The uranium market has been red hot, with prices soaring higher for the element that's used to fuel nuclear power plants. This has also led to the strong performance of uranium miners such as Cameco (CCJ 0.14%) and Uranium Energy Corp. (UEC 4.78%). While both companies are set to benefit from continued increasing uranium prices, Uranium Energy is positioned to benefit more. Here's why.
Why prices have been soaring
Pricing for commodities generally comes down to supply and demand, and uranium is no exception. When demand is lower than supply, prices tend to come down, and when demand is higher than supply, prices generally move higher.
The Fukushima nuclear disaster in Japan back in 2011 caused a big backlash against the nuclear power industry that led to many countries either slowing their nuclear power ambitions or shutting them down altogether. This caused spot uranium prices to crash, going from $140 a pound to the $20-$25 a pound range.
More recently, though, uranium prices have been on a rapid rise as future demand has been increasing, with about 60 new nuclear power plants set to come online by 2030. Meanwhile, low prices from several years ago caused many exploration projects to be shut down and production from higher-cost mines curtailed.
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Adding fuel to the fire, the U.S. has introduced a bill that would limit Russian uranium imports into the U.S. and then ban them after 2027. Russia supplies about 20% of the fuel for U.S. reactors. If passed into law, this would be another catalyst for higher uranium prices.
Meanwhile, the world's largest uranium miner, Kazakhstan-based Kazatomprom, recently said that there wouldn't be enough production to cover the uranium requirements after 2030. Utilities generally purchase their uranium requirements years in advance because there are no substitutes that can be used with nuclear reactors. Now, utilities will have to go out and find supply to meet their future needs, which should continue to drive up prices.
Uranium Energy is better positioned
Higher uranium prices will be good for both Cameco and Uranium Energy, but the latter is set to benefit much more than the former. That's because utilities generally purchase their uranium requirements years in advance. As such, Cameco has a lot of long-term contracts in place with price ceilings.
While Cameco will benefit from increased prices, once prices reach their contract ceiling, the company will no longer benefit while that contract is still in place. It said that if spot prices reach $140 this year, its realized price would be only $59, but if prices were $140 in 2028, its realized price would be $76.
Uranium Energy, on the other hand, has no long-term contracts in place, nor is it hedged. Currently, the company hasn't started producing uranium but purchases uranium that it sells. At the end of January, it held 1.17 million pounds of uranium concentrate inventory that it acquired at an average price of around $54 a point, while it has contracts to purchase another 1 million pounds of inventory through the end of 2025 at an average price of around $39 a pound.
It's also set to restart production in Wyoming in August, where it operates a processing plant. Its Wyoming projects have over 66 million pounds of measured and indicated reserves, and its processing plant has 2.5 million pounds of licensed yearly production capacity.
In addition to Wyoming, the company owns projects in Texas with over 9 million pounds of measured and indicated reserves and a processing plant with a licensed capacity of 4 million pounds a year. It also owns land in the Athabasca and Thelon Basins in Canada, which have indicated reserves of nearly 110 million pounds.
The biggest risk now with Uranium Energy is that it has yet to produce any uranium from its mines. Mining isn't the easiest endeavor, so there are certainly problems that can arise. However, the company has built up a nice portfolio of uranium projects that it's now just starting to ramp up with uranium prices poised to continue to climb higher.
Given that it has no long-term contracts or ceiling prices in place, Uranium Energy should outperform Cameco moving forward. Uranium prices topped $105 earlier this year before pulling back, but given future supply-demand dynamics and the need to bring higher-priced mines into service, there should be a lot of upside ahead for uranium prices. Uranium Energy looks like one of the best stocks to benefit from these dynamics.
