Haywood Securities’ Colin Healey says “we maintain a long-term bullish thesis on uranium demand-to-supply and commodity price”.
Haywood Securities analyst Colin Healey is bullish on uranium and uranium miners alike. Mr. Healey, based in Vancouver, has covered mining stocks for Haywood since 2012. He previously studied at Ryerson University and York University’s Schulich School of Business in Toronto, where he earned his undergraduate degree and master’s degree in business, respectively.
The analyst says: “Uranium had a major reintroduction to prime time in 2021 riding on a thesis that we’ve been highlighting for a couple of years now, which is that uranium sector fundamentals are the best we’ve seen since just prior to the Fukushima disaster (in 2011), when the uranium spot price touched US$73 per pound of U3O8 (triuranium octoxide, a uranium compound commonly used in shipping and trade).” The creation of a physical uranium trust pushed demand further, leading to a 40 per cent price increase over the course of 2021, even briefly breaking through US$50 per pound of U3O8, a nine-year uranium spot price high.
Haywood’s 62-company comparison list of uranium stocks responded in kind, gaining more than 110 per cent on average, reflecting their potential to rise on higher prices for the commodity.
“As we enter 2022, the bullish setup just got a lot more interesting and complex, if that’s possible, as we continue to navigate a global pandemic while intense protesting in Kazakhstan adds a layer of risk to the world’s largest production centre,” says Mr. Healey. “We maintain a long-term bullish thesis on uranium demand-to-supply and commodity price and believe this short-term setup could rapidly transform into a midterm accelerant and market tightening mechanism if there is any production impact in Kazakhstan.”
3 best uranium stocks to buy
Accordingly, the analyst’s “top picks”, equivalent to “best buys”, among uranium companies are Denison Mines Corp. (TSX—DML; NYSE/Amer—DNN), NexGen Energy Ltd. (TSX—NXE), and Uranium Energy Corp. (NYSE/Amer—UEC).
Denison Mines is advancing its flagship Wheeler River project, of which it owns 95 per cent, in the uranium-rich eastern portion of the Athabasca Basin in Saskatchewan. Mr. Healey praises the company’s efforts to redefine the project, through its unusual (in the Athabasca) plans to in situ leach the Phoenix deposit there, calling the idea “technically challenging, but with a very high potential reward”. Per the project’s preliminary feasibility study (PFS), extremely high grades at Phoenix would support a very cheap cost structure for producing uranium, he explains.
“Denison defined the ISR (in situ recovery) mining concept for its Phoenix deposit back in September 2018.” The full Wheeler River project PFS estimated a pre-tax net present value of $1.3 billion and blended operating expenses of US$7.10 per pound of U3O8; however, operating expenses of just US$3.33 per pound were outlined for Phoenix, with all-in costs of US$8.90 a pound if implementing ISR techniques. The company is now exploring using “freeze walls” in sequential ISR mining phases rather than the “freeze dome” detailed in the PFS to isolate a portion of the deposit at a time (as opposed to the dome, which would isolate more of Phoenix but be more complex and expensive to drill. “We expect there will naturally be an increase in sustaining capital expenses associated with the installation of sequential freeze walls . . . and, therefore, some increase in all-in sustaining cost (AISC),” comments Mr. Healey. “That said, we believe that this is the much better proposition as it places the bulk of the sequential capital spending into a time frame where it can be ‘production-supported’.” He expects Denison to release a full feasibility study for Phoenix by late 2022.
NexGen also operates in the Athabasca Basin; it is a uranium explorer and developer. Mr. Healey underlines the “disruptive potential” of the company’s Arrow deposit (boasting “inferred resources” of 80.7 million pounds of U3O8), which he describes as the “best undeveloped uranium asset globally and highly strategic”.
The analyst elaborates: “We see NexGen as perfectly positioned to fill the supply gap beyond 2025. We expect Arrow will be ramping up production just as major sources of production (such as Cameco Corp.’s Cigar Lake mine) are nearing end-of-life.”
He says the acquisition potential for NexGen is high thanks to Arrow, but even setting that aside, “NexGen is a ‘must-own’ for those looking for exposure to the uranium sector.”
Uranium Energy is Mr. Healey’s favourite among US producers. The analyst notes that the company already has production-ready assets within reach of its South Texas Hobson central processing plant and that its Reno Creek project is fully permitted and ready for construction. He says this creates a “pathway to 4 million pounds of U3O8 a year of near-term production once the uranium price incentivizes”. The company boasts a similar mix of assets in Wyoming which provide a second “hub-and-spoke” production-ready centre to complement the facilities in Texas.
This is an edited version of an article that was originally published for subscribers in the February 18, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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Investor's Digest of Canada •4/18/22 •