Maurice Jackson: Joining us for a conversation is Mickey Fulp, the Mercenary Geologist, as we will discuss Is it time to get into Uranium. Mickey, we have some interesting developments going on in uranium. You're one of the most trusted names on the subject. I know a number of our speculators want to hear more about uranium. Beginning domestically, what do you see happening in the U.S. under the Trump administration that may impact uranium?
Mickey Fulp: Well, there's a couple of things the Trump administration has done that are positive for uranium. First off would be the recent National Security Council resolution that would require utilities to buy their electricity from U.S. nuclear power plants and coal plants. This is an effort, once again, to put people back to work in the extractive industries, namely uranium, nuclear power plants, coal mining and coal fire power plants. In addition, not all of it has to do with Trump, but it's a movement that includes the Congress and some uranium companies, etc.
The U.S. Department of Energy (DOE) under Secretary Rick Perry, who was the governor of Texas, a significant uranium producing state in the past, restricted the DOE sales and barters of U.S. stockpiles of U308. This year they've cut those back. During the Obama administration, five to seven million pounds a year were dumped on the market to support the cleanup of the Portsmouth enrichment facilities in Ohio, and that was basically a union operation, to keep 800 union jobs going. Now there is a House bill that is passed out of committee—it still has to be passed out of the Senate and the House and the 2019 budget—but they are funding for this out of the budget this year versus the DOE untimely dumping uranium on the spot market.
In addition, the DOE has recently killed the mixed oxide fuel project in South Carolina. Mixed oxide fuel is the waste leftover from nuclear power plants. It’s processed and can be reburned, so that's certainly going to help uranium domestic miners. I'm not sure if it really helps the U.S. position with regards to our significant imports of foreign uranium.
Finally, in January, two of the largest uranium producers in the U.S., Ur-Energy Inc. (URG:NYSE.MKT; URE:TSX) and Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American), filed a Section 232 petition with the U.S. Department of Commerce, and that has to do with national security and the fact that last year we imported 98% of our uranium needs. This proposal would require U.S. federal utilities and agencies to buy all their uranium from domestic uranium miners and also limit imports of foreign uranium to 75% of our needs, with the remaining to come from domestic uranium miners. There's a whole number of things in the U.S. that look positive for the uranium industry, and all those have happened in 2018.
Maurice: All of these sound like they can be great catalysts for uranium, but to add on to that we have more information here coming from the international standpoint out of Kazakhstan. For someone not familiar with Kazakhstan, how important is the country in this discussion?
Mickey: Well, it is quite important. They've become the world's largest uranium producer over the last 15 years, by far the world's largest. They now produce on the order of 40% of the world's uranium, and they have really supplied the increasing demands over the last 15 years. We're using more and more uranium every year because we have more and more reactors, so most countries—most mines—have either maintained their status quo or have dropped in uranium production, and that's been made up by the Kazakhstan mines, the ISR [in situ recovery] mines in Kazakhstan, so they cut their production 5.5% in 2017, and they are going to cut it another 7.5% this year. I think the high was something on the order of 65 million pounds, and that will be down to about 56 million pounds for 2018. That basically has to do with the low price of uranium, which today is $23.50. No one can make money at those prices.
Maurice: Which leads to my next question here. Not holding you to a price, but the aforementioned indicates that you would see uranium prices eventually move up. Is this the right time to get some issuers?
Mickey: Well, I've been saying it's the right time for quite some time. If you're contrarian, we all know that uranium's going to come back at some point, and it's going to come roaring back. We see now that hedge fund speculators from Wall Street to the Silicon Valley are starting to position themselves. Kazakhstan has just sponsored a new physical uranium vehicle called Yellow Cake, and they're going to devote 25% of their annual production to this storehouse of physical uranium, so that's 14, 15 million pounds a year. It looks to me like the time is coming, and it could be eminent. This happened before, when the speculators came into the market and especially the hedge funds, from 2005 to 2007. That's when uranium went from $10 a pound in 2004 to its peak of $135 a pound in the summer of 2007.
Maurice: It's like Rick Rule once shared with me. Everyone is a contrarian when the price moves up. I agree with you. This is the time to be there.
Mickey: Well, it really is, and there's one thing: Rick and I, we do share a lot in common. Number one, we share a birthday, but number two, we share an investing philosophy that we stick to, and that's contrarianism. We talk about this on occasion, and if you're contrarian, you've got to have patience. You get in early, and you stick by your guns. Hopefully you've picked good companies from the beginning that have staying power. When this whole black swan event—Fukushima—came down in 2011, I don't think any of us expected that seven years later we would be looking at a spot price of uranium that is less than one-third of what it was before Fukushima. It's $23.50 a pound right now, and a couple of weeks before Fukushima happened—or maybe a month—it hit a high of $72 on the spot price. It's been a long time coming, but it looks to me like it may be sooner than I would've said it was at the beginning of the year.
Maurice: You referenced quality names. Can you give us some issuers that have your attention?
Mickey: Well, I'll tell you who I own in uranium space. I own Energy Fuels. I've been a long-term shareholder of Energy Fuels. I owned the predecessor company that was taken out, Strathmore Minerals, and so I've owned that company I think since 2007. I own URZ Energy Corp. (URZ:TSX.V; URZZF:OTC), which is a relatively new uranium company, an explorer. I was a founding shareholder of that company in its private days in 2010, and we did a transaction on that company about a year ago—t was completed actually about a year and a half ago—and acquired some of the old Strathmore/Energy Fuels assets in Wyoming. Then I own Uranium Energy Corp. (UEC:NYSE.MKT), and it is a past-producer uranium developer in the western U.S., specifically in west Texas and in the Powder River basin of Wyoming. I've owned that company probably since about 2010, something like that.
Maurice: You didn't mention any names in the Athabasca. I would've thought I would've heard some, but thank you for sharing those names, Mickey.
Mickey: Well, I have a little bit different philosophy than I do in my other speculations. In uranium, I'm very focused on production or near-term production. I'm very focused on domestic uranium producers because we have ISR, and I tend to shy away from speculative plays— exploration plays in the uranium patch.
Now, I have in the past owned and made significant money on Athabasca explorers, but let's face the facts here. Anybody that's got a uranium discovery in the Athabasca Basin—I'm talking major discoveries—they're 15 to 20 years away from seeing yellowcake come out of a mill. I'm looking at shorter term opportunities. Certainly, if I see things in the Athabasca or even in the U.S.—speculative plays that I can get in on early—that would be a strategy. But at this point I think you want to buy U.S. producers because they only need about $35, let's say $40 uranium for ISR producers, whereas with new developments in the Athabasca Basin, you're looking very long time frames and probably upwards of $65 to $80 a pound uranium to make them work.
Maurice: Before we close today, last question: What did I forget to ask?
Mickey: You forgot to ask me when we will see each other next, and I think you can answer that as easy as I can.
Maurice: That should be the Sprott Natural Resource Symposium, July 17-20 in Vancouver.
Mickey: That is quite correct. I will be speaking on exploration, and I am on a couple of panels that have nothing to do with uranium. But we should also say that I think we will both be attending Jaya Bhandari's Capitalism and Morality Symposiumthe day after the Sprott Conference.
Maurice: Absolutely. I was just about to reference that it, so you took my thunder away there. Mickey, for someone who wants to get more information on your work, please share the contact details.
Mickey: You can reach me at firstname.lastname@example.org. If you send me an email, you will get a response unless you are a troll. My website is MercenaryGeologist.com. There's a lot of free content on that, and my twitter feed is @mercenarygeo, with nearly 62,000 followers.
Maurice: And last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at email@example.com.
Editor's note: An earlier version of this article incorrectly identified URZ Energy as one of the two companies that filed the Section 232 petition, rather than UR-Energy.
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1) Mickey Fulp: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Energy Fuels, URZ Energy and Uranium Energy Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None.
2) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Proven and Probable disclosures are listed below.
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