Expecting Meaningful Uranium Mining Re-Starts in 2H/2023
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In light of the various corporate updates provided last week from several of the near term uranium producers, we thought it timely to update/re-examine the individual ramp up timeframes for the individual companies while also providing a valuation re-fresh for the companies we currently cover. Following the inaugural Department of Energy (DOE) contract deliveries which were executed in Q1/2023, we continue to see 2023 as a transformational year in domestic uranium production, followed by meaningful annual production in 2024 and beyond. Despite being impacted by supply chain challenges, the much anticipated re-start initiatives from the likes of Ur-Energy (URG), Peninsula Energy (PENMF) and enCore Energy (EU) remain on course for 2023.
Ur-Energy (URG): provided an operational update last week and emphasized the continued ramp up of the Lost-Creek operations given the numerous new hires (a workforce now totaling ~50 people) along with continued progress on the well installation activities and with drilling initiatives. The installation of the pipeline and powerline to header house 2-4 has advanced significantly along with the needed construction work. The goal is to bring this particular header house into production sometime later in Q2/2023. Longer term, the delineation drilling program has seen 120 holes completed in Mine Unit 2, thus facilitating final wellfield design for the next four header houses. Also of note is that construction of a laboratory facility to support production activities from Lost Creek will be ready come May. This facility will in future also support Shirley Basin production.
Valuation: Post-February $46.1M financing, we continue to target a 1.20x NAV8% multiple based on a LT uranium price of $70/lb. This results in a 12 month target which would imply +74% upside from the most recent close. Shares of Ur-Energy currently trade at a 0.69x discount to our calculated NAV8%
Peninsula Energy (PENMF): Despite also being affected by the aforementioned supply chain constraints, the required construction for Mine Unit 1 (MU1) has been completed while the chemical storage and distribution installation is nearing completion. As a testament to the low-pH ISR operations, note that as announced last month, MU1 has already demonstrated flow capacity which has already exceeded the early requirements for commercial production. Wellfield transformation activities have since advanced to Mine Unit 2 along with several drilling rigs preparing Mine Unit 3. Work on the processing plant is on-going as the large volume acid storage and distribution systems are expected to be available for use by the end of April 2023. Commercial uranium production is anticipated to commence in Q2/2023. Note that a portion of the Q4/2023 delivery commitment includes specific delivery of production from Lance. The LT committed sales portfolio currently includes 5.25M lbs of firm U3O8 extending until 2033.
Valuation: We continue to target a 1.30x NAV8% multiple based on a LT uranium price of $70/lb. This results in a 12 month target which would imply +146% upside from the most recent close. Shares of Peninsula Energy currently trade at a 0.53x discount to our calculated NAV8%
enCore Energy (EU): Work continues to advance at and around the Rosita Central Processing Plant located in south Texas, approximately 60 miles from Corpus Christi. Expansion resource drilling is on-going on the property as well casings continue to be installed. We note that though the news flow of late has centered around the closing of the Alta Mesa transaction (February 15, 2023) and the corresponding re-start initiatives (March 15, 2023) needed for a projected Q1/2024 production re-start, production from Rosita is still expected by year-end 2023. Given the relatively low LOM from Rosita, the market is already looking ahead to Alta Mesa and Dewey Burdock production.
Valuation: Post-February C$34.5M financing, we continue to target a 1.05x NAV8% multiple based on a LT uranium price of $70/lb. This results in a 12 month target which would imply +82% upside from the most recent close. Shares of enCore Energy currently trade at a 0.58x discount to our calculated NAV8%
Note that Energy Fuels (UUUU) has guided towards zero uranium production for FY/2023 (and for that matter zero vanadium production as well) as the much publicized transition to production of rare earth elements from White Mesa has become the focus since 2020. That said, we do highlight that some preparation work on the conventional uranium mines has been undertaken. We assume that if production were to resume, the La Sal Complex may likely be first in the production cue. For what it’s worth, approximately 600MT of monazite is expected to be processed at White Mesa over the course of FY/2023. More of our thoughts on Energy Fuels can be seen from out March 16, 2023 note here:
Much of the same can be said about Uranium Energy Corporation (UEC). Instead of a communicated re-start of commercial ISR mining operations, much of the focus of late has been on acquiring assets in the Athabasca Basin (highlighted by the Roughrider deposit and various acreage by way of the UEX Corporation transaction).
Looking to finally rebound from the anemic, sub-200,000 lb annual production levels since FY/2019, the drivers for increased domestic production have been many over the past 18 months. Lead by the establishment of a strategic U.S. uranium reserve ($75.0M already for approximately 1.0M lbs already delivered in Q1/2023). Demand from the reserve may eventually grow to an expected $1.50B in inventory, spread over 10 years of expected purchases. Additional drivers have been the ever-present themes of energy and supply chain independence, passage of the IRA which has prompted numerous nuclear power plant life extensions, the emergence of the SMR and finally the recently seen self sanctioning of Russian sourced uranium.