Ur-Energy Inc. (USA) (NYSEMKT:URG) has largely survived the low commodity pricing environment on the basis of its long-term contracts, which will run until around 2020. But what does the future hold for Ur-Energy once it exhausts its long-term contracts with reports that Japan was considering a cut in reliance on nuclear energy?
Weak commodity prices
The slow restart of Japan’s nuclear reactors is cited as a major reason for the doused demand for uranium. It is estimated that Japan could account for up to a third of the global uranium demand. Although the company appeared to be distancing itself from nuclear energy following the Fukushima disaster, efforts are underway to restart nuclear reactors in the country. The only major drawback is that the process of bringing the reactors online is slow and now it’s becoming painful for uranium producers such as Ur-Energy Inc. (USA) (NYSEMKT:URG). Moreover, Japan recently said it planned to cut reliance on nuclear power.
There are other promising markets beyond Japan, but the process of bringing new reactors online in those other markets remains slow. As such, the fact that new nuclear reactors in other markets are taking a long time before they become operational could delay strong demand for uranium and recovery in the price of the commodity. But even in Japan, there are fears that the country might have built a large uranium stockpile that means that even if its reactors restart operations, it could take time before meaningful uptick in demand for uranium is seen.
The greatest advantage that Ur-Energy Inc. (USA) (NYSEMKT:URG) enjoys in the present times is the fact that it has multiyear contracts that will run until about 2020. The company also benefits from its low-cost operations. But continued lower pricing of uranium could dilute the company’s operational efficiency benefits.
What lies ahead for Ur-Energy Inc. (USA) (NYSEMKT: URG)?
Although Ur-Energy Inc. (USA) (NYSEMKT: URG) has largely management to avoid the problems of many uranium producers because of its long-term hedging deals and low-cost nature, its future is uncertain. If Japan delays to restart its reactors and new reactors in other markets also take long to kick to operations, the company could face hard times in making sales after the life of its existing contracts.