UEC - Uranium Energy Corp.: The Best Uranium Stock To Buy

2023-12-04 10:38:31 ET

Summary

• Uranium Energy Corp. is a preferred uranium investment due to the importance of nuclear energy in achieving net-zero carbon emissions.
• The demand for uranium exceeds current production, leading to a supply-demand gap and the potential for higher uranium prices.
• Uranium Energy Corp. is a promising uranium producer with no debt and the potential for high profitability if uranium prices stabilize above $65 per pound.

Investment Thesis

Here I explain why Uranium Energy Corp . (UEC) is my preferred uranium investment.

I describe in simple terms why nuclear energy is important, what nuclear fuel is and how to think about it, and why there's a change in the political wind toward accepting nuclear energy to complement the energy transition.

There's a lot to be compelled about, so let's get to it.

Nuclear Energy By The Numbers

Uranium, as the primary fuel for nuclear energy, plays a pivotal role in our journey towards achieving net-zero carbon emissions. Nuclear power stands as a low-carbon energy source with the capability to generate vast amounts of electricity consistently. Unlike fossil fuels, nuclear power produces virtually no greenhouse gas emissions during operation, making it a critical component of our efforts to combat climate change.

Nuclear fuel is not perfect. The disposal of used nuclear fuel poses several challenges, more specifically dealing with radioactive waste. Used nuclear fuel remains hazardous for thousands of years, requiring secure storage and isolation from the environment to prevent potential contamination and health risks. Identifying suitable disposal sites and ensuring their safety is extremely costly. Additionally, the transportation of radioactive waste to these disposal facilities carries significant risks, such as possible security breaches.

Uranium production stands at approximately 55 tons annually (as of 2022), while the demand for uranium for nuclear reactors is estimated at around 65,000 tons per year (as of 2022).

This supply-demand gap has been primarily filled by secondary sources, such as uranium stockpiles and reprocessed fuel, as well as mine production. However, the finite nature of these secondary sources and the closure of some uranium mines have raised concerns about the long-term sustainability of uranium supply. As countries around the world continue to invest in nuclear power as a low-carbon energy source to combat climate change, plus small modular reactors, ensuring a stable and sufficient uranium supply chain is where the opportunity is found.

The Nuclear Fuel Cycle

In simple terms, here I try to explain the nuclear fuel cycle.

Imagine uranium fuel as a cake, and the goal is to get the most energy out of it. Underfeeding and overfeeding uranium are two different ways of slicing and serving this cake:

1. Underfeeding uranium (conservative slices):

   • Underfeeding is like cutting the cake into smaller, conservative slices. Each slice has a bit less frosting (fissile or uranium material) on it.
   • You can serve these smaller slices over a more extended period because there's less frosting (fissile or uranium material) in each slice. This means you get to enjoy the cake (generate energy) for a longer time.
   • The cake (uranium) lasts longer, and you use it more efficiently because you're not gobbling it up too quickly.

2. Overfeeding uranium (generous slices):

   • Overfeeding, on the other hand, is like cutting the cake into large, generous slices. Each slice has a lot of frosting (fissile or uranium material).
   • These big slices pack a lot of flavor (energy), so you enjoy them intensely, but you finish the cake (uranium) faster because each slice is so rich.
   • The cake (uranium) is consumed more quickly, and while you get a burst of energy, you run out of cake sooner.

So, underfeeding is about making the most of your cake by enjoying it slowly over time, while overfeeding is finishing it quickly. That being said, I believe this overcomplicates the overall thesis. Keep this thesis simple. You want prices of uranium to move towards the mid $60s per lbs. and to stay there.

Political Winds are Changing

From China to Saudi Arabia to Europe, most countries around the world are slowly looking to embrace nuclear energy for its cheap, reliable, flexible, and carbon-free sources.

Nuclear energy plays a crucial role in complementing the energy transition towards a more sustainable future. It provides a stable base load of electricity, which is consistent and reliable, unlike some renewable sources that depend on weather conditions. This stability means we don't have to rely as heavily on large-scale battery storage solutions to balance the intermittency of solar and wind energy. Nuclear power plants can operate continuously, offering a steady supply of electricity, making them a valuable part of the diverse energy mix needed to meet growing global energy demands while reducing greenhouse gas emissions.

Why Invest in UEC?

Uranium Energy Corp was founded in 2003. But the business has not up until this moment produced any uranium. I'll explain more about this bearish matter in a moment.

UEC is not the only uranium miner. But I like UEC because it doesn't have any debt , and it's not hedged.

We could overcomplicate the thesis, but ultimately it boils down to the fact that it holds about 8 million lbs. licensed capacity per year and that the business will go from a dormant state to one that can be highly profitable if uranium prices stabilize above $65 per lbs.

Now, let me discuss the bear case. The bear case points to the fact that UEC has never produced uranium. And that is true. UEC went public in the middle of the 2000s at the height of the uranium bull market. The bull market for uranium would top out in 2007, and since that moment, the uranium market has been inactive.

What this means is that for UEC it would be uneconomic to mine for uranium. Consequently, the business has only been able to stick around by diluting shareholders.

Having said that, I would counter this by saying that it's a relatively young company, where the majority of the past decade's uranium prices have been so low as to make it uneconomical to mine.

UEC has two production-ready facilities. One in Texas (the oldest one) and one in Wyoming. The inferred uranium volume of uranium at these two facilities is 25 million pounds of uranium.

But the big mine that's in an advanced state is its Athabasca Project, which has nearly 53 million pounds of uranium. At present prices, its mines in Athabasca alone would have a value of around $2.5 billion. The same as UEC's market cap today. The remainder of its facilities in Texas and Wyoming are production-ready and being offered to investors basically for free.

The Bottom Line

In conclusion, uranium, the primary fuel for nuclear energy, stands as a vital asset in our pursuit of achieving net-zero carbon emissions. While nuclear power offers low-carbon electricity generation with minimal greenhouse gas emissions, it is not without its challenges, particularly in the disposal of radioactive waste.

I make the argument that UEC is the best uranium miner to invest in since the business is fully unhedged with its operations ready to start mining if uranium prices stay higher than $60 per lb. Note, that uranium prices have now just crossed $80 per lbs.

Uranium Energy Corp. has no debt on its balance sheet and a management team that is striving to get the business into operation. I remain bullish on this stock.

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