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enCore Energy (EU) yesterday provided an operational update for the Alta Mesa project, located in south Texas. Since the announced start of ISR production from this past June, Wellfield 7 has gradually increased the number of injection and recovery wells. That said, flow rates have steadily increased to the current 2,100 gallons per minute (gpm) which is nearing the 2,500 gpm flow capacity per ion exchange circuit. This most recent operational update, coupled with the previous update highlighting high grade intercepts encountered during drilling at Alta Mesa (October 14), prompts us to increase our 12-month price objective as we go from $5.75 to $6.00 (rounded) per share. Our valuation methodology remains underpinned by a $120 per lb LT uranium price however we increase our target multiple, going from a 1.15x NAV8% multiple to 1.20x. Our revised 12-month rice objective implies +48% upside from the most recent $4.05 per share close.
The production updates from Alta Mesa have been frequent ever since the production restart decision was announced in March 2023. Progress has largely tracked on time and on budget highlighted by the announcement of official production restart in mid June 2024. Back in June, when the first ion exchange circuit was starting to ramping up, Wellfield 7 totaled 27 injection and 34 recovery wells. As of the latest production update, this has since expanded to 46 injection and 52 recovery wells bringing the flow rate to 2,100 gpm and nearing the circuit's flow capacity for 2,500 gpm. The next ramp higher is expected to be completed some time in November. Wellfield 7 is expected to provide initial feed to a total of three ion exchange circuits (IX), this allowing for flow rates of up to 7,500 gpm equating to the production of 1.5M lbs of yellowcake per year. The second IX circuit is expected to begin operation in Q1/2025 while the third IX circuit is expected to come online by the end of 2025. In total, 749 drill holes have been completed through mid-September 2024. At present there are seven drill rigs in full operation on site at Alta Mesa, with plans to double that number of rigs over the next twelve months. Our company-wide production estimates are as follow:
Given the smooth ramp up currently occurring at Alta Mesa, we have increased confidence in Alta Mesa's LT production potential. Though we currently approximate a 10 year LOM, given additional drilling, that LOM might possibly even be extended materially. We note that as announced on October 15th, drilling designed to expand the producing wellfield capacity continues to significantly exceed the cutoff grade thickness requirements for In-Situ Recovery (ISR) of uranium. Highlight intercepts from recent drilling on Wellfield 7 include intercepts with a Grade Thickness (GT) of up to 3.615. The GT is defined as grade multiplied by thickness. The cutoff GT for ISR in South Texas is generally accepted to be 0.3 with GT being the relevant factor in determining reasonable prospects for economic extraction. Recall that as defined in the 2023 NI43-101 Technical Report, Wellfield 7 is estimated to contain 1.292M lbs uranium in the Indicated category along with 0.175M lbs in the Inferred category with an average grade thickness ranging from 0.59-0.68 GT using a 0.3 GT cutoff. With an overall 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 meaningful exploration success.
As per additional company 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 has received its Source Material License from the U.S. Nuclear Regulatory Commission, its Aquifer Exemption and its Class III and V Underground Injection Control Permits from the U.S. Environmental Protection Agency (EPA) Region 8. More recently in September, the Environmental Appeals Board (EAB) of the EPA issued its ruling on the Oglala Sioux Tribe (OST) appeal regarding the Dewey- Burdock Class III and V UIC Permits. The EAB recently reiterated the 2023 decision denying the majority of the OST claims.
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.
Given our LT $120/lb LT uranium price objective and adjusting for recent corporate updates our targeted NAV8% multiple increases from 1.15x to 1.20x implying a 12-month price objective which equates to upside of +48% from the recent close. Note that enCore shares currently trade at a 0.81x P/NAV.
