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Finance

Denison Mines, Ur Energy, Cameco, and NexGen Energy

The energy sector has been witnessing a slow but steady transformation as  climate change has become  an increasingly pressing concern worldwide.  Global leaders are investing again in nuclear energy to protect the planet by cutting the greenhouse gas emissions that emanate from burning fossil fuels. Consequently, utilities around the world are increasingly relying on nuclear fuel products.

The United States is the world’s largest nuclear power generator, accounting for more than 30% of global nuclear power. In fact, it accounts for 20% of America’s total electrical output and remains the most efficient power source available. Uranium is a key element in carbon-free nuclear electricity generation. The $15 billion uranium mining industry fuels reactors globally, which are said to remove more than 250 billion tonnes of CO2 per year.

Unlike other commodities, uranium has been in  a prolonged bear market. Significant mine shutdowns because of low uranium prices and increasing production costs have caused a primary-supply reduction of more than 35% over the past four years. The COVID-19 pandemic  has also caused significant supply disruptions, necessitating higher-than-anticipated inventory drawdowns. However, with the construction of more nuclear power plants around the globe and emergence of new safer technologies, uranium may be poised for a multi-year bull run.

The Biden administration might further mitigate the need to stock up on uranium deposits for defense purposes because  the President is forging trade deals with Russia and China to help hit his goal of global net zero carbon emissions by 2050. Russia and the United States yesterday agreed to extend the  New START nuclear arms control treaty, which limits the number of strategic nuclear warheads, missiles and bombers that both the parties can deploy.

In addition, the recently passed Energy and Water Development and Related Agencies Appropriations Act, 2021 sets the stage for the Department of Energy (DOE) to shore up domestic production of uranium, including a national uranium reserve. This is occurring at a time when there is growing uncertainty and risk around global uranium supply.

Global changes in the regulatory environment will accelerate the pace toward a carbon-neutral world, and companies dabbling in the clean energy space will receive a major boost.

Given this favorable backdrop, we believe uranium producing majors Cameco Corporation (CCJ), NexGen Energy Ltd. (NXE), Denison Mines Corp (DNN) and Ur-Energy, Inc. (URG) will likely see immense growth in their business.

Cameco Corporation (CCJ)

Based in Canada, CCJ is one of the largest global providers of  uranium. The company has been producing uranium and nuclear fuel products for more than  three decades. It mines primarily Cigar Lake Property in Canada for uranium deposits, which it sells across the Americas, Europe, and Asia. CCJ operates primarily through two segments – Uranium and Fuel Services.

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CCJ’s mining operations have been severely disrupted by the pandemic. Despite making proactive operational decisions and prioritizing the health of its employees, CCJ was forced to temporarily suspend production at its Cigar Lake uranium mine in December due to the increasing contraction of the virus at the site. However, the mine resumed operation at the end of December.

CCJ is scheduled to release its fourth quarter and full-year 2020 results on February 10. In the third quarter ended September 30, 2020, its revenue increased 25% year-over-year to C$379 million, due primarily to a higher average selling price and  higher uranium sales volume. Sales volume came in at 6.7 million lbs., a  10% rise  versus  the year-ago quarter. However, CCJ reported an adjusted loss of C$0.20 per share.

CCJ is up more than 30% in the past three months. The company owns two of the most productive uranium mines on the planet. In fact, its Athabasca Basin mine in Canada holds uranium reserves 100 times more concentrated than world averages. CCJ is currently  focused on securing long-term contracts necessary to support its mines. It is  optimistic about the increasing  focus on sustainability. Analysts expect CCJ’s EPS to grow at a rate of 9.8% per annum in the next five years.

CCJ’s POWR Ratings reflect this promising outlook. It has been accorded a B rating for Trade Grade and Industry Rank. It is also ranked #27 of 41 stocks in the Industrial – Metals industry.

NexGen Energy Ltd. (NXE)

NXE is an exploration and development stage company that engages in the acquisition, exploration, and evaluation of uranium properties in Canada. The company holds a 100% interest in its principal property, the Rook I project, which  consists of 32 contiguous mineral claims in the southwest Athabasca Basin, Saskatchewan.

In August last year, IsoEnergy entered an agreement with International Consolidated Uranium Ltd., which was founded by the team behind NXE, to grant the company the option to acquire a 100% interest in IsoEnergy’s Mountain Lake uranium property in Nunavut, Canada. The  agreement is still waiting for an approval by the TSX Venture Exchange.

As an exploration and development stage company, NXE does not have revenues and historically has recurring operating losses. In the third quarter ended September 30, 2020, NXE’s working capital came in at $72.86 million. The company has capitalized total costs of $266.57 million for its Rook I, IsoEnergy Property and Other Athabasca Basin Properties. In addition , it reported a loss of $0.06 per share.

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NXE is up a whopping  65.7% in the past three months. The company aims to eliminate nearly 70 million car-equivalents of CO2 per year. Its  prospects look promising because its development-stage Arrow mine will  be the world’s largest and lowest-cost uranium concentrate mine, featuring up to 25 million pounds of annual output at less than $5 per pound.

It is no surprise that NXE is rated Buy in our POWR Ratings system. It also has an A for Trade Grade and Peer Grade, and a B for Buy & Hold Grade. It is ranked #10 of 67 stocks in the Miners – Diversified industry.

Denison Mines Corp (DNN)

DNN engages in uranium mining and development activities in Canada, Mali, Namibia, and Zambia. Its flagship project is its 90%  owned Wheeler River Uranium project, which ranks as the largest undeveloped high-grade uranium project in the infrastructure-rich eastern portion of the Athabasca Basin region.

In  December , DNN announced the completion of a private placement of common shares that qualified as “flow-through shares” worth C$0.93 million. The company plans  to fund the advancement of its flagship project. In fact, the company completed a trade-off study assessing the merit of adopting a freeze wall design as part of the in-situ recovery mining approach planned for the high-grade Phoenix uranium deposit at the same mine.

In the third quarter ended September 30, 2020, DNN generated C$2.7 million in revenue. , However, its mineral sales did not contribute anything to the overall top-line. Its working capital came in at C$10.77 million. The company completed a well-supported and significantly up-sized public offering in early October, raising  approximately C$25 million. But DNN reported a loss of C$0.01 per share.

DNN has already generated 0.85 million in minerals sales  that it estimated for 2020. Additionally, the net inflow from its Closed Mines segment has been increased by $161,000, due primarily to reductions in operating expenses that have been achieved throughout the year. At the end of October, the company was  estimated to have more than  CAD$29 million in cash and was  debt free.

According to our POWR Ratings, DNN has been conferred a B rating for Trade Grade. Among the 67 stocks in the Miners – Diversified industry, it is ranked #33.

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Ur-Energy, Inc. (URG)

URG is a junior uranium mining company that holds interests in 12 projects located in the United States. Its flagship property is the Lost Creek in-situ recovery uranium facility in South-Central Wyoming. The Lost Creek processing facility has a two million pounds per year nameplate capacity and comprises approximately 1,900 unpatented mining claims.

In response to the Energy and Water Development and Related Agencies Appropriations Act 2021, URG’s management said, “Given the Administration’s stated priority of preserving existing assets of U.S. nuclear infrastructure, we believe government funding of uranium purchases will be directed toward established production companies with permitted physical infrastructure and proven production operations.”

In the third quarter ended September 30, 2020, URG did not generate any revenue. However, the company captured 2,503 pounds of uranium production. The company closed a $34 million State of Wyoming, Taxable Industrial Development Revenue Bond financing program loan during the quarter, and the company closed the quarter with C$6.6 million cash and cash equivalents. It also reported a loss of $0.02 per share, compared to the year-ago loss of $0.03 per share.

The stock has doubled in the past three months. In addition,  URG  is well-positioned to gain further momentum. Wall Street analysts expect URG’s EPS to grow at the rate of 35% per annum over the next five years.

URG’s strong fundamentals are reflected in its POWR Ratings. It has a B in Trade Grade and is ranked #36 of 67 stocks on the Miners – Diversified industry.

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CCJ shares were trading at $12.79 per share on Thursday afternoon, up $0.17 (+1.35%). Year-to-date, CCJ has declined -4.55%, versus a 0.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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