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enCore Energy: Focus Now on Alta Mesa as a 30% Stake is Sold to Boss Energy

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.

Earlier today enCore Energy (EU-NYSE, EU-TSXV) announced that it had entered into a Master Transaction Agreement with Boss Energy Ltd (BOE-AU) which would result in the sale of a 30% stake in enCore's Alta Mesa project for a total consideration of $70M. Specifically, the deal terms are for a payment of $60M in cash to enCore along wth a private placement from Boss Energy of $10M into enCore shares at a price of $3.90 per share. Additionally, a loan of up to 200,000 lbs will be made to enCore (at a commercial 9% interest rate), sourced from Boss' strategic stockpile. Lastly, a strategic collaboration agreement will be formed on the use and joint technological advancement of enCore's proprietary PFN technology for real-time uranium analysis. The transaction is expected to close sometime in February 2024, at which point a JV on Alta Mesa will be formed with enCore holding 70% and Boss Energy holding the balance. We view the announced transaction as beneficial to both parties and agreed-upon at a fair price - we have been valuing Alta Mesa at $241M (NAV8%) which is in-line with the agreed upon 30% sale price. For context, recall that enCore acquired Alta Mesa from Energy Fuels (UUUU) for $120M in February 2023. Today's transaction is testament to management's deal making prowess.

The transaction provides enCore with the financial flexibility to significantly accelerate its uranium production profile across South Texas via additional development and exploration, while also allowing for some capital deployment at the Dewey-Burdock project, located at the Wyoming/South Dakota border and at the Gas Hills project, located in Wyoming. Also worth noting is the fact that the third and final $20M tranche of the Alta Mesa 8% convertible note will come due on February 14, 2025.

Though just last week it was announced that the Rosita South Texas Central Processing Plant successfully restarted ISR uranium recovery, owing to its currently short production profile (~1-2 years), Alta Mesa (AM) has always been seen as the critical long-lived asset needed to re-start production. AM is currently fully licensed with 1.5M lbs of annual ISR production capacity. This production figure can increase further with the installation of additional ion exchange circuits and resin processing circuits. Though the current NI43-101 resource encompasses 3.41M lbs U3O8 in the Measured & Indicated category along with 16.79M lbs U3O8 in the Inferred category, what can't be understated is the exploration potential in the largely underexplored 200,000 acre property, located entirely on private land. Exploration success can potentially greatly increased the LOM and yearly production volume. Historically, Alta Mesa produced 4.6M lbs of uranium between the 2005-2013 period.

Existing licenses, at both the Rosita and Alta Mesa Central Processing Plants (CPP), allow enCore to more than double the combined production capacity of both CPPs without further permits or license amendments. As per restart progress report at AM, work continues on the refurbishment of the processing circuits. The elution circuit has been completed while all the process pumps for startup of the ion exchange circuit have been rebuilt and replaced. Refurbishment work has already commenced on the yellowcake drying system. All the necessary equipment needed to install the pipelines to connect the wellfield (Production Authorization Area 7) to the AM CPP has been received or delivery confirmed.

The JV partnership with Boss Energy is beneficial to Boss as well - in addition to geographic and project diversification, they can now also source the needed technical expertise and know-how as they themselves aim to start their flagship Honeymoon ISR project in Australia. As per enCore production, we we see AM production ramping up over the course of 2024, reaching a peak of 1.5M lbs by 2026. We see Dewey Burdock possibly being fast-tracked and coming online in late 2025.

Though uranium recovery from Rosita has re-started, Alta Mesa, followed by Dewey Burdock represent much more of the corporate value drivers. For AM, 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.

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 time and on budget - as such, substantially de-risking. While maintaining our $80/lb LT uranium price forecast, we also maintain our 1.15x NAV multiple which leads to 12-month price objective of $4.50 (rounded) per share. Owing to the +35% performance over the last month alone, our price objective represents upside of +8% from the current quote.

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