Sunday, March 19, 2017

Energy Fuels letter to shareholders



I don't have to tell you that the past several years have been extraordinarily challenging in uranium markets.  But in December 2016, we just might have turned the corner.  2016 was one of the most challenging years I can remember during my nearly 40-year career, as prices fell by almost 50% amid weak and discretionary utility demand and persistent oversupply.  But then in December, things began to look a little different.  After hitting a multi-year low of $17.75 per pound on December 1, the spot price started showing some signs of life.  Market participants began to recognize that current and future uranium supplies may not be as plentiful as they thought. 

 Demand continues to rise, especially in the long-term where there is significant uncovered utility demand.  We are starting to see some tangible production cuts, as weak prices persist and high-priced, long-term contracts expire.  And I believe we will see even more production cuts while prices stay low.  Indeed, Kazakhstan recently announced 10% production cuts.  This is on top of the production cuts announced by Cameco in 2016.  I would contend that when the World's largest and lowest-cost uranium producers are feeling the pain of today's prices, you know this current market pricing is categorically unsustainable.

We know the World is going to need a lot of uranium in the coming decades.  We also know that the World will need more uranium mines.  But, due to very limited investment in our industry, current levels of exploration and new project development are simply not sufficient.  Bringing a large, new uranium project from exploration into production takes at least 10 years.  In addition, history tells us that many of these new projects will fail to meet expectations – or fail altogether.  When this pent-up demand comes to the market, I do not believe the mining industry will be able to respond adequately.  All of these factors may finally be converging to create the foundation for the next significant uranium price recovery.

Energy Fuels is a US based uranium producer. I am not particularity interested in them as an investment. However I do think the remarks regarding the current status of the uranium market are appropriate for my readers.

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