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Given that IsoEnergy’s (ISO-TSXv) merger with Consolidated Uranium has officially closed (merger details here), we take the opportunity to incorporate the new assets and re-examine the now-diversified uranium company. Though the Hurricane deposit (Athabasca Basin) remains the long-term corporate value driver, a diversified asset base now encompasses permitted past producing conventional mines in the US (Tony M, Daneros & Rim), the highest grade project located outside of the Athabasca Basin (Matoush in Quebec) and Australian/Argentinian upside via the Ben Lomond and the Laguna Salada deposit. Using an in-situ based valuation methodology on a project specific basis, we derive a price objective of C$4.75 per share, representing +22% upside from the most recent close. In context of our current price objective, note that shares of IsoEnergy have increased by +13% in the last month and +34% YTD.
With 207,000 hectares spread over 20 properties in the infrastructure-rich, eastern portion of the Athabasca Basin, IsoEnergy’s flagship asset is the Larocque East project which hosts the Hurricane Deposit. Though overshadowed by the likes of NexGen Energy’s (NXE) Arrow and Fission Uranium’s (FCU) Triple R, the Hurricane deposit happens to be the world’s highest grade uranium deposit at 48.6M lbs grading 34.5% U3O8 (Indicated). Given an aggressive drilling campaign totaling over 30,000m since winter 2022 alone (of which 5,270m was drilled exclusively during the winter 2023 period) the possibility for additionally strong intercepts (or even discoveries) spread over projects such as Larocque East, Geiger and Hawk remain high. Developments at IsoEnergy (and at adjacent projects from Cameco and Orano ) are worth keeping tabs on. The highlight assay result from this past summer was drill hole LE23-155 (Larocque East) which returned an intercept of 8.5m (325m-333.5m downhole) grading 4.1% U3O8 including an interval of 6.8% over a 1.0M interval and a higher grade interval of 23% U3O8 over 1.0m.
As seen from the map below, unlike Arrow and Triple R, IsoEnergy’s projects are strategically much better located in the eastern portion of the Athabasca Basin. Not only is the infrastructure well built out in the east but every single prospective IsoEnergy project is located within 50km (at most) to uranium mills such as Key Lake, McArthur River, Cigar Lake, McClean Lake and Rabbit Lake.
Located just 35km northwest of the McClean Lake uranium mine and mill, the history of the wholly-owned flagship Larocque East property dates back to the mid 1970s. Consisting of 31 contiguous mineral claims, The property was originally staked in 1976 by Urangesellschaft Canada Ltd in partnership with the Saskatchewan Mining Development Corporation (SMDC). In total, the property encompasses nearly 16,000 ha. and was re-staked by Cameco (CCJ) in the early 1990s. Between 1998-2018, the property was owned by Denison Mines (DNN) and subject to an extensive EM surveying program along with a drilling program targeting specific conductors. IsoEnergy was formed in 2016, having been spun out from NexGen Energy. The Larocque property was acquired in May 2018.
In July 2018, drill hole LE18-01A discovered the Hurricane zone when a 8.5m interval returned elevated radioactivity averaging 1.26% U3O8, including a subinterval of 3.58% U3O8 over 2.5m. Since the initial discovery holes for the world-class Arrow and Triple R, the deposits (and with it, the respective companies) have grown to currently encompass the following figures:
Given subsequent drilling at Larocque post-2018 Hurricane discovery, the Hurricane Zone now measures 575m long, 75m across and up to 11m thick (at a relativley shallow 325m depth). The maiden resource was announced on July 18, 2022. Of note was the fact that nearly 94% of the contained metal is retained at a cut off grade of 10% - thus demonstrating that the Indicated resource is highly insensitive to cut off grade. Additional high-grade assays have included:
LE20-64: 5.0m at 48.8% U308 including 4.0m at 57.5% U3O8
LE20-68: 11.0m at 6.9% U308, including 1.5m at 49.3% U3O8
LE20-76: 7.5m at 38.8% U308, including 3.5m at 74.0% U3O8
LE23-155: 8.5m at 4.1% U3O8, including 1.0m at 23.0% U3O8
For context, within the Athabasca Basin, the Hurricane deposit ranks near that of Denison Mines' Midwest deposit at 50.7M lbs and that of Cameco's Millennium at 76.0M lbs Measured & Indicated:
What places Hurricane above the rest of the Basin's significant deposits is the high grade nature of the currently defined Measured & Indicated resource. At a grade of 34.50% U3O8, Hurricane ranks well above Denison's Phoenix at 19.13% and Cameco's Cigar Lake at 14.05%:
A series of systematic step-outs combined with geophysics have identified the Kernaghan Trend of which 3.5km is covered by Larocque East. Of the 5,270m summer 2023 drilling program, 2,175m (encompassing six holes) was completed on Larocque East, dedicated to the expansion of Hurricane. Drilling at Hawk totaled 1,796m and tested electrommagnetic condictors which were identified in 2022/2023 geophysical surveys. An EM survey conducted last year identified multiple moderate to strong basement conductors. Moreover, the property contains at least 10km of prospective conductive strike. Other notable assets include Collins Bay which is located along trend (and within 7km) of the Rabbit Lake uranium mine and mill. Evergreen is another underexplored property which straddles the margin of previously defined conductors. The company has been succesful in using Ambient Noise Tomography (ANT) surveys. These surveys have successfully detected low velocity features coincident with the known Hurrican alteration zone. More recently, a 1.0km ANT target was identified located along strike east of Hurricant on the same conductor corridor with a similar footprint. Drilling in 2024 will follow-up on the ANT surveys. At a relative depth of 325m, the Hurricane deposit ranks favorably when compared to other significant Athabasca Basin deposits:
Utah: Near-term production can be envisioned from the past producing Tony M mine, located in Utah. In addition to the Daneros, Sage Plain and Rim mines, all are within trucking distance to Energy Fuels' (UUUU) White Mesa mill which has a licensed, conventional capacity for 8.0M lbs annually. Just as importantly, a 5-year toll milling agreement (plus a 5-year extension option) was already agreed upon as part of a strategic alliance signed in October 2021 with Energy Fuels. Recall that Daneros produced 628,000 lbs between 2010-2013 (Energy Fuels) while Tony M produced 422,000 lbs between 2007-2008 (Denison Mines). All of the above mentioned mines are now wholly-owned by IsoEnergy. Daneros remains a fully permitted underground mine with 6.6M lbs U3O8 in the Indicated category, along with 2.2M lbs in the Inferred category.
Virginia: In terms of LT optionality, recall that the Coles Hill property constitutes the US’ largest uranium deposit given an Indicated resource of 132.9M lbs along with an Inferred resource totaling 30.4M lbs. Recall that there has been a uranium mining moratorium in Virginia since 1982. This moratorium was most recently uphled in 2022. Though hardly a project being prioritized at the moment, Coles Hill nevertheless represents very low-cost future optionality on a very large scale resource.
Quebec: Given a Measured resource 12.3M lbs along with an Inferred resource 16.4M lbs at 0.95% U3O8, the Matoush project boasts the highest grades outside of the Athabasca Basin. Located in northern Quebec's Otish Mountains, the Matoush fault zone has previously been identified over a strike length extending 11km southward and 2.5km northward beyond the historic resource area. Many of the zones of mineralization within the historic resource remain open along strike and down plunge. Elsewhere in north-central Quebec, Dieter Lake hosts a 24.4M lb historic Inferred resource as prepared from a 2011 Technical Report
Additional portfolio assets can be found in both Argentina (Laguna Salada, Huemul) and Australia (highlighted by Ben Lomond and Milo). The more significant IsoEnergy portfolio of projects (either historic or current) is listed below:
As seen above, given a portfolio ranging from development projects (Laracque East, Daneros) and projects still needing needing exploration and/or dileneation drilling, various development milestones are expected per property, encompassing Preliminary Economic Assments, scoping studies or Feasibility Studies. With much work expected across the entire portfolio, recall that in December 2022, an upsized C$18.3M financing was completed. This was followed up more recently by an upsized C$36.6M financing completed on October 19, 2023.
Since early 2021, IsoEnergy has been lead by the capable hands of Mr. Tim Gabruch who has 25+ years of experience in the uranium industry. He was most recently instrumental with Denison Mines' development of Wheeler River. Prior to Denison, he spent 20 years with Cameco in a multitude of roles spanning corporate development and marketing. Tim will remain with the title of President while Philip Williams will assume the role of CEO and Director. Philip was previously CEO of Consolidated Uranium, up until the acquisition by IsoEnergy. The Board will be comprised of Richard Patricio (Mega Uranium) as Chairman of the company while Leigh Curyer (NexGen Energy) will assume the role of Vice Chairman. Post-merger ownership will consist of NexGen Energy (34%), Energy Fuels (5%) and Mega Uranium (2%). Consolidated Uranium shareholders own approximately 24% (ex-Energy Fuels and Mega) while IsoEnergy's ownership stands at 35% (ex-NexGen Energy).
We value the Hurricane deposit using an in-situ $/lb multiple, partly based on precedent post-Fukushima transaction multiples within the Athabasca Basin. We ultimately ascribe a $6.50/lb in-situ value to the currently defined Measured & Indicated resource, noting that a premium to average transaction multiple is more than warranted. This premium to the $4.12 average can be justified in a multitude of ways which make Hurricane all the more attractive when compared to peers. For starters, the aforementioned highest grades in the Basin are from a deposit currently considered to be relatively shallow at a depth of ~325m. The infrastructure in the eastern portion of the Basin is well developed while access to Orano's McClean Lake mill is just ~35km away. Moreover, ownership is clean at 100% and the asset is not encumbered by any royalty or interest.
Applying a 1.0x NAV multiple, our price objective of C$4.75 is derived, implying 22% upside from the most recent close. As mentioned before, note that the shares have increased by +13% over the last month alone. We believe the risk remains on the upside for a multiple re-rate higher which in the near term would be spurred by continued drilling and development success, not just from in-house projects but from nearby competitor projects (Cameco, Orano) as well. IsoEnergy needs to be considered for anyone looking at combined exposure to the Athabasca Basin along with conventional near term US production optionality. Shares currently trade at at 0.82x discount to NAV.