Ur Energy Inc. has recently announced that they have closed, after a very rigorous State due diligence process, their US$34 million Sweetwater County State of Wyoming Taxable Industrial Revenue Bond. The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis commencing January 1, 2014. The principal is payable in 28 quarterly installments which do not commence until January 1, 2015. The loan matures in October 2021. The State Bond Loan is secured by the assets of Ur Energy’s Lost Creek Project.
Uranerz Energy Corp., TSX and NYSE MKT – URZ (Frankfurt Stock Exchange - U9E) controls a large strategic land position in the Pumpkin Buttes Uranium Mining District of the central Powder River Basin of Wyoming and has almost completed construction of its first in-situ recovery (ISR) uranium mine .
Ur Energy started their bond application process just a short time - two months - before Uranerz started the ball rolling on their US$20 million bond application. Both applications were very similar and Uranerz’ management is currently working with State administrators to complete the documentation for the closing of their Industrial Development Bond. The loan is expected to carry an annual interest rate of 5.75% and be repayable over seven years. Closing is subject to customary closing conditions and final approval of the State Treasurer and County Commissioners.
Treasury
Uranerz currently has approximately US$6 million in the treasury, needs $2mm to complete the mine and has a US$6 million note due at the end of 2013.
Let’s crunch some numbers; $6mm in the bank minus $2mm to complete the mine and overhead of $1mm equals $3mm. Receiving the US$20mm bond jumps URZ’s treasury to $23mm, after payback of the $6mm note Uranerz has $17mm, more enough to get to the start of cash flow.
Cash Flow
URZ is approximately one month from mine completion and starting a three month inventory stockpiling program. After shipment of its first inventory it will be 30 days before Uranerz receives payment – let’s call for the cash flow to start early in the second quarter of 2014.
The lion’s share of uranium is traded under long-term contracts between uranium producers and utilities companies. Uranerz has signed a Confidentiality Agreement (CA) that says it cannot disclose the buyer, or the negotiated price per pound for its long term uranium sales contract. This might seem a little strange to some but ‘forget about it’, we’ll see the first financials after cash flow starts and at least know the price per pound, which is enough.
In the meantime we can do some sleuthing and, I believe, get very close to the actual numbers – time will as always tell.
The long term supply contract between URZ and the undisclosed off-take buyer was signed in 2009 at a time when contract’s were running US$60-70lb. I believe this extremely early (considering URZ couldn’t be in production for at least five years), and very long term deal, was negotiated for somewhere in the $50.00lb U308 range and that’s the number I use for my own *guidance.
Uranerz will produce 400,000 lbs of U308 to fulfill its contractual obligations to its undisclosed buyer. All-in production costs are figured, by me, to be $35lb for $15lb net minus taxes.
400,000lb x $15 = $6,000,000.00 net to Uranerz in 2014 - URZ has considerable tax credits, taxes payable in 2014 will be negligible and taxes in 2015 will be significantly reduced.
* I am always overly cautious when it comes to my own internal guidance numbers – I believe US$50.00lb is a reasonable number for me to use considering the prices when URZ signed its long term contract. The last time uranium dropped as low as it is today ISR uranium mines were the only ones that could operate, again $35lb is a reasonable all in cost per pound of production.
In-situ recovery
In-situ recovery is a mining process that uses a leaching solution to extract uranium from sandstone-hosted uranium deposits. The in situ recovery method can be applied where the ore body’s aquifer is confined vertically and ideally horizontally. This is the process Uranerz will use to extract uranium at its Nichols Ranch facility and expected satellite feed operations.
For the more distant (from the central processing plant) ore bodies, satellite plant operations will be set up. Other than the well field these smaller and very viable operations consist of no more than a facility to load the recovered resin onto a truck to take product to the central processing plant.
ISR mining is not licensed where potable water supplies may be threatened and where appropriate to use is the mining method with the least environmental impact.
Demand
Current annual global Uranium consumption is 190 million pounds, annual global mine production is 140 million pounds, resulting in a 50-million pound deficit (inventory draw downs and the down-blending of weapons-grade material currently make up the difference).
Industry experts project that the supply of these secondary sources will decrease over the next decade while global demand for uranium will increase. Only primary sources of uranium - supply produced from mines - can make up the coming shortfall because global stockpiles will be gone.
The World Nuclear Association predicts that by 2020, mined production will account for 90 percent of global uranium supply, compared to 75 percent today.
U.S. Uranium Supply
The U.S.’s 104 reactors generate 20 percent of the U.S.’s electricity consuming 55 million pounds of uranium each year - a full 25 percent of global uranium supply. However, the U.S. produces less than 5 percent of global supply and has to import over 90 percent of the uranium it uses.
U.S. supply comes from various foreign countries:
Conclusion
Uranerz Energy Corp. TSX – URZ is uniquely placed in the uranium mining industry for several reasons:
- Current spot prices for uranium are US$35.25 but because of its long term sales contract URZ has five years (URZ’s long term sales contract, at my guesstimated $50.00lb, runs for another five years) to weather out the current low uranium price.
- Shortly going to be cash flow positive
- Able to build up their treasury
- Ready to ramp up production and take advantage of what will be a rising uranium price in the future
Uranerz is one heck of an interesting, and in my opinion, investable story that should be on everyone’s radar screen. Is it on yours?
If not, it should be.
Richard (Rick) Mills
Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. His articles have been published on over 400 websites, including:
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
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