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Fission Uranium (FCU) released its much anticipated Feasibility Study (FS) for the Patterson Lake South (PLS) Uranium property earlier on January 17 and the updated economics represent a robust upgrade from those illustrated in the 2019 Pre-Feasibility Study. Now incorporating the R840W orebody, what initially sticks out is a LOM increase from 7.3 years to 10 years along with total uranium production going from 78M lbs to 91M lbs. As such, the FS estimated a post-tax NPV8% increase of nearly +72%, reaching $1,204M while the after-tax IRR increased by +10% to reach 27.2%. Though these numbers and operating developments are very positive, we caution that much of the increased economics have to do with a +30% increase in the base case LT uranium price assumption, going from $50/lb for the PFS to now total $65/lb as used in the FS. Nevertheless, though initial capex was a shade lower at $1,155M, the average LOM operating costs have increased from $9.57/lb from the PFS to the current $13.02/lb as seen in the FS. Incorporating the FS and acknowledging the increasingly de-risked nature of the project, our price objective NAV multiple increases from 0.80x to 0.85x. Maintaining our $70/lb LT uranium price forecast, we establish a rounded NAV8% objective of C$1.80 per share, representing +110% upside from the current January 17 quote.
With initial production still expected come 2029, we note that the inclusion of the R840W orebody extended the total project’s LOM by almost three years while also increasing the LOM production figure to 91M lbs. Certain key points to stress are that Inferred resources have not been included in either the FS our calculations. Moreover, recall that both the R840W zone and the R780E zone remain open at depth and along the plunge to the east. Ample potential remains to grow the resource in those particular directions, potentially adding to the underground mine life. Additionally, remember that the R1515W and R1620E zones (at the current extremities of the drilling areas) also are excluded from the current mine plan. The entire 31,000 hectare PLS property currently hosts over 100 EM conductors and multiple exploration hotspots.
In terms of actual differences from the 2019 Pre-Feasibility Study to current Feasibility Study, the largest contributor to the increase in the projected economics is the LT uranium forecast, increasing by +30% and going from $50/lb to $65/lb. Though the capex figure (Direct costs + Indirect costs + Contingency and Owner’s costs) drops slightly from $1,177M to $1,155M, note that the LOM operating costs have increased by +36%, going from $9.57/lb in the PFS to the current $13.02/lb. Additional changes are displayed below:
Incorporating the new operational profile with an increased LOM along with lowered recoveries (going from 1.61% to 1.41%) while also factoring in the higher LOM mining costs per lb, our production and sensitivities have been updated to reflect the figures below. Note that our after-tax NPV8% estimate for Triple R went from $1.97 per share (pre-PFS) to the current $2.04 per share. Not entirely the big bump we were expecting from R840W inclusion. Ultimately, including the R840W orebody resulted in a pickup of 8.5M lbs produced not to mention a 36% increase in operating cost over LOM. The market was likely expecting much more. Back out of the +30% Feasibility Study long-term uranium price increase to $65 per lb and then you'll really see the impact.
We continue to view Fission Uranium’s Triple R deposit as a solid FS-level project in the Athabasca Basin, however not as of yet displaying the stronger economics as seen from peers Dension Mines' (DNN) Gryphon/Phoenix deposit and NexGen Energy' (NXE) Arrow deposit. Though the story is far from over, we were expecting somewhat of a stronger contribution to the overall project economics given the inclusion of the R840W orebody.
We feel that the discount to peer NAV is justified on two fronts:
1) Cost/Benefit analysis: Given the fact that the Triple R deposit will require the most capex per current production profile out of its peer group (Arrow and Gryphon/Phoenix), the discount to peers is more than justified. Keep in mind that Arrow currently has a C$1.5B FS projected capex for an 11 year LOM producing a total of approximately 220M lbs while Denison’s Gryphon/Phoenix projected $945M capex and is expected to produce over a 13 year LOM producing approximately 101M lbs.
2) Increasing scrutiny on Chinese SOEs: Seeing that the Federal government of Canada recently ordered certain Chinese companies to divest their stakes in lithium companies with assets located in Canada, we feel that a renewed emphasis on Chinese State Owned Enterprises (SOEs) with assets in Canada may become more of an issue, specifically in the area of critical Canadian minerals deemed crucial to national security. Recall that Chinese SOE China General Mining (CGN) currently holds a 14.2% stake in Fission Uranium, a holding they have maintained since December 2015.
Going forward, we expect the filing of an Environmental Impact Statement (EIS) sometime later this year. That said, within the Athabasca Basin we continue to rank the attractiveness of Triple R behind that of Denison Mines' Phoenix/Gryphon and NexGen Energy's Arrow.