enCore Energy: Margins Continue to be Squeezed as Alta Mesa Production Needs to Ramp Higher

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On May 12 enCore Energy (EU) reported its Q1/2025 results which were highlighted by revenues of $18.24M and a net loss of $0.13 per diluted share. With Rosita only coming online in 2023 and Alta Mesa commencing production in June 2024, more telling than the financials (at this still early stage) are the operating metrics, particularly from Alta Mesa, along with the contract book which will dictate future uranium deliveries. Though extracted volumes will need to meaningfully increase, the increasing number of active rigs on site (now numbering 22 as of March 31) along with the successful recent startup of a second Ion Exchange Circuit at Alta Mesa should set the framework for eventual volume increases. That said, during the Q1/2025 period, a combination of higher priced purchased lbs (far surpassing the cost of Alta Mesa extracted lbs) lead to slightly negative sales margins when delivered into contracts. That said, we maintain our 1.15x NAV8% derived price objective of $2.55 per share. This equates to upside of 45% from the most recent close.

During the quarter, 290,000 lbs of uranium were delivered into sales contracts at an average price of $62.89 per lb. Of the total delivered amount, 216,289 lbs were from purchased inventory ($68.89 per lb) while 73,711 were extracted lbs ($45.62 per lb). Similarly to Q1/2024 and over the course of FY/2024, higher cost purchased lbs needed to fill sales contracts contributed to negative margins when combined with the average realized prices from the sales contracts.

On the production front, there are reasons for optimism - as of March 31, 2025, the company increased the number of active drill rigs in South Texas from 17 to 22. Additionally, also in March, enCore announced the successful startup of its second Ion Exchange (IX) Circuit at its South Texas Alta Mesa CPP location. This second IX Circuit at Alta Mesa doubles the total flow capacity from 2,500 GPM to 5,000 GPM. Flow rate is an essential factor in expanding the amount of uranium captured. In conjunction with the expansion of processing capacity, enCore installed additional injection and extraction wells in the currently permitted and operational Wellfield 7 (PAA-7). The combination of the second IX Circuit and wellfield expansion utilizes approximately 75% of the current processing capacity. Going forward, additional wells will be brought online systematically in order to reach CPP capacity and increase the capture of uranium. A total of 32 wells (almost evenly split between injector wells and recovery wells) are currently in operation. Our estimates (including from Dewey Burdock) are as follows:

We note that work continues to advance other projects such as Dewey Terrace, Upper Spring Creek, Dewey-Burdock and the Gas Hills projects. Specifically to Dewey-Burdock, the project has its source material license from the NRC and its underground injection permits and aquifer exemption from the EPA. In April 2024, enCore submitted its application to renew the 10 year old Source Material License, SUA-1600. The NRC has confirmed that the Dewey-Burdock Source Material License is in timely renewal. The underground injection permits were appealed to the EPA’s Environmental Appeals Board (EAB) and the aquifer exemption was appealed to the 8th Circuit Court of Appeals. In September 2024, enCore provided an update regarding the EAB appeal, including a ruling denying the intervenors’ contentions on the merits, and remanded to the EPA to review and complete, if necessary, the administrative record for its permit decisions. Based on a successful outcome for the company of the appeal of the NRC license, the company believes it will be successful in appeals related to the EPA’s underground injection permits and aquifer exemption.

EnCore's near term future remains underpinned by a solid contract book encompassing over 8.3M committed lbs for delivery (2 new sales agreements were entered into in Q1/2025, increasing the total number to 14 as of the end of the quarter). Uranium contained in inventory amounted to 153,058 lbs as of quarter-end.

Underpinned by an $80/lb LT uranium price, we maintain our 1.15x NAV8% derived price objective of $2.55 per share. This equates to upside of +45% from the most recent close (May 12). Shares of enCore Energy currently trade at a 0.80x P/NAV multiple.