DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.
Late last week, Ur-Energy (URG, URE) released its FY/2023 results which were highlighted by $17.3M in revenues underpinned by the sale of 280,000 lbs of U3O8 at an average price of $61.89 per lb (resulting in gross profit margins of ~50%). Backing out of the NRV adjustments, gross profits amounted to $8.7M for the year, compared to $0 in FY/2022. Though still relatively immaterial financials due to the on-going production ramp, of the 103,487 lbs U3O8 captured over the course of the year, 68,448 lbs were captured in Q4/2023 (average quarterly production grade of 93.9 mg/l U3O8). More important to the recent financial results, we continue to highlight the strong current company fundamentals in both treasury (current cash on hand $66.2M) and inventory (148,101 lbs). Moreover, FY/2024 production guidance was announced (representing a ~three fold increase from the FY/2023 figures) as were the latest LT contracts. Given our LT $120/lb uranium price objective, we maintain our 1.1x NAV8% price objective which equates to upside of +120% from the recent close. Note that URG shares are off by -22% from the recent early February highs and currently trade at a 0.50x P/NAV.
As the company remains in the ramp-up phase, we note that the most recent production grade of 93.9 mg/l U3O8 places last quarter's operations near the levels last seen in mid-2015, pre-shutdown. This reflects the recent progress made in wellfield development, highlighted by the first two completed header houses located in Mine Unit 2 (MU2). Wellfield construction and development continues in MU2 (12 rigs currently on site with more expected) as all delineation drilling throughout the remaining 8 planned production areas has been completed. Production from HH 2-6 came online after year-end while HH 2-7 is anticipated to come online later this month. The company continues work to optimize processes and refine production operations, including in the recommissioning of the Lost Creek plant equipment and processes. This sets the stage for significantly higher FY/2024 production. As per annual guidance, an estimated 650,000-750,000 lbs are expected to be produced this year from MU2 with 600,000-700,000 lbs expected to be dried and packaged (our more conservative estimate is for 620,000 lbs dried and packaged - our LT production estimates are below). Thus far in 2024, a total of 32,000 lbs have been drummed.
As per new contracts, management recently signed a contract calling for deliveries of a base annual quantity ranging from 100,000-350,000 lbs U3O8 from 2026 through 2030 (including a 10% flex option). Another new contract was delivery commitments for 5 years with an initial delivery of 50,000 lbs in 2026, increasing to 200,000 lbs between 2027 through 2030. All sales will be made at fixed prices, escalated from the base agreed price. Adding these 2 new contracts brings the company's total order book to 5 contracts with annual deliveries ranging from 550,000-1.10M lbs over a six year period commencing in 2025.
At the nearby satellite Shirley Basin project, all permits and necessary authorizations have been received already. The ordering of long lead time items has already been initiated ahead of an anticipated construction decision. The two largest drivers for a positive construction decision (solid market fundamentals along with a growing order book) continue to be conducive to a positive decision.
Despite the sector's ~20% decline since the early February highs, we continue to highlight Ur-Energy's strong fundamentals which set it apart from peers. These fundamentals not only include the aforementioned current contract book but also encompass the current balance sheet. The company currently maintains cash on hand totaling $66.2M while also maintaining uranium inventory of 148,101 lbs, equating to ~$13.6M at the current spot.
As per current valuation, given our ramp-up expectations, the corresponding project sensitivities for both Lost Creek and Shirley Basin are below. Note that our estimates are underpinned by a LT uranium price estimate of $120/lb.
Maintaining our $120/lb LT uranium price objective, we maintain our DCF derived valuation for both Lost Creek and Shirley Basin. Using a 1.1x NAV8% target multiple, our price objective equates to +120% upside from the most recent close.