IsoEnergy: Acquisition of Anfield Energy Expands US Uranium Footprint

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On October 2nd before the market open, IsoEnergy (ISO) announced that it had entered into a definitive agreement pursuant to which IsoEnergy would acquire all of the issued and outstanding shares of Anfield Energy (AEC) by way of court-approved plan of arrangement. Though on paper Anfield's largest asset is the wholly-owned Shootaring Canyon Mill (one of only three constructed, licensed and permitted conventional uranium mills located in the US), IsoEnergy's strategic rationale for the takeover is simply to increase in size by adding acreage and resources to its US portfolio. With the addition of Anfield's Velvet Wood, West Slope and Slick Rock Projects (among others), IsoEnergy would solidify its rank as having one of the larger total uranium resource inventories in the US. With this comes a larger platform for further M&A along with higher liquidity and access to capital. We maintain our C$5.00 per share price objective which equates to upside of 57% from the most recent close. Shares of IsoEnergy currently trade at 0.65x NAV.

Under the terms of the agreement, Anfield shareholders will receive 0.031 of a common share of IsoEnergy for each Anfield Share held. Existing shareholders of IsoEnergy and Anfield will own approximately 83.8% and 16.2% on a fully-diluted in the-money basis, respectively, of the outstanding ISO shares on closing of the transaction. The exchange ratio implies a consideration of $0.103 per Anfield share, representing a 32% premium to Anfield's pre-announcement closing price on October 1, 2024. The all-share acquisition implies a transaction value of $126.8M and is expected to close sometime in December.

Upon transaction close, IsoEnergy's footprint in Utah will be increased with the addition of the Velvet-Wood project, while in Colorado, IsoEnergy will add the West Slope and Slick Rock projects. Of note is that the above three projects are much closer to Energy Fuels' (UUUU) White Mesa mill (~100 miles on average for each project), than the Shootaring Canyon mill (~200 miles away from each project). Recall that the Velvet-Wood project is located just a few miles north of IsoEnergy's Rim and Sage Plain mines.

Given that Tony M was IsoEnergy's only meaningful near-term US project, the addition of Slick Rock, West Slope and Velvet-Wood adds immediate lbs to the current US resource inventory. Pro-forma, these assets more than double the US portfolio lbs in the ground. The Anfield acquisition adds critical mass to future production sites all within a ~100 mile radius of the White Mesa mill. Recall that IsoEnergy currently has toll-milling agreements with Energy Fuels at White Mesa.

Note that the Shootaring Canyon mill provides for future production capacity, specifically from the nearby Tony M mine. More recently, a restart application was submitted to the State of Utah for the Shootaring Canyon Mill to increase throughput from 750 stpd to 1,000 stpd and expand licensed annual production capacity from 1.0M lbs to 3.0M lbs U3O8. That said, the capex requirements for the mill are quite extensive. As outlined from a May 2023 PEA, the capex requirements are estimated to be $64.8M (new plant within the facility, vanadium circuit + tailings). We don't see this particular mill coming online anytime soon.

Ultimately, strictly on a per (global) lb basis, IsoEnergy's offer equates to $5.77 per contained lbs. This is below the amount IsoEnergy paid in September 2023 for Consolidated Uranium and below the recently announced Paladin takeout of Fission Energy.

Though the shift to prioritize and gain critical mass in the US is clear (accentuated by the recent departure of President Tim Gabruch), ahead of transaction close, IsoEnergy's Larocque East project (Hurricane deposit) continues to be the largest value driver. With 207,000 hectares spread over 20 properties in the infrastructure-rich, eastern portion of the Athabasca Basin, IsoEnergy’s flagship asset is the Larocque East project which hosts the Hurricane Deposit. Though overshadowed by the likes of NexGen Energy’s (NXE) Arrow and Fission Uranium’s (FCU) Triple R, the Hurricane deposit happens to be the world’s highest grade uranium deposit at 48.6M lbs grading 34.5% U3O8 (Indicated).

Unlike Arrow and Triple R, IsoEnergy’s projects are strategically much better located in the eastern portion of the Athabasca Basin. Not only is the infrastructure well built out in the east but every single prospective IsoEnergy project is located within 50km (at most) to uranium mills such as Key Lake, McArthur River, Cigar Lake, McClean Lake and Rabbit Lake.

We value the Hurricane deposit using an in-situ $/lb multiple, partly based on precedent post-Fukushima transaction multiples within the Athabasca Basin. We ultimately ascribe a $7.50/lb in-situ value to the currently defined Measured & Indicated resource, noting that a premium to average transaction multiple is more than warranted. This premium to the $4.12 average can be justified in a multitude of ways which make Hurricane all the more attractive when compared to peers. For starters, the aforementioned highest grades in the Basin are from a deposit currently considered to be relatively shallow at a depth of ~325m. The infrastructure in the eastern portion of the Basin is well developed while access to Orano's McClean Lake mill is just ~35km away. Moreover, ownership is clean at 100% and the asset is not encumbered by any royalty or interest.

Given the announced Anfield Energy acquisition coupled with the recent departure of IsoEnergy President Tim Gabruch (who was at the helm for Larocque East and the Athabasca Basin developments), the pivot to being viewed as a conventional US focused uranium producer/developer has been emphasized.

Applying a 1.0x NAV multiple, our price objective of C$5.00 (rounded) is derived, implying 57% upside from the most recent close. We believe the risk remains on the upside for a multiple re-rate higher which in the near term would be spurred by continued drilling and development success, not just from in-house projects but from nearby competitor projects (Cameco, Orano) as well. IsoEnergy needs to be considered for anyone looking at combined exposure to the Athabasca Basin along with a growing portfolio of conventional, near term US production optionality. Shares currently trade at at 0.65x discount to NAV.