Uranium Onshoring – The Golden Investment Opportunity

Uranium is the best performing commodity this year, and for good reason. Last year’s energy crisis in Europe and parts of Asia was a wakeup call for world leaders.

Governments now accept that reliable, low emmission energy from nuclear has to be part of the global energy mix going forward.

The world is now building the most nuclear reactors since the 1950’s and new construction announcements emerge every month.

Though uranium stocks have already performed very well in 2023, there are certain pockets of the market that have not yet received the full recognition of their earnings potential from investors.

Rising uranium demand requires rising uranium supply and there exists a specific bottleneck in the uranium supply chain that we think will generate the best risk adjusted returns for investors.

That niche is conventional uranium milling…

Every pound of uranium dug from the ground must pass through a uranium mill as part of the enrichment process, yet no uranium mills are operating in the US today.

With the likelihood of US production rebounding strongly, owning those with irreplacable assets will generate market beating returns in our view.

In our research below we lay out the bullish backdrop for uranium and explain in detail which two companies are best positioned to benefit as uranium production returns to North America.

Setting the Stage for Uranium’s Renaissance 

Government’s and citizens continue to warm to the potential of Nuclear energy as a clean, abundant way to meet global emmission targets.

Uranium prices are hitting all time-highs in anticipation of strong demand over the next 20 years at the same time the uranium oversupply of the last decade is largely over.

The fundamentals for uranium couldn’t be better with excess inventories rapidly falling right as demand is poised to spike higher from new facility construction.

Global Uranium Inventory (‘000 Pounds)

Even though the entire industry is poised to generate market beating returns, we believe there is one underappreciated investment opportunity hiding in plain site.

Onshoring…

America makes up 27% of global uranium demand, yet produces less than 1% of global supply. This is a big opportunity for investors.

Estimated Uranium Supply and Demand by Country

e) Estimated by the World Nuclear Association (WNA) 3) Source: World Nuclear Association (WNA) World Uranium Mining Production (May 2023) 4) Source: World Nuclear Association (WNA) World Nuclear Power Reactors & Uranium Requirements (August 2023) 5) World Nuclear Association (WNA) presented as tonnes converted to pounds (lbs) using 1 metric tonne to 2,204.62 ratio

With the ongoing Russia-Ukraine war straining relations between Russia and the west, we see the potential for nuclear fuel demand to come home. If even a fraction of US nuclear facilities begin looking for US uranium, local demand could increase 20x-30x from where it is today.

The US has been a production powerhouse before. From the 1950’s to the 1980’s the US government offered large incentives to drive domestic production. At the peak, the US produced over 40 million pounds of uranium annually, compared to less than 200,000 pounds last year.

We think rising geopolitical tensions are likely to lead to a resumption of US subsidies and potential trade barriers once again, driving a US uranium production renaissance.
Source: EIA

Though owning US producers may sound like the obvious way to play onshoring, we’ve found a different bottleneck in the uranium processing chain that offers even more upside, uranium mills.

The Uranium Mill Opportunity

Uranium is mined two different ways.

  1. Mined from rocks (ore), either underground or in an open pit: The mined ore must go through a mill to recover the uranium concentrate.
  2. In-Situ Recovery as a liquid: Wells are drilling underground, chemicals are pumped into uranium ore and the uranium, now a liquid, is pumped back to the surface and processed into concentrate.

Both have their benefits and drawbacks.

  • Ore is typically higher grade than in-situ recovery
  • Mining is more expensive up front, but cheaper over time. In-Situ is cheaper up front, but requires higher maintenance capital over the life of the project.
  • In-Situ has a lower environmental footprint

Historically, traditional mining has produced a majority of all uranium, with 14 of the 20 mines in the US being underground or open pit at the peak of the last uranium cycle.

Number of Uranium Mines by Production Type

Even though In-Situ mines are the only mines operating today, production is still dominated by conventionally mined ore. The White Mesa Mill contributed 82% of uranium production in 2022.

In-Situ mining will continue to gain in popularity, but conventional underground mines will still play a significant role and will exceed current mill capacity in our view as onshoring plays out.

Uranium Production by Mine Type

Source: EIA
Bottom Line: Rising US convential uranium production will require milling. With signicant milling demand on the horizon, the two companies who own the mills, Anfield Energy and Energy Fuels, will have the market to themselves in the early days, generating significant revenue and cashflow.   

A History of Uranium Supply: The G7 Haves & Have Nots

In 2022, the world produced 57,651 MT of uranium concentrate, or U3O8. Most of the production is derived from a small number of countries (i.e., Kazakhstan, Canada, Namibia, Australia, and Uzbekistan). More than 40% of global supplies come from one nation – Kazakhstan.

The disparity between domestic production and uranium supply is quite surprising. Some of the most prosperous nations, namely the US, Japan, France, and others have a relatively high demand for nuclear energy yet lack domestic resources.

The USA produced only 165,347 lbs of uranium in 2022, compared to nuclear reactor demand of ~40 million lbs. By contrast, Canada’s production capacity far outweighs its demand, making it a net producer for the foreseeable future.

Historical US Uranium Production (Lbs)

Source: EIA

The imbalance between demand and access to supplies is glaring, with almost 80% of primary production coming from state-owned companies.

Currently, over 70% of demand is sourced from countries that consume very little uranium, and about 90% of consumption comes from countries that have little-to-no primary production.

The nuclear industry’s reliance on Russian supplies for 14% of uranium concentrates, 27% of conversion and 39% of enrichment is a serious problem given the ongoing tensions with Russia and the West. A fact western governmen’t are waking up to.

The Russian/Ukraine war highlights the regional risk associated with supply gaps – uranium is now a strategic resource and many nations would have a deficit if access to foreign supplies were ever cut off.

Quarterly U.S. Production Near All-Time Lows

U.S. production of U3O8 grew 800% year over year in 2022, but is still at less than 200,000 pounds annually, less than 1% of US demand.

Among the historically low production, convention mining feedstock is generating over 93% of production. In 2022 production came from five in-situ recovery facilities and 1 conventional mill, however the White Mesa Mill made up the lion’s share of supply.

Data Source: U.S. Energy Information Administration: Form EIA-8510Q, Domestic Uranium Production Report (Quarterly)

Only Two Players in the Uranium Milling Game

As uranium production ramps up in the US with higher prices and the potential for reshoring, the pickings of who will mill the convential ore is slim and that creates an opportunity for investors.

Though three mills are currently permitted, only one is operational today and did not process any uranium in 2023 during to unfavorable market conditions. Of the remaining two only the Shootaring Canyon Mill from Anfield energy is going through the restart process. The Sweetwater Mill last filed in 2020 to be decommissioned meaning it will not be restarting within the next 10 years if at all.

Mill Name Company Location Status Mill Capacity (Tpd) Peak Production (Lbs Per Year) Licensed Capacity (Lbs Per Year)
White Mesa Energy Fuels (UUUU) UTAH Operating 2,000 2,000,000 8,000,000
Shootaring Canyon Anfield Energy (AEC) UTAH Standby (Restart Underway) 1,000 1,000,000 3,000,000
Sweetwater Kennecott Uranium (PRIVATE) WYOMING Standby 3,000 N/A N/A

Anfield Energy

Anfield Energy(OTC: ALDF) (TSX: AEC) owns past producing properties in Utah as well as one of only three permitted and constructed conventional uranium mills in the US. Anfield is in the process of restarting their mill making them the only mill operator besides Energy Fuels who will be operational in the next 5 years.

The Shootaring Canyon Mill is permitted for 3 million pounds of uranium and plans to have production capacity of 1 million pounds per year at restart.

There is the potential to increase mill capacity to 1,250 tons per day vs the currently planned 1,000 tons per day with some modifications according to Anfield’s construction contractor Precision System Engineering. Anfield’s goal is to eventually increase yearly production to 2 million pounds from the currently planned 1 million pounds.

The Shootaring Canyon Mill has a forecast after tax present value of $238 million at $70/lb uranium compared to Anfield’s current market cap of only $42 million. Anfield currently trades for $50/lb of licensed capacity including upfront CAPEX to bring the mill online.  

Energy Fuels

Energy Fuels (NYSE American: UUUU) (TSX: EFR) operates in the U.S. and owns the White Mesa Mill in Utah. The White Mesa Mill is the only conventional uranium mill currently operating in the U.S.; and has a licensed capacity of over 8 million U3O8 lbs per year though current capacity is 2000 tons per day or about 2 million U3O8 lbs per year.

White Mesa saw production peak at 1.9 million pounds U3O8 in 2019, but has been only processing select feedstock and is mostly selling left over inventory currently. Sales are on track to exceed 162,000 lbs this year.

Energy Fuels has indicated they won’t be bringing the mill back online before late 2024 at the earliest and will continue meeting sales commitments from processed inventory and third party buying.

Energy Fuels trades for $150/lb of licensed capacity currently and has a market cap of US$1.21 billion.

Kennecott Uranium

Kennecott Uranium is a private subsidiary of mining giant Rio Tinto.

The last we heard publicly of Kennecott’s milling permit, they were in the process of letting it lapse and turning the facility from care and maintenance to inactive.

Regardless of if improving market conditions in 2023 will eventually lead the company to restart the permitting process, its safe to say this facility has no chance of starting up before the end of the decade at the earliest.

There really are only two players in the US when it comes to uranium milling, Anfield and Energy Fuels and they are looking at a potential wave of milling demand coming this decade.

Invest in Pinch Points

It is our strong belief that the most impressive gains at this point in the uranium cycle will come from finding pinch points in the supply chain where demand and supply are mismatched.

There is no larger mismatch than in America, where reactor demand exceeds annual uranium production by more than 100:1.

Looking at the nuclear fuel cycle, our preferred pinch point is in the milling stage. Uranium buyers and governments are increasingly buying production from the west requiring increasing production from domestic miners.

Source: EIA

Starting a uranium mine or in-situ facility is by no means easy, but raising the millions needed and going through the multi-year permitting process to build a uranium mill is far more difficult.

Given Anfield and Energy Fuels have a current duopoly on uranium milling and are years ahead of any new entrant when it comes to permitting, we think there could be explosive upside in both. Not to mention both are still underperforming the uranium index and the largest company in the space Cameco.

Mill Stocks are Lagging Cameco Significantly YTD

Source: YCharts

Both companies are located in uranium rich regions with a history of production, positioning them well to profitably process their own supply as well as the supply of others who want to ramp up quickly without the headache of building a mill.

Anfield trades at 1/3rd the mkt cap per lb of Energy Fuels offering investors far more leverage to an improving North America production story, though both are exceedingly well positioned to exceed expectations as the uranium bull market rolls on.

Source: Capital10x Estimates, Bloomberg *Anfield Mkt Cap Includes $110M of CAPEX to build the mill and mines

Anfield Energy is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Duane Hope is a Partner at Capital 10X, he brings over 15 years of communications and research experience to the firm. His research and writing have appeared in publications for North American, European and Asian audiences.

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