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With uranium prices advancing by nearly +20% in September (currently maintaining a level just above $70/lb), we take the time to revisit our uranium price assumptions and increase our long term (LT) uranium price objective from $70/lb to $80/lb. This price increase has been prompted by the continuing cross currents of fundamentally positive supply/demand factors which have pushed the uranium spot price to the current 12+ year highs.
These fundamental tailwinds include the continued push from governments and industry for non carbon solutions to address climate change while also seeking solutions for energy security given the continuing Russia/Ukraine conflict. We’ve already seen much of eastern Europe double down on nuclear power while the emergence of Small Modular Reactors (SMRs) make nuclear power more amenable for customized solutions while also cutting the cumbersome permitting and financing overhangs typical of the larger, conventional reactors. Further buying from the larger holding companies (SPUT and Yellow Cake PLC) along with the DOE’s initial contract awards for the newly established US strategic uranium reserve all had a notable impact on the uranium price since the start of the year. On the contracting front, given 143.7M lbs already contracted for thus far in 2023, with three months left in the year, 2023 already marks the highest contracting year since 2012.
On the supply front, though many developers continue with their ambitious plans for uranium mining re-starts, we have already seen some operating/development disruptions, most notably given a coup in Niger (Global Atomic, GLO) and with a sudden toll milling contract cancellation (Peninsula Energy, PENMF). Put all together, spot uranium has been one of the top performing commodities YTD, while the equities (North American peer group) have averaged YTD returns of +20%. Cameco (CCJ) has lead the way with +59% YTD performance while Peninsula Energy (PENMF) has been the laggard at -5%.
As per our LT uranium price increase from $70/lb previously, to the current $80/lb, the biggest changes to NAV can be seen from the producers/near-term developers advancing re-start initiatives from ISR properties in Wyoming. As seen from the table below, both Ur-Energy (URG) and enCore Energy (EU) benefitted the most from the increase in LT pricing with their respective NAV8% increasing by an average of 31%. The third Wyoming ISR producer, Peninsula Energy (PENMF) saw a +23% NAV8% increase. The Athabasca developers, Fission Uranium (FCU), NexGen Energy (NXE) and Denison Mines (DML) saw their NAV increase at a magnitude of +25%, +17% and +14% respectively. We have not changed our NAV multiple valuation methodology.
Note that owing to the pending merger between IsoEnergy (ISO) and Consolidated Uranium (CUR), we have withdrawn our current estimates. We will re-examine the story once the merger has concluded, as expected in December 2023. As per company specifics:
Ur-Energy (URG): Work has been on-going since the December 2022 re-start decision for operations at the Lost Creek ISR site. As per quarterly update announced in August, wellfield construction and development work has continued this summer with production rates increasing noticeably in June, after production flow was initiated in Header House (HH) 2-4 in May. This production trajectory is expected to continue with HH2-5 expected to be brought online later this fall, with additional header houses expected to come online through the year. Note that during the Q2/2023 period, a total of 4,392 U3O8 lbs were captured. Our most recent note can be found here:
Peninsula Energy (PENMF): As announced on August 31, the updated plans for the fully in-housed production from the Lance ISR project was released. In short, the revised production profile now features higher yearly production (averaging nearly ~1.50M lbs per year) condensed over a shorter, 10-year Life-of-Mine (previously a lower production spread over a 14-year LOM). That said, to reach these operational and strategic goals, the remaining capex needed until first production is estimated to total $53.4M while the total funding needed to achieve positive cash flows (expected in 2025) amounts to an estimated $95.0M.We expect an initial financing tranche to be announced in the weeks ahead. Our most recent note can be found here:
enCore Energy (EU): Announced on October 4th that production plans remain on track with Rosita production expected by the end of November 2023, followed by initial Alta Mesa production in Q1/2024. The Rosita CPP is now prepared to start receiving bulk process chemicals and has prepared ion exchange resin for production. Recall that over the course of 2023, enCore installed an additional 40 production patterns at the Rosita Wellfield Extension (both injection and recovery wells). The company also announced that it repaid a total of $20M as part of the $60M convertible debt (convertible at $2.91, maturity on February 15, 2025) agreed upon to acquire Alta Mesa. Our most recent note can be found here:
Denison Mines (DNN): The big news from Denison Mines was announced this past June when the Wheeler River update was released. Following four years of work, the project’s status was upgrsaded from Pre-Feasibility Study (PFS) to full Feasibility Study (FS). Given the milestone publication, we can conclude two main points: 1) the Phoenix deposit will be a world class, profitable uranium mine and 2) the ISR production method, as first envisioned in 2018 will mark a revolutionary first in the Athabasca Basin. We forecast first ISR production from Phoenix towards the end of 2026. Our most recent note can be found here:
NexGen Energy (NXE): Work has continued at a consistent pace at the Rook I project located in the Athabasca Basin. A notable milestone was achieved this past August given the completion of the provincial Environmental Assessment Technical Review and submission of the final Environmental Impact Statement (EIS). This marked a significant milestone in the de-risking and advancement of the Rook I project which we continue seeing as being able to produce an average of ~20M lbs annually, over an 11-yeear LOM. We also note that in late September, the company announced that it had closed on a strategic $110M convertible debenture financing (convertible at $6.76, maturity on September 22, 2028). Our most recent note can be found here:
Fission Uranium (FCU): Work has been progressing at PLS with the summer drilling campaign which began in May while front end engineering design has also advanced. Recall that in April, the company submitted an application to construct a uranium mine and mill facility at the PLS site. Recall that a previously released Feasibility Study (FS) envisioned a 10 year LOM operation producing an average of just over ~9.0M lbs per year. More recently on October 4, the company announced the closing of its $9.2M bought deal, flow-through financing (7.73M flow-through shares at a price of C$1.19 per flow-through). Our most recent note can be found here:
IsoEnergy (ISO): In late September IsoEnergy and Consolidated Uranium (CUR), announced a definitive agreement for a share-for-share merger by way of IsoEnergy acquiring all of the issued and outstanding common shares of Consolidated Uranium not already held by IsoEnergy of its affiliates, by way of court-approved plan of arrangement. Upon completion of the merger (close date expected in December 2023), existing ISO and CUR shareholders will own approximately 70.5% and 29.5% of the company respectively, on a fully diluted basis. Combined company highlights include the highest grade deposit located in the Athabasca Basin (Hurricane), the largest undeveloped uranium deposit in the US (Coles Hill) and a trifecta of near term, production-ready conventional uranium assets (Daneros, Tony M and Rim). Until the transaction closes, we have withdrawn our current NAV estimates. Our most recent note can be found here:
Laramide Resources (LAM): We continue to expect the much anticipated Churchrock PEA to be released sometime soon in October. Our thesis with Laramide remains the same given an ISR asset (Churchrock) which may surprise on the upside (pending PEA) while also being an undervalued call option on legislative changes with regards to uranium mining in Australia (given the large Westmoreland uranium asset). We do note however that on September 29, the latest set of drilling results were announced form Westmoreland. Highlight results included 2.5m at 775ppm U3O8 and a near surface, 1.0m at 660ppm U3O8. Our valuation methodology remains underpinned by in-situ per lb valuation. Our most recent note can be found here:
