, Anfield has quietly built itself a strong position in the U.S. uranium market. The stage is being set all around Anfield for the company to prosper when uranium prices recover. Top producers are capping output, which will have utilities fighting for a smaller pool of supply. Kazakhstan is going to auction off at least 25% of KazAtomProm as part of bringing the world’s biggest uranium miner public. In order to pull off a successful IPO, KazAtomProm really needs to see a book of contracts to sell uranium at higher prices, which bodes well for a market push.
“2006 showed us the price for uranium can move very quickly,” said Dias. “We can operate successfully even under current market conditions, but it is our belief that more reactors, less material, the pressure for U.S. production and other forces are setting uranium up for a rebound. We are moving expeditiously to make sure that we have contracts and are properly positioned to enjoy the complete upside opportunity.”
Dias looks to be spot on with his market analysis. If indeed he is, the days of a $5 million market cap will be a thing of the distant past.
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