Uranium Energy Corp. May Have Too Much Exposure To The Spot Market

seekingalpha05-15

Uranium Energy Corp. continues to build uranium inventories despite the strong uranium spot market.The company plans to restart two mines in August 2024 and intends to sell uranium at spot prices and ...

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May Have Too Much Exposure To The Spot Market","media":"seekingalpha","content":"<div>\n<p>Uranium Energy Corp. continues to build uranium inventories despite the strong uranium spot market.The company plans to restart two mines in August 2024 and intends to sell uranium at spot prices and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4693178-uranium-energy-corp-may-have-too-much-exposure-to-the-spot-market\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Uranium Energy Corp. May Have Too Much Exposure To The Spot Market</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUranium Energy Corp. May Have Too Much Exposure To The Spot Market\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-15 03:01 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4693178-uranium-energy-corp-may-have-too-much-exposure-to-the-spot-market><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Uranium Energy Corp. continues to build uranium inventories despite the strong uranium spot market.The company plans to restart two mines in August 2024 and intends to sell uranium at spot prices and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4693178-uranium-energy-corp-may-have-too-much-exposure-to-the-spot-market\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"UEC","symbol_name":"Uranium Energy Corp","start_time":0,"source_url":"https://seekingalpha.com/article/4693178-uranium-energy-corp-may-have-too-much-exposure-to-the-spot-market","article_id":"2435462542","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2435462542","pubTimestamp":1715713281,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Uranium Energy Corp. continues to build uranium inventories despite the strong uranium spot market.The company plans to restart two mines in August 2024 and intends to sell uranium at spot prices and ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"UEC":"Uranium Energy Corp","BK4156":"煤与消费用燃料","UUUU":"Energy Fuels Inc","BQSSF":"Boss Energy Ltd"},"translate_title":"铀能源公司可能在现货市场有太多的敞口","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BQSSF":1,"UEC":1,"UUUU":1},"content_text":"Uranium Energy Corp. continues to build uranium inventories despite the strong uranium spot market.The company plans to restart two mines in August 2024 and intends to sell uranium at spot prices and through a contract with the Department of Energy at a 20% premium.Shareholders face continuous dilution as the firm has doubled their share count in the last two years. UEC may seek additional equity raises if production does not meet expectations.   koto_feja/E+ via Getty ImagesUranium Energy Corp. (NYSE:UEC) is finding itself in a peculiar position as the firm spent 1H24 stockpiling uranium inventory with no uranium sales in this strong uranium market. Despite the uranium spot market remaining at elevated prices, management has limited sales to tolling fees at their processing facilities for the first half of the year. UEC’s most recent investor presentation suggests two of the firm’s mines will restart in August 2024 with intentions of selling uranium either at spot prices, or through their contract with the Department of Energy at a 20% premium over spot. Despite these bullish signals, UEC faces challenges in the coming year as the firm is significantly exposed to the spot uranium market, which is primarily driven by institutional investors and not mining or utility companies. In addition to this, UEC is expecting to produce uranium on unknown reserves that may not yield what has been measured & indicated, making ramping up production to their 8.5MLBPA licensed capacity challenging. I provide UEC with a SELL recommendation with a price target of $4.71/share at 3.45x price/BV of mineral assets. Uranium Energy Corp. Operations Despite the recent rise of spot uranium prices, UEC continues to ramp-down production and is persistently avoiding core testing to evaluate proved and probable reserves. As of Q2’24, UEC has 226.2MMlbs of uranium as measured and indicated and 102.7MMlbs of uranium as inferred. Despite this, the strategy may pay off for the uranium mining company as supply/demand dispersion continues to widen between mined and processed uranium and demand by the utilities. Accordingly to UxC, the next two years are forecast to have a dispersion of 50MLBPA, widening to 400MLBPA by 2033. With the addition of the recent US legislature to ban Russian uranium imports, this dispersion may widen at a faster rate, given the unilateral presumption that US allies will commit to banning Russian uranium imports. If this is the case, I expect that uranium spot prices and long-term SPAs may have the potential to reach higher prices in the coming years as the market tightens. On the demand side, five new reactors connected to the grid and Takahama 1 and 2 have restarted, pushing the expected global generating capacity in 2024 to 392GWe, or 197MLBPA of uranium. Given that 22 countries agreed to triple nuclear energy capacity by 2050 at the COP28, I anticipate that the 400MLBPA dispersion may be significantly understating the dispersion. In terms of production, UEC is going against the grain when compared to other small uranium mining companies. US-based producer Energy Fuels (UUUU) and Australian-based producer Boss Energy (OTCQX:BQSSF) are both scaling production throughout 2024-2025 as they attain long-term SPAs with utilities while UEC continues to wind down production at Palangana Mine and Christensen Ranch Mine. Between this and the firm continuing operations without testing for proved and probable reserves, UEC’s ability to generate revenue is dependent on inventory sales and processing tolls. Management noted that the firm will only capture residual uranium from these sites and process it for sale for the time being; however, their Q2’24 investor presentation indicates that UEC will ramp up production at their Texas and Wyoming sites in August 2024. For now, UEC remains focused on more of a passive-income-like strategy in which the firm had purchased 995Klbs of uranium in 1H24 for $57,003 with a current carry value of $63,019. As of Q2’24, UEC has 1MMlbs of uranium inventory purchase commitments outstanding, with deliveries scheduled through 2026. The weighted average price on the uranium will be $39.10/LB, as per their Q2’24 10-Q. It’s almost as if UEC is acting as a spot uranium trader as opposed to a uranium mining company. Aside from this, UEC’s profitability has been primarily driven by revaluation of equity securities, which includes their equity investments in Uranium Royalty Corp (URC) and their 50% equity ownership in JCU Exploration Company Limited, which is accounted for using the equity method and not through consolidation. JCU was acquired through their acquisition of UEX Corporation in August 2022.   Corporate ReportsThough UEC has not sold any purchased uranium inventories throughout all of 2h24, the firm does generate some revenue from their toll processing services. Tolling services in 1H24 were utilized by one customer, denoted as Customer H in their 10-Q. Uranium Energy Corp. Outlook Given the firm’s strategy in maintaining unknown reserves, winding down mining operations, utilizing their processing facilities for third party utilization and equity raises, I find building an investment case for UEC challenging. Given that the firm is acting more as an intermediary as opposed to a mining company, especially as the firm builds its asset base, there doesn’t appear to be a clear operational strategy other than acting as a financial pit. I believe that UEC will need to come to play with their two mining restarts this year in order for me to regard the stock as a viable investment. What I find interesting is that management has voiced concerns in their Q2’24 10-Q relating to the firm’s going concern assumption, and yet, the key executive team receives $1.065mm per year for management services. Though holistically this isn’t a large sum, the total incentive program significantly outpaces eFY24’s revenue outlay, assuming UEC does not sell uranium inventories.   Corporate ReportsA few other findings include the amended stock incentive program for FY23 for an aggregate 30mm shares. Though the executive team does hold a significant amount of shares in UEC stock, they have collectively sold $1.31mm in shares within the last 12 months.   MarketBeatThough insider sales are trumped by total holdings by insiders, I find it peculiar that insiders are selling shares given the broader macro factors that are coming into play within the uranium industry, especially given that they have outlined restarting production in CY2H24. The investment thesis for UEC   Corporate ReportsUEC currently trades at 5x EV/Book Value of mineral assets. On a comparison basis, UEC shares have the ability to pose significant upside given the current spot price of uranium when using a PV-10 model.   Corporate ReportsBull Case For UEC UEC’s current investor presentation suggests that the firm will be restarting production at their Texas and Wyoming ISR sites in August 2024 with 8.5MLBPA of licensed capacity. UEC also has a memorandum of understanding with TerraPower with the objective of reestablishing domestic supply chains of uranium fuel. The firm also has a contract with the US DoE to supply 300,000LBS of uranium to the strategic uranium reserve at a 20% premium to the spot price. Management values their deal with the DoE at $1.5b given the current spot price. Bear Case UEC can be caught flatfooted in ramping up production and holding uranium inventory in the near-term as the firm continues to wait-and-see regarding uranium spot prices. I believe UEC can advantageously sell uranium on the spot market; however, this poses associated risks as the spot market is primarily driven by institutional investors and isn’t necessarily a direct indicator for sales prices. Using Sprott Physical Uranium Trust (U.U) as a proxy, it appears that uranium spot prices may be in a retracement period given the run-up in prices. Though future prices cannot be predicted, the price chart moves at near-perfect wave cycles when using Elliott Wave Theory, suggesting that much of the pricing is driven by institutional investors rather than miners and utilities.   TradingViewIf this assumption holds, Wave Theory suggests that the spot price may continue to roll over in a downcycle in the near-term before reversing into a bullish trend. UEC is also strongly correlated to the uranium spot market, making the firm exposed to all downside risk if Wave Theory holds. Given the lack of production and dependence on purchases and sales of uranium inventory, this may pose significant risks to future operations if production ramp-up is not as robust as their approved sales capacity. This can significantly impact the firm’s ability to generate cash, resulting in further cash burn and additional equity raises. For reference, UEC issued 50% of their current float in the last two years alone, from Q2’22 through Q2’24.   TradingViewIt appears that other investors are seeing the line in the sand for UEC shares as short interest is now sitting at 9.60% as of April 30, 2024.   MarketBeatGiven the bull/bear case dynamics, I believe that UEC shares will sell off in the near-term and reprice shares to asset book value at 3.45x for a share price of $4.71/share.   Corporate ReportsThough this is a lower valuation when compared to its peers, I believe that the combination of equity raises, unproven reserves, and the risks of ramping up production will result in downside risk for the company’s stock. I rate UEC shares with a SELL recommendation with a price target of $4.71/share.   TradingView  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.0","shortVersion":"4.24.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2435462542"}