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Last week enCore Energy (EU) announced the successful production re-start at the Alta Mesa Uranium Central Processing Plant and wellfield. Given this milestone production announcement, we can now expect for production to gradually increase as additional injection and recovery wells are tied in to the production lines. That said, the first shipment of uranium is expected to occur in ~60 to 90 days. In terms of pipeline projects, a production ramp at Rosita is envisioned along with material production from Dewey Burdock. On back of this milestone announcement, we increase our targeted NAV8% multiple from 1.10x to 1.15x to reflect the further de-risked portfolio. Our 12-month price objective increases to $6.10 per share representing +48% upside from the most recent close.
From Alta Mesa acquisition close in February 2023 to official ISR re-start as announced last week, progress over the last ~15 months has been quick as the enCore team successfully navigated the completion of upgrades and the installation of the needed wellfields. At present, oxygenated water is being circulated in the wellfield through injection or extraction wells plumbed directly into the primary pipelines feeding the CPP. The phased ramp-up from Production Authorization Area 7 (PAA-7) is expected to extend to PAA-8 by 2026 at which point full production capacity of 1.5M lbs per year is expected to be reached. The CPP also has 0.5M lbs of additional drying capacity. With a M&I resource of 3.4M lbs and an Inferred resource of 16.8M lbs (100%), we currently see Alta Mesa as operating over a 10 year LOM while averaging 1.1M lbs annually (100%). Given that the entire Alta Mesa project area encompasses over 200,000 acres and that to date only ~5% has been explored, the risk remains on the upside for continued exploration success. In addition to Rosita (1.0M lb annual capacity) which began production in late 2023, enCore’s portfolio now consists of two currently producing south Texas assets.
Rosita: Though currently producing from the small PAA-5 (currently as a proof of capability project), intake from the Upper Spring Creek project (expected in 2025) may materially extend Rosita’s production volume to near capacity along with a potential 3-5 year LOM. Guidance from Rosita has yet to be disclosed due to the significant permitting work still required: a Radioactive Materials License Amendment, a Class I UIC Permit and Production Area Authorization. Work is on-going on all permitting fronts with completion expected by year-end.
Dewey Burdock: The next material project in the enCore pipeline is the wholly-owned Dewey Burdock ISR project, located in South Dakota, right at the Wyoming border. An amended December 2019, NI43-101 Technical Report and PEA highlighted a resource totaling 17.1M lbs in the M&I category along with 0.7M lbs in the Inferred category. The project is very much in the permitting stage given that the Class III and Class V injection permits are currently pending. A 100 hole drill program is currently budgeted (~500 ft. per hole) for Dewey-Terrace, located on the Wyoming side of the border. The purpose of this drill campaign is to link the existing Dewey Terrace property to Dewey-Burdock and include 15 miles of trend. This campaign has the potential to materially increase the current resource. We currently estimate Dewy Burdock’s production potential to extend over a 13 year LOM averaging 870,000 lbs per year.
We acknowledge that Gas Hills may provide future feedstock to Dewey Burdock however due to its still relatively long distance to production, we ascribe $2.50/lb for the M&I resource instead. Using a base case $120/lb LT uranium price coupled with an 8% discount rate, the pre and post-tax sensitivities per operation are forecast to be the following:
Given our LT $120/lb LT uranium price objective and adjusting for recent corporate updates our targeted NAV8% multiple increases from 1.10x to 1.15x implying a 12-month price objective which equates to upside of +48% from the recent close. Note that enCore shares currently trade at a 0.78x P/NAV, compared to ISR peers URG and PENMF trading at 0.49x and 0.46x respectively.
