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Late last week Laramide Resources (LAM) released its much anticipated NI43-101 compliant Preliminary Economic Assessment for the wholly-owned Churchrock ISR deposit located in New Mexico. Using a base case LT uranium price of $75/lb and assuming recoveries of 68% from the production area (steady state 3,000 gpm producing a LOM average of 1.0M lbs per year over 31 years), an after-tax NPV8% of $239M along with an IRR of 56% was estimated. Though the possibility to accelerate production to well over 1.0M lbs annually remains, the PEA metrics rank Churchrock as an attractive ISR project in relation to other US focused ISR peers. Given the announced PEA results, we migrate from a in-situ lb valuation approach for Churchrock to an actual DCF based NAV8% valuation methodology. As such, using a LT uranium price of $110/lb along with a 0.75x NAV8% multiple for Churchrock, we establish a C$2.20 per share (rounded) target for Laramide shares, equating to +165% upside from the most recent close.
The Churchrock PEA represents a corporate milestone as Laramide management look to take the necessary next steps towards eventual ISR production. Given a current Inferred resource of 33.88M tonnes grading 0.075% eU3O8 for 50.82M lbs, with an estimated 68% LOM recovery, the Churchrock project is expected to produce a steady state of 1.0M lbs annually, over a 31 year LOM. As per costs, unit operating costs have been estimated at $27.70/lb (this includes taxes and royalties) while the AISC is seen at a modest $34.83/lb. Note as well that the initial capital cost has been earmarked at $47.5M. Sustaining capital along with reclamation & closure was estimated at $122.5M and $101.1M respectively.
Potential resource upside: Keep in mind that the LOM and total volume produced is subject to change based on increasing the planned Central Processing Plant to a potentially 3.0M lb per year operation, which the existing license allows for. Additionally, further exploration may increase the resource while increased recoveries above the 68% PEA benchmark are also possible. There is ample resource upside given that the Churchrock project is located on the western end of the Grants Mineral Belt in the main portion of the historical Churchrock Mining District. Between 1948-2002, the Grants Mineral District produced a cumulative 340M lbs of uranium. Lastly, note that the 5.1M lb resource from Crownpoint (located approximately 22 miles from Churchrock) has been entirely excluded from the report.
Though the full PEA report has yet to be filed on SEDAR, the primary takeways are clearly that Churchrock has the potential to be a robust and long lived project. When compared to the other US based ISR project PEAs, Churchrock stands out in terms of economics and LOM production (note the varying LT uranium prices and dates of publication per project).
Both C1 cash costs/lb and the AISC/lb are competitive when compared to the US-focused ISR peers (as per technical report when published) while the stage-1 capex estimate of $47.54M and the LOM Capex cost of $270.12M is also in line with the other projects.
It worth highlighting as well that at 50.8M lbs, the Inferred resource ranks highest among the peer group barring Peninsula Energy's (PENMF) Lance project which currently hosts 53.6M (the Lance DFS was based more conservatively based on 21.8M lbs however). Grades at Churchrock are also highest among the peer group at an average of 750 ppm. Peninsula's Lance hosts an average grade of 480 ppm while Ur-Energy's (URG) Lost Creek hosts an average grade of 453 ppm. Given Churchrock's resource size, the valuation metrics equate to a very modest $3.3 EV/lb.
In terms of production, the PEA envisions a ~4 year build with a steady-state of 1.0M lbs produced annually, over a 31 year LOM. As mentioned earlier, the current license allows for a 3.0M lb capacity at the planned Central Processing Facility. Unit operating costs have been estimated at a very competitive $27.70/lb (this includes taxes and royalties) while the AISC is seen at a modest $34.83/lb. The LOM average operating cost includes mineral recovery, on-site yellowcake production with hauling cost to Laramide’s Crownpoint Processing Facility ~22 miles from Churchrock, G&A and freight.
Using a 0.75x NAV8% multiple we establish a C$2.20 price objective (rounded) equating to +165% upside from the most recent close. Shares of Laramide currently trade at a 0.29x P/NAV multiple, representing a steep discount to peers such as enCore Energy (EU) and Ur-Energy (URG), each currently trading at 0.92x and 0.85x respectively. Given the PEA publication, Laramide's Churchrock project now belongs to an exclusive club encompassing just a handful of credible, US focused ISR development projects. Being hard to ignore now, we believe that as the Laramide story gets told and as the company becomes more included in uranium focused investment baskets, the valuation multiple will expand accordingly.
Given the current bullish uranium environment, we believe the risk remains on the upside with regards to upside development progress at Churchrock, while the Westmoreland asset in Australia provides large scale optionality. Recall that a recent A$12.0M placement was recently closed with the proceeds expected to be used in both the US and Australia. Though a broader financing exclusively for Churchrock is eventually expected, we don't see it as imminent just yet. For more information on Westmoreland, see our initiation note here.