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enCore Energy: Projects Advancing, De-Risking Continues

DISCLAIMER: Any written content contained herein should be viewed strictly as observation, 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.

On September 5th, enCore Energy (EU-NYSE, EU-TSXV) provided an update for developments on the Alta Mesa and Rosita Central Processing Plants (CPP) ahead of the planned production re-starts. At the Alta Mesa CPP, minor renovations/refurbishments are on-going with the needed equipment. Note that it was previously determined that 90% of the plant piping and valves are operational and require minimal maintenance. Longer lead time items have been previously ordered while staffing (management and operating teams) has increased since the start of the year. The planned 2024 re-start remains on track - progress continues with installing the Production Authorization Area 7 (PAA-7) wellfield. Following the March 15, 2023 formal production re-start decision, management has re-iterated its target to attain production in 2024.

Given the continued de-risking efforts at Alta-Mesa, coupled with the reaffirmed production restart timeline, we maintain our outlook on the stock while increasing our target NAV8% multiple from a previous 1.10x to the current 1.15x, resulting in a new 12-month price objective of $3.80 per share (rounded), or +43% upside from the most recent close. With a string of asset acquisitions now well in the past, the enCore Energy story is no longer driven by ever-evolving asset acquisitions but is now characterized as a focused story with a clear pathway to production over a well defined, near-term timeframe.

Currently, there are eight drill rigs in full operation at the Alta Mesa wellfield, delineating the roll front mineralization within PAA-7. Progress is developing quickly given a total of 272 drill holes completed through August 21, 2023. Continued drilling within PAA-7 has returned positive results of Middle C sand mineralization in a total of 17 holes, with Grade Thickness (GT) values ranging from 0.200-0.792 in 7 of the holes. Continued drilling along trend is expected to expand and delineate this new mineralized sand. Ultimately, the expectation is for the overall increase in mineralization within PAA-7. To date, 33 holes have been cased with 5 holes completed. Further delineation drilling within PAA-7 continues to establish the optimal pattern of injection and recovery wells in order to maximize production efficiency.

A large part of our positive inclination towards the Alta Mesa project is due to the fact that the CPP is located on 200,000+ acres of private land in South Texas. As opposed to the other Texas properties (Rosita South, Butler Ranch and Upper Spring Creek), we continue to believe that there is ample room for considerable Alta Mesa exploration upside given the sheer size and under-exploration of the property. The discovery of Middle C mineralization and yesterday's drilling update further validates that thesis. Given a current Alta Mesa global resource of just over 20.1M lbs U3O8 (of which 3.4M lbs are exclusively in the Measured & Indicated category and the balance in the Inferred category), we currently model a 10-year LOM averaging 1.10M lbs per year at an average cash cost and AISC of $21.00/lb and $38.00/lb respectively. Recall that the Alta Mesa Central Processing Plant (CPP) is currently licensed for an annual production capacity of 1.50M lbs per year. In addition to the Dewey Burdock Project, our company wide production estimates remain as follows:

Though Rosita production is expected by late 2023, Alta Mesa with its estimated 10 year LOM followed by Dewey Burdock (located in South Dakota, estimated to commence production in 2025) represent much more of the corporate value drivers. Our largest concerns with the enCore Energy story were brought upon by the ever-changing production asset base and production time frames, given the fast paced level of acquisitions since 2020 (Westwater Resources, Azarga, Alta Mesa). For context, we highlighted these acquisitions and concerns in a previous note from January (link here). Given the concentrated work to date, these initial concerns have since been lifted.

Given that the corporate story now remains well defined and that the flagship Alta Mesa asset is well known to management (current CEO Paul Goranson was directly involved with AM’s planning and operations when previously owned by Mestena Uranium LLC) we see the asset as advancing on pace and on budget, and as such, substantially de-risking. While maintaining our $70/lb LT uranium price forecast, we now ascribe a higher NAV multiple for enCore Energy, increasing from 1.10x to 1.15x which bumps our 12-month price objective higher to $3.80 per share, representing upside of +43% from the most recent close.


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