Texas-based Uranium Energy (NYSE-MKT: UEC) has drawn down another US$10 million from its previously announced US$20-million credit facility, after its lenders agreed to defer the required principal payments by two years, providing the company with non-dilutive funds to advance its uranium assets.
Uranium Energy secured the loan from Sprott Resource Lending Partnership and CEF Ltd. in July 2013, and had already drawn down half of the previous two-year term loan. The loan now has a four-year term and matures in July 2016, strengthening the company’s financial position.
“This is a substantial liquidity injection for the company that is also non-dilutive to shareholders,” Rob Chang, an analyst at Cantor Fitzgerald, comments in a note.
The junior producer plans to use the US$10 million in funds to grow its Texas hub-and-spoke production platform. Its Goliad in-situ recovery (ISR) project, which is under construction, is a key part of that platform. The funds will allow the company to push Goliad and its other projects towards a point where it can quickly complete construction and ramp up production once the uranium price rebounds.
While the long-term fundamentals for uranium are attractive, as some 70 reactors are under construction, the short-term fundamentals are less so.
The company says the current US$35 per lb. spot price of uranium oxide is below the average industry cost of US$40 per lb. to produce it, causing many firms over the past six to 12 months to delay, cancel or reduce the pace of work at their uranium projects.
Similarly, Uranium Energy says it will wait until the price recovers before it finalizes the wellfield, deep-disposal well and ion-exchange plant at Goliad.
Uranium Energy expects prices to improve later this year, as Japan recently announced its intentions to restart its nuclear reactors. Japan’s 48 commercial reactors have been offline since the Fukushima meltdown in 2011.
Along with Goliad, the junior is advancing its nearby Burke Hollow ISR project on several fronts, including permitting, ongoing resource exploration and delineation.
Also in South Texas, Uranium Energy operates its Hobson processing plant and Palangana ISR recovery mine.
As part of the loan extension, the company will issue 100,000 of its shares to the lenders and extend the term of the previously issued bonus warrants by two years.
Uranium Energy may also have to pay an annual fee of 4.5% in shares on any outstanding principal balance, plus US$50,000 in cash on each of July 31, 2015, and July 31, 2016, if there’s any principal outstanding on these dates.
Uranium Energy recently closed at US$1.69, within a 52-week trading range of US$1.40 to US$2.65. It has a US$152-million market cap.
“The non-dilutive capital injection also serves to remove the financing overhang that was weighing on the stock,” Chang notes. He has a $2.10 price target and a “buy” on Uranium Energy.
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