Why is everyone talking about the stock of energy fuels?
Actions of Energy fuels (NYSEMKT: UUUU) have grown an astounding 300% over the past year, compared to a 33% gain for the S&P 500 Index on the same staff. It’s a performance to talk about, for sure. But the background story beyond this massive increase in stock prices is what is most interesting. Here’s why investors are so fond of energy fuels today.
Uranium at the heart
At its core, Energy Fuels is a producer of uranium. It was a tough market after the Fukushima nuclear disaster in Japan in 2011. Countries around the world began to move away from nuclear power, which caused the price of uranium to drop sharply. The miners, as might be expected, withdrew in an effort to restore the balance between supply and demand.
Things have improved in the market lately, with the spot price of uranium rising just over 13% through August of this year. Since the start of 2020, the spot price has increased 37% through August.
These are welcome advances for an industry that has been under significant pressure for nearly a decade. Investors took note, especially since Energy Fuels had built up a stock of uranium to essentially arbitrate the rise in prices. Basically he bought uranium with the intention of holding it until the prices were higher and it could be sold for higher prices.
And, along with that, the company made the decision to pay off its debt at the end of 2020. It puts the miner in a strong position to support their business, no matter which direction they decide to go. And this is where the story really starts to become. interesting.
Towards rare earth metals
While there is nothing particularly bad about uranium, it is a volatile product subject to large price changes over time. Energy Fuels has therefore decided to diversify its activity a little. Addressing a major theme, it announced in April 2020 that it would start producing rare earth metals. These are used in high tech gadgets and are in high demand. But rare earth metals are mainly produced in China, which creates a supply chain problem for some companies.
Investors have liked Energy Fuels’ plans, but the plans need to be backed by results. Rubber hit the road in November last year, with the miner successfully running a rare earth metals pilot program. And then, in 2021, it began commercial-scale production of a key intermediate product in the rare earth metals value chain and worked to ensure it had the necessary feedstock. to support its emerging activity. In other words, the uranium miner has made significant strides in his new venture.
Rare earth metals are a hot area right now, given the tensions surrounding China’s relations with other developed countries. Investors therefore really like the idea that Energy Fuels is moving in this direction, which is quite complementary to its core business, uranium. In fact, this is probably the real driving force behind the stock price rally, which started to gain momentum around the same time Energy Fuels announced its success with the rare earth pilot. The uranium market recovery was a second tailwind.
And don’t underestimate that uranium tailwind. Consider that Energy Fuels recently sold some of its uranium assets to another company in exchange for cash, stock, and a contract to process the material at an Energy Fuels facility. In other words, he was able to take advantage of the uranium lead in several ways while freeing up management to focus on rare earth metal activity.
Is it worth buying?
So that’s the backstory surrounding Energy Fuels. However, investors need to take a step back and understand that this is a small company, with a small market cap of $ 1 billion, even after the huge price hike. And although rare earth metals are a hot sector, it could lead to overly optimism from investors. Uranium, on the other hand, is a commodity market subject to significant price fluctuations. So the risks here are significant and conservative investors would probably be better off avoiding the stock. More aggressive types, however, may want to take a closer look if they’re looking for an interesting way to play in the rare earth metals space. In particular, the main and complementary uranium exploitation is an interesting base on which to access the new zone.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.