EFR-t : Energy Fuels' sp getting back on track
Its been 3 months since my last Blog entry and like most, enthusiam was in short supply given given the overall market correction that hit Uranium stocks particularly hard coupled with a declining U308 spot price. I can't understand the reaction of some to the spot price, reading articles like 'Uranium prices plunge, crash, tank' etc. The pullback follows an unprecedented run-up to $138 /lb that the market largely ignored since it surpassed $100 in the early spring.
The main buyers of Uranium - Utilities, are traditionally inactive in the summer months coupled with a lack of speculative buying and a DOE sale of 520,000 lbs of stockpiled uranium this month to pay for reclamation obligations (results of Auction expected by Aug 31, 07 with payment b4 fiscal year end Sept 30th). Mining from primary sources declined both in 2005 and 2006 and remains at about 60% of current global demand. This reality is reflected in the steady long term price, currently at $95. I have read analysts calling for $45 /lb all the way to $200 /lb in 2008...so who is right? Who knows? The fact remains demand is increasing with countless countries planning reactor builds, supply is not in the short-medium term, Areva of France is investing heavily, Russia will not renew the warhead conversion program with the US in 2013 and Russia is also looking to sign a deal with Australia to purchase Yellowcake in the future, to ensure adequate supply for their increased needs. Cigar Lake is still in question with at best start-up in 2011 and other future suppliers such as Kazakhstan, Africa and Mongolia carry political risk.
The US uses about 50MM lbs of the 180MM lb annual consumption and currently only produces about 10% of needs domestically. In 2005, US congress passed a bill to encourage Nuclear development and there are about 25 new reactors at various stages of permitting and design. Older reactors are being upgraded, operating life extended and output increased.
Energy Fuels has been quietly going about their business, refurbishing permitted mines in Colorado and Utah, releasing NI 43-101 reports, aquiring land using a very selective process, drilling both exisiting mine properties and potential new ones and have aquired 1000 acres in Colorado to build the first new U mill in the US in 25 years - target mill start-up the summer of 2010. Energy Fuels is on track to start mining their Whirlwind mine in Colorado in late Q407 with full 200-300 tpd operations when a toll milling agreement is reached and/or in preparation for milling at their own mill. Energy Queen and Tenderfoot mines are expected to begin operations in 2008, New Verde may also be added late 08.
Energy Fuels is also drilling Breccia Pipe targets in Arizona and EFRC was the only company to mine these high grade pipes in the 80's and 90's. The company also has JV's with Mesa Uranium and Uranium 1 in Arizona and these mines are relatively easy to permit and build given the small footprint and back fill capabilty. Breccia pipes generally grade between 0.5% and 0.8% U, considered high grade by world standards (the exception being the Canadian Athabaska basin) which would yield 10-16 lbs U308 per ton. As in the past, ore from Arizona mines can be hauled to White Mesa in Utah or EFR's planned Pinion Ridge mill in Colorado.
Breccia Pipe formation
One can't argue with Energy Fuels' objective, game plan, past experience and successes and they are clearly moving toward mining as opposed to building a portfolio of 'pounds in the ground'. It's a very long and bumpy road from PITG to selling Yellowcake. Share price appreciation will come to those who are in a position to supply ore and the 4 corners of the US has historically produced the most U308/V205. The question today is will EFR see cash flow in 2008 or 2010? Dension has the only operational hard rock mill in the US (built by EFRC in 1981) and is within 1-2 hours of trucking distance of EFR's mines but has yet to strike a toll milling deal. They have announced an ore-buy program at very unattractive rates (less than 1/3 value) but hope to accumulate 40k t of ore in 2008 (about 150,000-200,000 lbs U308 depending on grade). The word is that independant miners are not interested in DML's program despite adding a trucking allowance this month. Dension has stated they expect to produce 2.9MM lbs yellowcake in 2008 however the revamped mill won't start hard rock milling until March 08 and with current mining and additional rates I can't calculate how even under optimistic circumstances that 2.9MM lbs will be achieved from the 2000 tpd mill - the mill will be under utilized and inefficient. It will be in DML's best interest to maximize the use of the mill (as they have stated in PR's) and sign a deal with EFR and perhaps others that can supply significant ore (100,000+ t) and toll mill at a 20% premium to costs. Taking a predatory stance will not benefit their shareholders and will encourage competition not to mention possible anti-trust suits given their predatory stance.
In my opinion, a deal will be signed to the benefit of both companies (as Uranium One just announced a toll milling deal with Cameco in Wyoming), and like most investors would prefer sooner rather than later as I already have my position ;) EFR is currently trading at a 65% discount to its 52 week high of $5.48 reached just over 3 months ago followed by 17MM newly free trading shares. Many worthy U stocks are currently trading at a 50% or less discount (ex STM, RSC, URE, DML), making EFR a buy in my opinion. A director bought 30,000 shares last week and Goldman Sachs began accumulating EFR shares.