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Since we've conducted the due diligence, built the models, love crunching numbers and love making relative value comparisons, we decided to create some sensitivity analysis with the goal of identifying which specific uranium project offers the highest torque to a rising (or conversely declining) LT uranium price. We're not looking at balance sheets, optionality or hedges, we're simply looking at, pre-tax project value over currently estimated life of mine (LOM).
Long story short, from the near-term producers we highlight Peninsula Energy's Lance as the project which offers the highest sensitivity to LT uranium price movements. From the developer category, we highlight Fission Uranium's Triple R as the project which offer the highest sensitivity to changes in the LT uranium price. Results from our sensitivity analysis, our process, screening methodology, assumptions and results are described below:
Part 1: Near Term Producers
Our sample size for the near term producers comprises Ur-Energy (URG), enCore Energy (EU) and Peninsula Energy (PENMF), all companies with U.S. based ISR projects expected to move forward and enter meaningful, long term production starting sometime between 2023-2025. The specific projects that we look at include Lost Creek (est. production 2023) and Shirley Basin (est. production 2025) owned by Ur-Energy, Alta Mesa (est. production 2024) and Dewey Burdock (est. production in late 2025) owned by enCore Energy and finally Lance (est. production in 2023) owned by Peninsula Energy. Note that we specifically exclude enCore's Energy's Rosita - despite an expected 2023 startup keep in mind the current LOM is only for 1.5 years. We also exclude any uranium project from either Energy Fuels (UUUU) and Uranium Energy Corp (UEC) since the start up visibility simply isn't quite there yet.
As for base case assumptions, the sensitivities are based on $10/lb uranium price intervals, starting at a base of $60/lb and encompassing a range from $40/lb-$80/lb. Additionally, the specific output calculated is the pre-tax project NPV based on a constant 8% discount rate (though discount sensitivities range from 6%-10%, see the project specific tables below). The project lives are based on current technical studies, zero value is given to any potential resource exploration upside which may extend the project LOM. Keep in mind that these calculations are our own, as are the numerous estimates and assumptions which form the basis of our model driven valuation and analysis. Note as well that we exclude any current company specific hedges or contracts - we are strictly looking at the project value based on a given LT price. As for uranium price torque, the results are telling:
As can be seen, Lance offers the highest sensitivity to a uranium price swing of +/- $20/lb ranging from -120% to +155% while Lost Creek offers the least sensitivity, ranging from -80% to +100%. When keeping the discount rate constant at 8%, the highest to lowest sensitivity ranking are specifically: Lance +/- 120%, Alta Mesa +/- 98%, Dewey Burdock +/- 81%, Shirley Basin +/- 79% and Lost Creek +/-75%. More specifically:
The full project details for any of these companies can be found in the in the research repository posted above. More granular comparisons based on project LOM, cash costs, asset quality and corporate strategy can be found from the individual company reports contained there. The purpose of today's analysis was strictly to quantify the specific change in project value (given our current forecasts) to LT uranium price sensitivities. Note that the current uranium spot price is ~$51/lb.
Part 2: Uranium Project Developers
Extending this same type of analysis to the developer field as well, our sample includes NexGen Energy (NXE), Fission Uranium (FCU) and Denison Mines (DNN). Specifically we look at the NexGen's Arrow, Fission's Triple R and Denison's Wheeler River (Phoenix/Gryphon), all of which are the flagship projects for the respective companies. Since we have Denison's Waterbury Lake project modeled as well, we include it in the analysis however stress that it is a tier 2 asset and hardly the company's current focus. Just as with our analysis for the near term producers, the sensitivities for the developers are based on $10/lb uranium price intervals, starting at a base of $60/lb and encompassing a range from $40/lb-$80/lb. Additionally, the specific output calculated is the pre-tax project NPV based on a constant 8% discount rate (though discount sensitivities range from 6%-10%, see the project specific tables below). The project lives are based on current technical studies, zero value is given to any potential resource exploration upside which may extend the project LOM. Keep in mind that these calculations are our own, as are the numerous estimates and assumptions which form the basis of our model driven valuation and analysis. Note as well that as per our estimates, we forecast Arrow production commencing in 2027, Triple R production commencing in 2029 and meaningful Wheeler River production commencing in 2026.
As can be seen, Triple R offers the highest sensitivity to a uranium price swing of +/- $20/lb ranging from -76% to +101% while Arrow offers the least sensitivity, ranging from -52% to +69%. When keeping the discount rate constant at 8%, the highest to lowest sensitivity ranking are specifically: Triple R +/- 67%, Waterbury Lake +/- 57%, Wheeler River +/- 51% and Arrow +/- 43%. More specifically:
The full project details for any of these companies can be found in the in the research repository posted above. More granular comparisons based on project LOM, cash costs, asset quality and corporate strategy can be found there. The purpose of today's analysis was strictly to quantify the specific change in project value (given our current forecasts) to LT uranium price sensitivities. Note that the current uranium spot price is ~$51/lb.
This longer time to initial production is a noticeable differentiator with regards to the near term producers, as is the total project size which skews much larger for the developers. As such, the sensitivities for the developers are more muted. For context, the developer projects have much higher average yearly production rates - Arrow 21.0M lbs over LOM, Triple R 11.1M lbs over LOM and Wheeler River 7.8M lbs over LOM. In short, these projects are orders of magnitude larger than those from the near term producers listed in Part 1.