Uranium

[Pro-Life]

Uranerz: The Newest Uranium Producer
Wednesday April 16, 2014, 2:48pm PDT
By Vivien Diniz - Exclusive to Uranium Investing News

http://uraniuminvestingnews.com/18148/uranerz-uranium-producer-wyoming.html

In the last several years, transitioning from a uranium development company to a producer has been a feat that few have been able to accomplish. With current uranium prices below global marginal production costs, very few companies have been able to maintain operations, let alone contemplate starting operations. For Uranerz Energy (TSX:URZ, NYSEMKT:URZ) that was not the case.

The Wyoming-focused company started its mining operations this week at Nichols Ranch, after having been issued clearance from the Nuclear Regulatory Commission. In a note to clients, Cantor Fitzgerald’s Rob Chang called the news a “transformational event” as Uranerz has now joined a select group of companies actively mining uranium.

What makes Nichols Ranch able to produce in this weak price environment is the in situ recovery (ISR) mining method being used. When compared to hard rock mining, ISR generally comes out on the lower end of the cost curve due to lower capital costs and intial inlay costs.

As Uranerz’ Chairman Dennis Higgs explained to Uranium Investing News, Uranerz “was able to get into production within the $40-50 million dollar range capital expenditure,” which is significant when compared to the steeper costs associated with hard rock mining.

Beyond that, however, Higgs pointed to sales contracts that the company entered into in 2009, when uranium prices were thriving. Uranerz has several signed off-take agreements with two major U.S. utilities, including Exelon, that operates the largest nuclear fleet in the U.S.. The company also has a toll processing agreement in place with Cameco (TSX:CCO, NYSE:CCJ), who is also an operator in the Powder River Basin.

Higgs said that Uranerz is looking to produce somewhere in the area of 300,000 to 400,000 pounds in 2014. Followed hopefully by a ramp up to 500,000 to 600,000 in the coming year. However, Higgs does warn that production ramp up does, to some extent, rely on uranium prices.

“If the uranium price next year were to double,” he said, “we’d be looking to significantly increase production.” But, unfortunately, there is a trade off between rapid development and growth and weak pricing environments.

Now that Uranerz has joined the ranks as the newest uranium producer in the United States, investors might what to make note of the overwhelming concern of security of uranium supply. The U.S. currently consumes somewhere in the area of 50 million pounds of uranium per year, however, it’s domestic production only contributed about 4-5 million pounds. With only 5 companies currently producing uranium in the United States, domestic supply is still going to be a concern, so much so, that Chang speculates that uranium produced in the U.S. could command a premium in the future. Which would be a good thing for companies like Uranerz who are in production.