Over the last couple of months, companies operating in the uranium space, such as Uranium Energy (UEC) and Denison Mines (DNN), have gained significant momentum. Uranium Energy is valued at a market cap of $1.35 billion and the stock has surged more than 50% year-to-date (YTD). Comparatively, shares of Denison Mines have gained 25% YTD, valuing the company at $1.39 billion.
Uranium spot prices are currently trading near multi-year highs. Back in 2011, uranium prices nose-dived after an earthquake in Japan caused a massive nuclear accident at the Fukushima plant. Japan soon after shut down all of its nuclear reactors thereby driving uranium prices lower.
Uranium is an important fuel used in nuclear reactors and a surge in prices has brought back mining companies into focus. Let’s see if you should have Uranium Energy or Denison Mines in your portfolio right now.
Uranium Energy
Last month, Uranium Energy disclosed it is debt-free and has $125 million in cash on its balance sheet. A mining company without no debt is quite an impressive achievement and this financial profile should hold Uranium Energy in good stead.
Uranium Energy’s management remains bullish on the outlook for nuclear energy and uranium. Further, the market fundamentals for uranium should drive prices further. In fact, Europe proposed to brand nuclear plants as clean energy entities and provide them with subsidies and other benefits.
Uranium Energy announced the acquisition of Uranium One which is the fourth-largest uranium producer globally. The acquisition was valued at $112 million and will provide the company with access to multiple projects that include a capacity to generate 2.5 million pounds of uranium annually.
Uranium One’s assets are expected to begin production which means Uranium Energy is on track to generate meaningful sales this year.
Denison Mines
Despite its stellar returns, shares of Denison Mines are down 20% from all-time highs. The company is involved in the exploration and development of uranium in Canada with a diversified asset base at the Athabasca Basin.
Denison Mines has a range of strategic assets with the potential to explore an area spanning 280,000 hectares. Its management believes it can produce uranium at a much lower cost compared to peers. The company holds 2.4 million pounds of the metal worth $145 million at current prices.
Additionally, Denison Mines holds equity stakes in companies such as Skyharbour and GoviEX providing it with exposure to other uranium assets. Another asset important to Denison Mines is Wheeler River which has an initial rate of return of 38.7% and a net present value of $1.3 billion.
The verdict
According to estimates, Uranium Energy is forecast to report sales of $4.37 million in 2022 and $25.5 million in 2023. Comparatively, Denison Mines might see its top-line decline from $15.9 million in 2021 to $9.3 million in 2023. Given similar market cap metrics, Uranium Energy is trading at a lower price to 2023 sales multiple making it a better investment.
However, investors should note that both the companies carry significant risks, especially if uranium prices plunge going forward. Right now, the ongoing conflict between Russia and Ukraine, as well as sky-high crude oil prices, are driving demand for uranium higher.
UEC shares were trading at $4.95 per share on Tuesday morning, down $0.09 (-1.79%). Year-to-date, UEC has gained 47.76%, versus a -5.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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