(Wyoming Business Report, March 20) – Prices to produce yellowcake, or U308, at Wyoming’s newest producing in-situ uranium mine hovered dangerously close to spot prices during the company’s first year of production, but a company official said it’s a lot better than it looks on paper.
Luckily for Casper-based Ur-Energy, which operates the Lost Creek mine near Jeffrey City, it hasn’t had to resort to spot-price sales yet, instead selling at long-term contract prices about 177 percent higher than current spot prices. But contracts can’t always swallow all production. The company said it expects to produce about one million pounds of U3O8 in 2014, of which at least a third should sell at contract prices.
“The remainder of the sales will be at existing spot prices unless additional contract sales are put in place,” the company wrote in an SEC filing.
If subject to the spot market as expected under current contracts, much of the profit could be stripped out of the commodity for the young company. The company’s price to produce a pound of U308 stood at $34.40 for the year, with spot prices sitting only slightly higher at around $35.25 recently. However, CEO Wayne Heili said in an email to the Business Report that without factoring in non-cash components like depreciation and amortization of capital assets – neither of which directly affect profitability – production costs were only $21.98. That still leaves room for a healthy margin even at currently depressed spot prices.
“We should be fine moving forward ,” Heili said.
The company said it also expects production costs to decrease by 5-15 percent as the plant gets into the swing of things. In late February or early March, the company planned to wrap up maintenance begun in January “to improve plant efficiencies based on lessons learned throughout the commissioning process.”
Overall, Ur-Energy reported more than a $30 million net loss in 2013 despite posting its first revenue of $7.6 million. The loss came from ongoing capital construction at the new plant, not from sales losses. The company’s early revenue included the company’s first contract sale of 90,000 pounds of uranium to two contractually anonymous utilities in December, which netted the company about $5.7 million. In January, Ur-Energy sold another 40,000 pounds on contract, though it shipped nearly 66,000 pounds to the conversion facility where it is sold to customers.
Investment intelligence firm Edison said in late February that “Ur-Energy could become a visible player on the U.S. domestic uranium market in the near-term.” The firm also said it believed that uranium prices had already gone as low as they’d go post-Fukushima, and expected a short- or medium-term recovery.
“This should lead to improved sentiment in the sector,” Edison wrote in its analysis of Ur-Energy.