Shares of Uranium Energy (UEC 0.94%) rose by as much as 10.5% on Monday. Although the uranium company didn't hold on to all of that advance, the stock was still up by nearly 10% as daily trading drew to a close. The interesting thing is that the company filed a prospectus with the Securities and Exchange Commission that might normally be considered a negative.
On May 14, the last day of trading before a weekend, Uranium Energy filed a shelf registration with the SEC for up to $200 million worth of warrants. These securities give investors the right to buy stock at a pre-set price sometime in the future. There's no time frame on when the warrants will be sold or how many, but in the end the result will be more shares of stock. The sale of these securities and their ultimate conversion into shares would lead to shareholder dilution, which most investors consider a bad thing.
However, there's a twist here. Although Uranium Energy is giving itself a wide range of use options with any cash it might raise, one of the listed choices in the prospectus is to help it fund the costs of building a uranium stockpile. Indeed, Uranium Energy believes that the cost of the nuclear fuel is so low that it makes sense to buy it (or sign contracts to buy it) so it can be sold later, hopefully at a higher price. Investors appear to like the idea, which is basically an arbitrage-like play on the price of uranium.
As such, now that investors have digested the filing, it's likely that the company's efforts to tap the capital markets for cash, perhaps for further uranium acquisitions, is being seen as a net positive instead of the negative that one might normally have expected.
Uranium Energy is a small uranium company. In fact, it doesn't actually have operating uranium mines, just plans to build them. Although the effort to buy low-cost uranium so it can be sold later is an interesting development, long-term investors should probably tread with caution here. Building mines takes a lot of time and is an uncertain and costly process. The uranium purchase initiative should probably be seen as a "side hustle," and not the central thesis for buying the stock.
And it's worth noting that the stock is up around 200% over the past six months, so a lot of good news might already be priced in here.