Uranerz Energy (TSX: URZ; NYSE-MKT: URZ) has become the newest member of a small club of uranium producers now that its first uranium mine — Nichols Ranch — received final clearance from the U.S. Nuclear Regulatory Commission and began production on April 15.
The in-situ recovery (ISR) start-up in Wyoming’s Powder River basin — 40 km north of Cameco’s (TSX: CCO; NYSE: CCJ) Smith Ranch uranium-conversion facility — comes less than a year after Ur-Energy (TSX: URE; NYSE-MKT: URG) kicked off production at its Lost Creek ISR mine in August 2013.
“It’s a huge milestone for the company, but what’s really exciting is that we are the newest uranium producer in America — and who knows when the next one is going to be,” Derek Iwanaka, Uranerz’s manager of investor relations, says in an interview. “It’s not an easy thing. There are plenty of barriers . . . which is why there are only a handful of producers in the world.”
Iwanaka says it took the company nearly seven years from start to finish to advance Nichols Ranch into production. Shovels didn’t break ground until Aug. 1, 2011, after four years of licence-application preparation and approval. Ur-Energy and Uranerz are the only two companies that have received permits to mine uranium in Wyoming in the last eight years, according to Iwanaka.
He says that “I don’t know when the next one will be, or if there will be another one.”
Rob Chang, a mining analyst at Cantor Fitzgerald in Toronto, points out that Uranerz has joined “a limited global group of publicly listed, uranium-focused producers, whose rank now grows to just six,” adding that the company “is one of only five in this group that produces within the U.S.”
Nichols Ranch is the first of the company’s 30-odd properties in the Powder River basin to become a mine, but Uranerz hopes it won’t be the last, and has six other projects with National Instrument 43-101 compliant resources. The thinking is that some — if not all — could become satellite deposits.
Nichols Ranch has measured and indicated resources of 2.95 million lb. uranium oxide (U3O8) grading 0.114% U3O8. The mine will produce uranium-loaded resin that will be sent to Cameco’s Smith Ranch processing facilities for processing into dried and drummed uranium concentrates, based on a toll processing agreement between the two companies. Uranerz will ship the product to a conversion facility where ownership will shift to its nuclear utility customers.
The company has entered three uranium offtake agreements with two major U.S. nuclear operators, including Exelon, which operates the largest nuclear fleet in the country and the third largest fleet in the world. All of the agreements are long-term contracts with deliveries over four- to five-year periods for a part of planned production. Two of the contracts have escalating prices, and the third uses spot and fixed prices with a floor and a ceiling.
The in-situ recovery operation involves groundwater, which is fortified with oxygen, sodium bicarbonate and carbon dioxide, and circulated through the sandstone-hosted deposit by injection and recovery wells. The uranium is extracted from the groundwater using ion-exchange technology.
David Talbot of Dundee Capital Markets forecasts production at Nichols Ranch this year will reach 425,000 lb. U3O8 (at total cash costs of US$37 per lb.), rising to 600,000 lb. in 2015 and 700,000 lb. thereafter, which he says should help trim costs to US$33 per lb.
Cantor Fitzgerald’s Chang says Nichols Ranch could produce over 580,000 tonnes of U3O8 this year, and that domestic uranium producers “may command a premium.”
“With domestic security of uranium supply becoming an increasingly important issue for U.S. nuclear utilities, domestic U3O8 producers may once again command a premium for domestically mined uranium,” he reasons in a research note.
Colin Healey of Haywood Securities argues that getting final clearance from the U.S. Nuclear Regulatory Commission speaks volumes about the company’s management team, which he points out has “extensive” experience with permitting, developing and operating ISR facilities in Kazakhstan and the U.S., including Wyoming.
“The NRC approval marks the end of an extremely complex and protracted regulatory permitting and licensing process for the Nichols Ranch uranium project, and success in this regard speaks to the quality, skill and endurance of the URZ management team,” he said in a research note.
The analyst added that the company’s $11.9-million cash position and $11.1 million in working capital — as of Dec. 31, 2013 — should be enough as it enters production.
Looking at the uranium sector as a whole and at Japan in particular, management noted in a recent corporate presentation that near-term restarts in Japan “should compel global utilities outside of Japan to resume long-term contracting [only 20 million lb. transacted in 2013, versus 160 million lb. for an average 10 years].”
It also pointed out that Japanese utilities are “less likely to consider further uranium delivery deferrals, and less likely to dump inventories [estimated at 100 million lb. U3O8].”
As for demand from China, the company noted that Beijing is undertaking “the world’s largest expansion of civilian nuclear power” and “expanding its power grid by as much as 80% over this decade.”
The presentation cites the World Nuclear Association, which stated that China gets 2% of its electricity from 20 nuclear reactors, and that another 29 reactors are under construction.
Over the last year Uranerz shares have traded between 45¢ and $2.18 per share. At press time they traded at $1.71.
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