Ur-Energy: Risky But Attractive Exposure To Uranium

Summary

• Uranium prices remain bullish, with the long-term price rising from $72 to $75 per pound over the past month.
• Ur-Energy is a U.S. uranium mining company with potential upside as interest in the uranium market increases.
• URG stock has been in a bullish trend, with the potential to challenge previous record highs if the uranium market remains strong.

In a Feb. 15 Seeking Alpha article on the Sprott Uranium Miners ETF product (URNM), I wrote:

Uranium is a commodity traded in the physical market. Sprott Uranium Miners ETF is a product that provides exposure to uranium in a world where nuclear demand is growing.

URNM was trading at $52.38 per share on Feb. 15. On March 5, the ETF had corrected 6.9% to the $48.76 per share level. URNM’s top North American holding is Cameco Corp (CCJ), with more than 13.50% exposure. While CCJ is a senior uranium mining company, Ur-Energy Inc. (NYSE:URG) is a U.S. uranium company that could have upside potential as interest in the uranium market increases and the commodity’s price rises. URG is a small-cap stock, and while its valuation remains problematic, it remains an attractive speculative candidate to buy on the current dip in the sector.

Uranium prices remain bullish

The bullish price trend in uranium continued through February 2024

As the chart shows, while the spot uranium price fell slightly from $100.25 at the end of January 2024 to $95 per pound at the end of February, the long-term uranium price rose from $72 to $75.

While COMEX uranium futures are illiquid, they're a pricing benchmark.

The 20-year chart highlights that uranium prices traded on either side of the $100 per pound level in January and February. At $94.20 on March 4, the price remains in a significant bullish trend.

URG is a U.S. uranium mining company

Ur-Energy Inc. (URG) is a junior uranium miner. URG’s company profile states:

At $1.62 per share on March 4, URG had a $455.4 million market cap. An average of nearly 3.1 million shares change hands daily. URG only has 38 employees who manage the company’s mining claims. As an early-stage exploration company, URG will likely sell any significant reserves in the U.S. to larger senior uranium mining companies. However, it owns and operates the Lost Creek in-situ uranium facility in south-central Wyoming, which has produced around 2.7 million pounds of U₃O₈.

While the company’s corporate office is in Littleton, Colo., its registered office is in Ottawa, Ontario, Canada.

Factor grades run the positive to negative gamut

URG’s Seeking Alpha factor grades reflect the volatility and uncertainty of an exploration company:

The F valuation score is a function of a hot speculative uranium market over the past months versus the speculative nature of an exploration mining company. The F rating in profitability is unsurprising, as exploration companies invest significant capital in many drill holes without yield or results. However, one success can pay for the many unsuccessful attempts.

Meanwhile, the growth, momentum, and revisions scores make URG an attractive but speculative investment opportunity.

A speculative stock with upside in the current environment

Uranium is a hot market these days. After an over 100% price rise in 2023, Bloomberg recently pointed out uranium firms have revived “forgotten mines.” With capital flowing into the uranium sector, URG shares have been in a bullish trend.

The five-year chart highlights after falling to a pandemic-inspired 27.10 cents per share in March 2020, URG shares surged to a $2.15 high in November 2021. The shares corrected to an 82.01 cents low in April 2023 and have made higher lows and higher highs over the past months, reaching the $1.62 level on March 4 after flirting with $2 per share in early February.

The long-term chart dating back to 2008 shows URG reached a record $3.37 per share high in February 2011. The speculative nature of this exploration company could cause a rally to challenge the 2011 highs if the uranium market remains on bullish fire over the coming months.

Comparing URG to CCJ - A junior to established senior comparison and suggestion for those long CCJ

Cameco (CCJ) is the 800-pound gorilla in the sector, as the Canadian uranium mining giant is the second-leading worldwide producer with the top market cap.

URG’s market cap makes the company 18th on the list. Meanwhile, comparing URG’s factor grades to CCJ’s is revealing.

While URG and CCJ receive an F in valuation, CCJ’s established production yields a C in profitability. In contrast, URG receives an F. Both companies receive the highest A+ grade in growth, while URG edges out CCJ in momentum and revisions.

CCJ was trading at just below $41.50 per share on March 4, while URG was at the $1.62 level. URG’s leverage in a market where uranium remains a hot commodity could mean there's more upside potential on a percentage basis in URG than CCJ shares over the coming weeks and months.

Leverage is a double-edged sword as it means that any downside price action in uranium could cause URG to fall further on a percentage basis than CCJ. However, since the trend is always your best friend until it bends, I favor URG’s upside potential in the current environment.