Energy Fuels is doing EXACTLY what it should in preparation of an inevitable rebound in long-term uranium prices. The Company’s acquisition of Strathmore Minerals is a home run. Raising $6.6 million in an oversubscribed, bought deal, private placement demonstrates substantial interest in the new Energy Fuels. Average daily trading volume in EFR.TO has tripled to ~1.3 million shares from about 400k. Contrarian, new money is flowing into the uranium sector and EFR.TO is attracting more than its fair share.
Industry Pundits Falling Into Line, Uranium Bull Market Approaching!
Recently, there’s been a flood of industry participants predicting a significant increase in the long-term uranium price. Rick Rule of Sprott, Mickey Fulp, aka the “Mercenary Geologist,” Casey Research, Jeb Handwerger, Chris Berry of, “Discovery Investing,” JP Morgan (calling for $90 per pound in 2016), and Cameco, Areva, and Rio Tinto, among others.
Guessing the exact timing of the move higher is impossible, but also completely unnecessary. Instead, please understand this one powerful factor supporting the Bull Case in uranium. FACT: 65% of uranium production in 2012 came from Kazakhstan, Namibia, Niger, Malawi, Uzbekistan, Russia and Ukraine. Uranium contracts typically span 5-10 years, how will end users get comfortable with security of supply?
Both Uranium Prices and Uranium Company Stocks Can Move Decisively in Short Time Periods
Shareholders will not have to wait for the big move in long-term uranium prices before a meaningful move higher in share prices. Looking back at the nine month period leading up to Japan’s Fukushima disaster shows how explosive the move in uranium stock prices can be. From $0.16 at the end of June, 2010, (sound familiar?) EFR.TO hit $1.40 in February 2011, before settling in around $0.80 (up 400%) in early March, 2011.
During that same period, long-term uranium prices increased from $59 to $72 (up 22%) per pound. In case readers think I picked an especially bullish period, consider that in the 16 month period from early 2006 to mid-2007, long-term uranium prices climbed from $40 to $95 per pound. EFR.TO moved from about $0.20 per share to over $4 bucks, a 20x return. Other uranium stocks enjoyed similar extraordinary returns.
Long-Term Uranium Prices in the $80′s or $90′s Per Pound a Reasonable Assumption
Given potentially serious challenges to global supply this time around, long-term uranium prices are likely to return to the mid-$70′s or higher within 6-18 months. However, a long-term price in the $80′s or $90′s per pound, from 2016 on, is a perfectly reasonable assumption. Recall that in the year leading up to the 2008-9 Financial Crisis, the long-term price was flat at $95 per pound.
As long-term prices begin to return to levels observed absent exogenous shocks, uranium stocks like Energy Fuels are going to jump. As can be seen with the 2010-2011 and 2006-7 examples, stock prices can move very quickly. The writing is on the wall, don’t be caught off guard!