What happened
Uranium Energy (UEC 3.75%) stock is down 44% over the past year -- and half of that loss happened just this week! Shares of the uranium mining company suffered a short attack yesterday when Kerrisdale Capital published a report declaring the stock itself (and not just its products) "radioactive."
Uranium Energy shares tumbled nearly 15% on the news yesterday, and fell another 13% earlier this morning -- but have since clawed back at least some of today's losses, and are now down only 5.7% as of 11:30 a.m. ET.
So what
So what exactly is it that Kerrisdale doesn't like about Uranium Energy stock? A couple of things, actually.
First and foremost is the fact that Kerrisdale doesn't think this uranium miner actually does much mining at all -- nor can it mine, profitably. Although UEC reported $23 million in sales last year, and $105 million through the first six months of this current fiscal year, Kerrisdale curiously argues that UEC only had "revenue from selling mined uranium" in fiscal years 2012 and 2013 -- and not since.
So where are the revenues coming from? Kerrisdale notes that UEC "has spent the last few years acquiring uranium deposits" from other companies (and other companies, entire) -- then presumably selling uranium they had already mined. Going forward, though, Kerrisdale remarks that none of the mines UEC now owns can produce new uranium profitably "at current uranium prices."
Instead, argues Kerrisdale, UEC's primary business has become selling not uranium, but selling Uranium Energy stock, pointing out that the company's share count has risen an "astounding" 10x in number since 2005.
Now what
This is correct -- and maybe even conservative. From 17.3 million shares outstanding in 2005, UEC's share count has in fact grown to 331.8 million shares at last report. (So one could argue that the share count has actually grown almost 20-fold, not just 10x).
This long history of share dilution is already a strong argument against UEC shareholders being able to profit from UEC's profits, as they're continually being diluted by new shares coming on-market. It's less clear that Kerrisdale is correct about UEC never being able to earn any profit from its mines, however, as that depends largely on the cost of mining (our friends at uranium research firm Ocean Wall say UEC's all-in cost of production ranges from $40 to $45 per pound of uranium), and the price of uranium (currently the spot price is just under $51 per pound, according to data from Cameco).
As recently as a year ago, uranium's spot price was as high as $58, after all, and Ocean Wall notes that UEC intends to build its mining capacity once prices reach $60 per pound. While currently, I'd say Kerrisdale's short report is not without merit, a change in volatile uranium prices of only a few dollars could be enough to blow its short thesis out of the water.
