Special Report: Uranium was one of last year’s best-performing commodities. Lachlann Tierney of Money Morning Australia shares three stocks that could be poised for a bumper year if uranium continues its strong form.

There are a number of factors for investors to consider when evaluating uranium stocks.

First is the regulatory environment. In my eyes, this is the most crucial thing to look for in uranium stocks.

Nuclear power is tightly regulated and bound up closely with government, so be cognizant of licenses/permits, local political conditions, environmental concerns and the role of regulatory bodies and NGOs.

The next factor is the burn rate.

For uranium explorers and developers particularly, this is crucial to their success as it is a measure of how quickly they are using their cash to progress the project.

Think about how long the company can continue its operations before needing to engage in capital raising.

Lastly, investors need to consider progress along the mining lifecycle.

This is closely related to burn rate as you don’t want to be stuck with shares in a company that is burning through cash and not making progress along the mining lifecycle.

Basically, you find the resources, you determine their quality from drilling and then you ascertain whether the mine is economically viable.

This last task is a definitive feasibility study (DFS) which injects certainty into the process.

Uranium stocks to watch

Berkeley Energia Ltd (ASX:BKY) is exciting for a couple of reasons.

First, according to its 2016 DFS, it can produce over four million pounds of uranium at a cost of US$13.30 per pound over a 10-year mine life.

This is with an averaged fixed price per pound of contracted and optional volumes above US$42.

This compares favourably with the current spot price of $28.90 — so there are fat margins to be had if it becomes Europe’s only major uranium mine.

That being said, the regulatory environment it operates in is clouded.

Spain, in particular Salamanca where it is located, is in desperate need of the jobs the mine could offer.

Despite this, environmental concerns in the community are preventing the company from obtaining the necessary licenses.

If it can clear these hurdles, its market cap of $130.5 million looks paltry.

Burn rate and progression along the mining life cycle aren’t particularly relevant factors, as the company is essentially ready to go as soon as it gets the required permits/licenses from the government.

They have $100 million in cash available as it currently stands. 

Deep Yellow Ltd (ASX:DYL) has been on a solid run over the last 12 months, up 86.54 per cent during this period in part due to a 62 per cent growth in its resource base last financial year.

The growth in resource base is down to a series of positive drilling results from their project in Namibia.

Namibia is open for business from a mining perspective, with a, ‘long, well regarded history of safely and effectively developing and regulating its considerable uranium mining industry.’

At the head of the operation is Managing Director John Borshoff, formerly of Paladin Energy Ltd (ASX:PDN).

Having brought the company from a junior explorer to a significant uranium producer, Borshoff is an experienced hand at the wheel.

As for burn rate, the company spent $1.663 million on operating activities in the past quarter and has $8.341 million in cash and cash equivalents.

So, it can proceed comfortably for the next four quarters at this rate.

Adding to their prospects is an arrangement with Japan Oil, Gas and Metals National Corporation (JOGMEC) whereby they can receive a further $4.5 million in return for a 39.5 per cent joint venture stake in two additional tenements.

This will give the company access to additional cash going forward.

It currently has 126.4 Mlb of resources across its projects. These projects are also conveniently located close to the Walvis Bay port.

Also based in Namibia, Bannerman Resources Ltd (ASX:BMN) is uniquely positioned for the looming uranium bull market as it actually has a DFS in place which it is in the process of updating.

It aims to be a top 10 producer once developed.

In the most recent quarter ended 31 December 2018, Bannerman Resource went through $511,000 in operating activities and has $7.357 million in cash and cash equivalents.

As a result, it can go at least another 14 quarters while it waits for the price of uranium to improve.

Aiding Bannerman’s position is the fact that there are some major uranium projects in the area.

For example, the Rössing uranium mine which is 68.4 per cent owned by Rio Tinto and which the China National Uranium Corporation Limited agreed to purchase late last year.

There is also the Husab uranium mine which the Chinese government has invested massively in.

Bottom line, three ASX stocks may have potential as there is still significant demand for uranium in Europe (which is good for Berkeley Energia) and massive growth in demand from China (which could play into the hands of Deep Yellow and Bannerman Resources).

Lachlann Tierney is a writer for Money Morning Australia and has been investing for nearly a decade. With an MSc from London School of Economics, he brings a sound understanding of global markets to his writing. Money Morning Australia has a free report which takes an in depth look at what’s ahead for uranium.

 

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This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.

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