Shares of Uranium Energy Corp (UEC 0.31%) rose a dramatic 35% in the first ninety minutes or so of trading. That massive price gain didn't last, however, with the stock quickly giving up more than half of the advance over the next ninety minutes or so before turning higher again. At 1 p.m. EDT the shares of the U.S. uranium miner had rebounded back to a roughly 20% gain -- not as big as the early price jump but still quite impressive. The likely reason for the price gyrations was a company update.
Uranium Energy released a news report explaining that it had filed an earnings report with the Securities and Exchange Commission (SEC) for the fiscal quarter ended Jan. 31. But the bigger news was the update of its balance sheet and the business plans that it discussed in the update. As of March 15, the company had cash on hand of $65.8 million thanks partially to a stock sale. The company also reduced the outstanding balance on its credit facility by roughly 45%. Uranium Energy believes this reduction positions the company to serve the U.S. utility industry as it looks to increase domestic uranium supplies and foster the creation of a reserve of the fuel.
But that was only half the news. Strategically, and thanks to its cash hoard, Uranium Energy is also building up a uranium reserve of its own by acquiring uranium on the open market. It already has a deal to buy 400,000 pounds of material for $10.9 million. It believes the cost to buy the nuclear fuel is lower than the cost of production across most of the industry. That allows Uranium Energy to leave its resources in the ground for a time when prices are higher.
Specifically noted was the expectation that U.S.-mined uranium might end up trading at premium prices because of the efforts, noted above, to create a domestic reserve. Investors appear to have been pleased with the financial update and game plan here, pushing the shares higher.
Uranium Energy is a rather small company, with a market cap of roughly $600 million. Competitor, and industry bellwether, Cameco Corp, for reference, is a $6.5 billion company. Since April of 2020, uranium stocks have roared higher, with Cameco up an impressive 150% and Uranium Energy an incredible 460%. That's not meant to discount the positives here but to put them into perspective. A lot of good news has been priced into uranium stocks like Uranium Energy, especially when you consider that the company is buying uranium on the open market at below what it costs to mine the material. At the very least, conservative investors might want to tread with caution.