Uranium Energy CorpUEC

Key highlights

• Cost per pound increases: Total cost per pound rose to $54.61 in the third quarter, compared to $44.14 in the previous quarter, because of higher state taxes and a temporary dip in production volume while waiting for regulatory approvals. This figure sits above the company's long-term average of $39.30, which management uses to demonstrate the overall efficiency of its mining sites.
• New production sites opening: The company launched operations at the Burke Hollow project, the largest new site of its kind to start in the U.S. in more than ten years. Adding this site to existing operations means the company now has two of its three planned regional production hubs active, which is a key step toward hitting its goal of producing 12 million pounds of uranium annually.
• Uranium inventory maintained: Uranium Energy Corp kept 1,456,000 pounds of uranium in its physical inventory, which is valued at $127 million based on current market prices. By choosing not to sell any of this stock during the quarter, the company is betting that prices will rise in the future rather than locking in lower prices today through fixed contracts.
• Expansion of fuel supply chain: The company received a formal docket number from the Nuclear Regulatory Commission for its planned uranium conversion facility, a specific type of plant that processes mined ore for use in power plants. This regulatory milestone allows the company to move into final site selection and detailed engineering for what would be the only vertically integrated uranium supplier in the United States.
• Production ramp up expected: Management expects production volume to increase in the fourth fiscal quarter as new operating units at the Christensen Ranch and Burke Hollow sites will be running for the full three month period. This expected boost in output is also predicted to lower the total cost per pound from the $54.61 reported this quarter.

Our take: This was a soft quarter for production and costs, but the business successfully moved its biggest new growth project into the operational phase. The sharp jump in costs to $54.61 per pound is a distraction caused by the timing of new wells rather than a permanent problem. We believe the long term case is strengthened as the company nears its goal of becoming a fully integrated domestic supplier.