Ur-Energy released its third quarter results, highlighting how its taking advantage of long term contracts to make a profit out of the lowly uranium market.
During the quarter, the company captured 131,331 pounds of U3O8, with 125,915 pounds of that being packaged in drums. Ur-Energy was able to sell 100,000 pounds to generate revenue of $6 million – largely because of a contract price agreed beforehand.
With uranium prices falling to about $31.17 during the last quarter, Ur-Energy was able to take advantage of selling its products for $59.96 per pound equivalent to a 92 percent premium.
“Throughout the first full year of production at Lost Creek, the project has been able to achieve operating costs on the lowest end of uranium ISR cost metrics. Our cost profile, in combination with our advanced product marketing strategy, has led us to realize industry-leading margins on our product sales,” said Wayne Heili, president and CEO, in a statement.
Analysts from Cantor-Fitzgerald and Haywood Securities highlighted the company’s long term contracts giving it a competitive edge in a slumping uranium market. The current spot price for U3O8 is $36.88 with the company slated to sell its uranium for $66 per pound in the fourth quarter.
Rob Chang, with Cantor-Fitzgerald, gave the share a “buy” recommendation and thinks the target price is $2.30 per share.
“Cash costs rose modestly but still remained amongst the lowest in the industry at $23.29/lb., up from $20.56/lb. the previous quarter. Recall that we estimate the global marginal cost of production to be at $40/lb,” he wrote.
Colin Healey with Haywood wrote that the company improved operational improvement but warned about the company’s working capital tightening despite a $3.5 million drawdown in mid-September.
Moving forward, Heili said the company is keeping a close eye on rising uranium prices. With nuclear reactors on the verge of restarting in Japan, there is thoughts that the spot price of uranium is on the upward trend following a disappointing summer.
“While we maintain our posture of producing for and selling exclusively into term contracts, we also recognize that the uranium spot price is up 28% over the past three months. The operational flexibility of the Lost Creek ISR Project allows for the opportunity to quickly initiate a spot market sales strategy if uranium pricing continues the upward trajectory,” Heili said.
Securities Disclosure: I, Nick Wells, hold no direct or indirect investment with any of the companies mentioned in this article.