Thoughts On Uranium Prices

The big thing holding back the uranium miners right now isn’t concern for the long term viability of the industry – to the contrary, it is very clear to everyone that nuclear power generation is about to increase. Even concern in the US over aging reactors being taken offline is being tempered as four new state of the art models have been approved for construction.

Actually, the major impediment to higher prices is just the spot price for U3O8. The broker I follow has reported the spot price has just corrected back to new lows (based on how many virtually non-existent sales, I cannot say). URA meanwhile shows prices have corrected from the recent rally, although still off the bottom.

In that spirit, here is what I’m reading.

Uranium Participation Corp (TSX:U) is the only physically backed uranium fund. The company’s primary objective is to achieve appreciation in the value of its uranium holdings through increases in the uranium spot price. In December, Raymond James analyst David Sadowski made a case for investing in UPC, a fund managed by the management team responsible for Denison Mines (TSX:DML), explaining that the fund offers investors with “great exposure to a uranium price rebound without the typical exploration, development or mining risks associated with some of the other equities.”

After having completed a $57.6 million bought deal financing on February 6, UPC has made its first purchase of uranium in four years. The company announced on Friday that it would use a portion of bought deal financing to purchase 850,000 pounds of U3O8 at an average cost of US$34.74. UPC notes that 250,000 pounds have already been delivered, the remainder will be delivered by the end of June.

In a note to investors, David Sadowski views UPC’s latest announcement as a point in the company’s favor, supported by the overall sentiment that uranium prices are set to strengthen over the next 12 to 14 months on supply shortfalls and JApanese reactor restarts. Given these variables, and the companies current available cash, Sadowski expects to see another purchase of 800, 000 – 900,000 pounds of uranium sometime in the coming weeks.

I’m still confident we see nuclear take off this year. In the past I’ve been a little more shy about such a direct claim, arguing “sometime in the next X years,” instead. But I do believe 2014 will be the year.

I also think the volatile pricing we’re seeing is the market putting in a bottom / shaking out the weak hands as the big players start to take a more direct financial interest.

Recall from our prior discussions that the refueling needs of real reactors is almost logistics free. A nuclear reactor can run at full power for almost three years without needing a delivery of fuel from the outside, on nothing but what’s in the rods plus the typical amount of fuel in storage for a common model.

From 2011, three years is almost up. By which, I would surmise, nuclear power operations in aggregate will either begin to see electricity output decline, or else need to make a purchase.

Just my two cents on the matter.

Look what fracking company just landed another long term supply contract

HCLP just amended another supply agreement to jack up the amount of sand one of their customers is obligated to buy every month. This is the third one this year.

Per MarketWatch
:

Houston, Texas – April 8, 2014 – Hi-Crush Partners LP (NYSE: HCLP), or Hi-Crush, today announced the entry into of an amendment to the supply agreement between Hi-Crush Operating LLC, a subsidiary of Hi-Crush, and FTS International, LLC, or FTSI, a leading provider of well completion services. The amendment significantly increases the number of committed volumes under the agreement, extends the term of the supply agreement and requires FTSI to pay a specified price for a specified minimum volume of frac sand each month. “Hi-Crush is excited to further extend and strengthen our relationship with FTSI by entering into this amendment,” said James M. Whipkey, Co-Chief Executive Officer of Hi-Crush. “We consider FTSI a valuable partner as we continue to expand our market presence, and fulfilling our customers’ needs is a top priority for Hi-Crush.”

And when they say “requires FTSI to pay a specified price for a specified minimum volume of frac sand each month.”…question? Do you suppose that would mean a higher “specified price”?

I would suppose it would.

This follows the news yesterday that HCLP was going to have themselves an offering to completely buy out any competing interests in their Augusta facility.

Read here:

Houston, Texas – April 8, 2014 – Hi-Crush Partners LP HCLP +2.31% (“Hi-Crush” or the “Partnership”) announced today that it has entered into a contribution agreement with Hi-Crush Proppants LLC (the “Sponsor”) to acquire certain equity interests in Hi-Crush Augusta LLC (“Augusta”), the entity that owns the Sponsor’s raw frac sand processing facility located in Augusta, Wisconsin. As previously announced, Hi-Crush acquired a preferred interest in Augusta on January 31, 2013.

“We are delighted to announce this acquisition, which we expect to be immediately accretive,” said Robert E. Rasmus, Co-Chief Executive Officer of Hi-Crush. “With this transaction, we will double the Partnership’s production capacity to 3.2 million tons per year. The Augusta plant has a current capacity of 1.6 million tons of coarse Northern White frac sand per year. Beyond that, we have the capability to expand the Augusta plant by an additional 800,000 tons per year and have started the process to obtain the permits required for this expansion. The expansion will bring total rated capacity at the Partnership to 4 million tons per year. We expect the expanded capacity to come on-line in the second half of 2014.”

Under the terms of the transaction, the Partnership will pay cash consideration of $224.25 million. At the closing of the acquisition, the Partnership’s preferred equity interest in Augusta (currently providing $3.75 million in distributions per quarter) will be converted into common equity interests in Augusta, and the Partnership will own 98% of Augusta’s common equity interests. “We expect that the acquisition of common equity interests in Augusta will contribute more than $30 million of incremental annual EBITDA to the Partnership, before any expansion to the Augusta plant,” said Mr. Rasmus. The acquisition is expected to close by mid-May 2014, subject to regulatory approvals and other closing conditions. In connection with the acquisition, Hi-Crush expects to refinance its existing revolving credit facility.

We need to follow the sand. Where the sand goes, the profits will go also. No buyouts – if these guys enter into a cash offer for my units on my behalf, I’m going to blow a gasket.

These moves are going to double HCLP’s revenue immediately. That will play into the hand of existing investors as bigger operations allow the executives of HCLP to leverage their logistics operations and gain market share.

I’m not even going to look to see if HCLP is paying top dollar premium on this deal – I’ll spare you the time, the answer is “I don’t care.”

This trend in the economy is only growing. These guys survived Aubrey McClendon blowing up the natural gas sector, and together with targeted well services like BAS, they’re going to dominate.

The shares aren’t even phased at the announced dilution yesterday to pay for the acquisition. Have a look.

04-09-14 HCLP 18 Months

Here’s the tagline:

HCLP – This Shit Is Going Higher

HCLP Lands Another Supply Agreement

HCLP announced another 3 year supply agreement after the close yesterday; this time with US Well Services. Like the other, this agreement locks in US Well Services to purchase a minimum amount of frac sand from HCLP each month.

Per the CEO of HCLP:

“We believe that U.S. Well`s commitment underscores the strength of our extensive logistics network of rail-served terminals in the northeast,” said Robert E. Rasmus, Co-Chief Executive Officer of Hi-Crush. “Certainty of supply is critical in today`s market. Our customers need to have access to high-quality frac sand, when and where they need it, and Hi-Crush provides this certainty.”

I spoke with a gentleman in the comments section of another post on this subject just the very day – he had asked why I don’t love SLCA.

Both HCLP and SLCA are laudable enterprises worthy of a look (and probably a buy). But HCLP’s strategy resonates with me. Their insistence on building their business with logistics in mind – as much as supply deposits – is a distinguishing strength which I respond to.

HCLP is up more than 3% today on the news. This is exactly the kind of activity that will lead HCLP to continue to grow revenues at 100% annually. It’s difficult to put a price on this sort of activity – I’m a believer and think a business like HCLP is still advantageously priced for this growth as opposed to, say, a TSLA.

But I’m also sitting on a mid to high- $20′s cost basis, so take that for what it’s worth.

Next stop, $50.00.

BAS Continuing The Epic Run

Check out Basic Energy Services, up another 4.5%, flirting with $27.00 as it steadily pounds its way to $30.00.

HCLP is playfully tagging along, after the doldrums took it down back below $40.00 this week. And well it should – they’re in the same industry after all. What’s good for BAS is great for HCLP.

Uranium is slack and UEC is dying (very small position). CCJ is back to it’s old range, and I am saddened by that.

But this is a buying opportunity make no mistake of that.

First The Good News, Then The Bad

Most of my portfolio is now solidly shrugging off Yellen’s slip of the tongue. Our good bankster friends over at JPMorgan said it best – Yellen is fresh and inexperienced, and she still needs to learn how to speak without actually saying anything.

It will come. It will come.

Despite my state of shock at watching Yellen crack the market like an egg yesterday, I didn’t react. I want to watch a few more days before I make a move, even if they should lose me money. With a +14% year going, I have buffer room.

Now, the good word here is that CCJ and BAS are both moving higher. I suspect HCLP will join in soon as well (that position can be rewarded a little breather, it’s come a long way). The energy themes are solid and intact.

The bad side of the coin is that fear/reality of higher interest rates is going to just ravish the REIT and associated housing space. Check out VNQ over a five day period, and you can almost sink the cracking point up with Yellen’s comments. My current position AEC is breaking down again this morning, and an old position MAA is following.

This has to be treaded carefully. If you’re juggling garbage like NLY, I’d say you’re one four day panic away from another round of 30% losses.

I’ve said well before today, back when I never imagined Yellen would spook interest rates higher, that I was interested in rebuying MAA. This is sort of a blessing in that regards. I’d venture a guess that long term damage to multifamily REITs from higher interest rates will hover somewhere between “negligible” and “not damaging, actually positive”.

But well before that point, there will probably be a lot of indiscriminate selling from emotionally driven fund managers. The climax of that, if it should materialize, is the buying opportunity.

Between then and now, it’s important to keep a wary eye on reform efforts to Fannie and Freddie. There’s been some “bipartisan chatter”. Mortgage origination is >70% dominated by the government backed mortgage giants, and the entire housing market is totally dependent on them. A poorly thought out reform effort could rain chaos. But there’s no sense even having a discussion about that just yet. First things first, interest rates.

BAS And CCJ Resume Trend Higher

The run higher continues, with CCJ and BAS both up over a percent again today. AEC and NRP are trading flat. UEC is north of 4% gains, but it’s small so no one cares.

HCLP is down, naturally. That’s my pick for March madness; so it has to be the lone skunk of my portfolio. Not to worry, not to worry. Just as soon as any chance of personal glory is off the table, it too will continue the run higher, making me a silent, very non-public, fortune.

Can’t give me marketable material that easily, now can we?

Just sit back and enjoy the show. The indices no longer matter to me. Rather, the public storytelling is shifting into my corner now. This is the Atomic Year, the Fracking Year – financial journalists need something to yap about, and my assets will be it.

And accordingly, that makes this the Thaler Year.

Thoughts On Uranium Prices

The big thing holding back the uranium miners right now isn’t concern for the long term viability of the industry – to the contrary, it is very clear to everyone that nuclear power generation is about to increase. Even concern in the US over aging reactors being taken offline is being tempered as four new state of the art models have been approved for construction.

Actually, the major impediment to higher prices is just the spot price for U3O8. The broker I follow has reported the spot price has just corrected back to new lows (based on how many virtually non-existent sales, I cannot say). URA meanwhile shows prices have corrected from the recent rally, although still off the bottom.

In that spirit, here is what I’m reading.

Uranium Participation Corp (TSX:U) is the only physically backed uranium fund. The company’s primary objective is to achieve appreciation in the value of its uranium holdings through increases in the uranium spot price. In December, Raymond James analyst David Sadowski made a case for investing in UPC, a fund managed by the management team responsible for Denison Mines (TSX:DML), explaining that the fund offers investors with “great exposure to a uranium price rebound without the typical exploration, development or mining risks associated with some of the other equities.”

After having completed a $57.6 million bought deal financing on February 6, UPC has made its first purchase of uranium in four years. The company announced on Friday that it would use a portion of bought deal financing to purchase 850,000 pounds of U3O8 at an average cost of US$34.74. UPC notes that 250,000 pounds have already been delivered, the remainder will be delivered by the end of June.

In a note to investors, David Sadowski views UPC’s latest announcement as a point in the company’s favor, supported by the overall sentiment that uranium prices are set to strengthen over the next 12 to 14 months on supply shortfalls and JApanese reactor restarts. Given these variables, and the companies current available cash, Sadowski expects to see another purchase of 800, 000 – 900,000 pounds of uranium sometime in the coming weeks.

I’m still confident we see nuclear take off this year. In the past I’ve been a little more shy about such a direct claim, arguing “sometime in the next X years,” instead. But I do believe 2014 will be the year.

I also think the volatile pricing we’re seeing is the market putting in a bottom / shaking out the weak hands as the big players start to take a more direct financial interest.

Recall from our prior discussions that the refueling needs of real reactors is almost logistics free. A nuclear reactor can run at full power for almost three years without needing a delivery of fuel from the outside, on nothing but what’s in the rods plus the typical amount of fuel in storage for a common model.

From 2011, three years is almost up. By which, I would surmise, nuclear power operations in aggregate will either begin to see electricity output decline, or else need to make a purchase.

Just my two cents on the matter.

Look what fracking company just landed another long term supply contract

HCLP just amended another supply agreement to jack up the amount of sand one of their customers is obligated to buy every month. This is the third one this year.

Per MarketWatch
:

Houston, Texas – April 8, 2014 – Hi-Crush Partners LP (NYSE: HCLP), or Hi-Crush, today announced the entry into of an amendment to the supply agreement between Hi-Crush Operating LLC, a subsidiary of Hi-Crush, and FTS International, LLC, or FTSI, a leading provider of well completion services. The amendment significantly increases the number of committed volumes under the agreement, extends the term of the supply agreement and requires FTSI to pay a specified price for a specified minimum volume of frac sand each month. “Hi-Crush is excited to further extend and strengthen our relationship with FTSI by entering into this amendment,” said James M. Whipkey, Co-Chief Executive Officer of Hi-Crush. “We consider FTSI a valuable partner as we continue to expand our market presence, and fulfilling our customers’ needs is a top priority for Hi-Crush.”

And when they say “requires FTSI to pay a specified price for a specified minimum volume of frac sand each month.”…question? Do you suppose that would mean a higher “specified price”?

I would suppose it would.

This follows the news yesterday that HCLP was going to have themselves an offering to completely buy out any competing interests in their Augusta facility.

Read here:

Houston, Texas – April 8, 2014 – Hi-Crush Partners LP HCLP +2.31% (“Hi-Crush” or the “Partnership”) announced today that it has entered into a contribution agreement with Hi-Crush Proppants LLC (the “Sponsor”) to acquire certain equity interests in Hi-Crush Augusta LLC (“Augusta”), the entity that owns the Sponsor’s raw frac sand processing facility located in Augusta, Wisconsin. As previously announced, Hi-Crush acquired a preferred interest in Augusta on January 31, 2013.

“We are delighted to announce this acquisition, which we expect to be immediately accretive,” said Robert E. Rasmus, Co-Chief Executive Officer of Hi-Crush. “With this transaction, we will double the Partnership’s production capacity to 3.2 million tons per year. The Augusta plant has a current capacity of 1.6 million tons of coarse Northern White frac sand per year. Beyond that, we have the capability to expand the Augusta plant by an additional 800,000 tons per year and have started the process to obtain the permits required for this expansion. The expansion will bring total rated capacity at the Partnership to 4 million tons per year. We expect the expanded capacity to come on-line in the second half of 2014.”

Under the terms of the transaction, the Partnership will pay cash consideration of $224.25 million. At the closing of the acquisition, the Partnership’s preferred equity interest in Augusta (currently providing $3.75 million in distributions per quarter) will be converted into common equity interests in Augusta, and the Partnership will own 98% of Augusta’s common equity interests. “We expect that the acquisition of common equity interests in Augusta will contribute more than $30 million of incremental annual EBITDA to the Partnership, before any expansion to the Augusta plant,” said Mr. Rasmus. The acquisition is expected to close by mid-May 2014, subject to regulatory approvals and other closing conditions. In connection with the acquisition, Hi-Crush expects to refinance its existing revolving credit facility.

We need to follow the sand. Where the sand goes, the profits will go also. No buyouts – if these guys enter into a cash offer for my units on my behalf, I’m going to blow a gasket.

These moves are going to double HCLP’s revenue immediately. That will play into the hand of existing investors as bigger operations allow the executives of HCLP to leverage their logistics operations and gain market share.

I’m not even going to look to see if HCLP is paying top dollar premium on this deal – I’ll spare you the time, the answer is “I don’t care.”

This trend in the economy is only growing. These guys survived Aubrey McClendon blowing up the natural gas sector, and together with targeted well services like BAS, they’re going to dominate.

The shares aren’t even phased at the announced dilution yesterday to pay for the acquisition. Have a look.

04-09-14 HCLP 18 Months

Here’s the tagline:

HCLP – This Shit Is Going Higher

HCLP Lands Another Supply Agreement

HCLP announced another 3 year supply agreement after the close yesterday; this time with US Well Services. Like the other, this agreement locks in US Well Services to purchase a minimum amount of frac sand from HCLP each month.

Per the CEO of HCLP:

“We believe that U.S. Well`s commitment underscores the strength of our extensive logistics network of rail-served terminals in the northeast,” said Robert E. Rasmus, Co-Chief Executive Officer of Hi-Crush. “Certainty of supply is critical in today`s market. Our customers need to have access to high-quality frac sand, when and where they need it, and Hi-Crush provides this certainty.”

I spoke with a gentleman in the comments section of another post on this subject just the very day – he had asked why I don’t love SLCA.

Both HCLP and SLCA are laudable enterprises worthy of a look (and probably a buy). But HCLP’s strategy resonates with me. Their insistence on building their business with logistics in mind – as much as supply deposits – is a distinguishing strength which I respond to.

HCLP is up more than 3% today on the news. This is exactly the kind of activity that will lead HCLP to continue to grow revenues at 100% annually. It’s difficult to put a price on this sort of activity – I’m a believer and think a business like HCLP is still advantageously priced for this growth as opposed to, say, a TSLA.

But I’m also sitting on a mid to high- $20′s cost basis, so take that for what it’s worth.

Next stop, $50.00.

BAS Continuing The Epic Run

Check out Basic Energy Services, up another 4.5%, flirting with $27.00 as it steadily pounds its way to $30.00.

HCLP is playfully tagging along, after the doldrums took it down back below $40.00 this week. And well it should – they’re in the same industry after all. What’s good for BAS is great for HCLP.

Uranium is slack and UEC is dying (very small position). CCJ is back to it’s old range, and I am saddened by that.

But this is a buying opportunity make no mistake of that.

First The Good News, Then The Bad

Most of my portfolio is now solidly shrugging off Yellen’s slip of the tongue. Our good bankster friends over at JPMorgan said it best – Yellen is fresh and inexperienced, and she still needs to learn how to speak without actually saying anything.

It will come. It will come.

Despite my state of shock at watching Yellen crack the market like an egg yesterday, I didn’t react. I want to watch a few more days before I make a move, even if they should lose me money. With a +14% year going, I have buffer room.

Now, the good word here is that CCJ and BAS are both moving higher. I suspect HCLP will join in soon as well (that position can be rewarded a little breather, it’s come a long way). The energy themes are solid and intact.

The bad side of the coin is that fear/reality of higher interest rates is going to just ravish the REIT and associated housing space. Check out VNQ over a five day period, and you can almost sink the cracking point up with Yellen’s comments. My current position AEC is breaking down again this morning, and an old position MAA is following.

This has to be treaded carefully. If you’re juggling garbage like NLY, I’d say you’re one four day panic away from another round of 30% losses.

I’ve said well before today, back when I never imagined Yellen would spook interest rates higher, that I was interested in rebuying MAA. This is sort of a blessing in that regards. I’d venture a guess that long term damage to multifamily REITs from higher interest rates will hover somewhere between “negligible” and “not damaging, actually positive”.

But well before that point, there will probably be a lot of indiscriminate selling from emotionally driven fund managers. The climax of that, if it should materialize, is the buying opportunity.

Between then and now, it’s important to keep a wary eye on reform efforts to Fannie and Freddie. There’s been some “bipartisan chatter”. Mortgage origination is >70% dominated by the government backed mortgage giants, and the entire housing market is totally dependent on them. A poorly thought out reform effort could rain chaos. But there’s no sense even having a discussion about that just yet. First things first, interest rates.

BAS And CCJ Resume Trend Higher

The run higher continues, with CCJ and BAS both up over a percent again today. AEC and NRP are trading flat. UEC is north of 4% gains, but it’s small so no one cares.

HCLP is down, naturally. That’s my pick for March madness; so it has to be the lone skunk of my portfolio. Not to worry, not to worry. Just as soon as any chance of personal glory is off the table, it too will continue the run higher, making me a silent, very non-public, fortune.

Can’t give me marketable material that easily, now can we?

Just sit back and enjoy the show. The indices no longer matter to me. Rather, the public storytelling is shifting into my corner now. This is the Atomic Year, the Fracking Year – financial journalists need something to yap about, and my assets will be it.

And accordingly, that makes this the Thaler Year.

Previous Posts by Mr. Cain Thaler