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Despite having started operations in the mid 1990s, Laramide Resources (LAM) to this day remains an underfollowed/undervalued developer with a quality uranium property portfolio boasting both conventional and ISR projects, located predominantly in the Grants Mineral Belt (New Mexico). Note that in the US, the Grants Mineral Belt has been one of the more prolific sources of uranium having historically produced 340M+ lbs of uranium from both underground and open pit sources during the period between 1948-2002. Ahead of a much anticipated Churchrock PEA, we value the company's project portfolio using a sum-of-parts methodology by ascribing to a $/in-situ lbs in the ground valuation. Using a 1.00x NAV multiple we establish a C$1.05 price objective equating to 169% upside from the current 0.37x P/NAV valuation. We note that the risk remains on the upside pending results from the PEA (expected in the days ahead) and any possible legislative change with regards to uranium mining in Australia.
Finding a pure-play US focused developer with sufficient liquidity and market capitalization is no simple task in the uranium space. From a relative standpoint however, Laramide Resources stands above the rest. Australian domiciled Westmoreland aside, the quality collection of ISR and conventional uranium assets located exclusively in New Mexico and Utah is second to none given company size. Though we will always prefer pure-play companies (given a multitude of reasons ranging from geo-politics, economics and simple supply/demand fundamentals, our current preference is the US, by far), Laramide Resources checks many of the boxes on our investment preference checklist.
Churchrock: Located in north-west New Mexico within the Grants Uranium district, the flagship Churchrock ISR project dates back to the 1950s with drilling and mine development previously conducted by Phillips Petroleum and UNC. The project was acquired by Laramide from URI (Westwater Resources) in January 2017. Given 165 drill holes encompassing over 306,000 feet drilled on site, the project currently hosts an Inferred mineral resource of 50.8M lbs (33.9M tons at an average grade of 0.075% eU3O8) which was defined in a 2017 NI 43-101 Technical Report. Additionally, the project specifics were outlined in a December 2012 Feasibility Study which outlined an annual 1.0M lb production run-rate ramping to 3.0M lbs. That said, a confirmatory drill program began in late 2022 to support the completion of a NI-43-101 Preliminary Economic Assessment (PEA). The initial diamond drilling phase of the project was completed earlier this year, having drilled a total length of 1,838 meters (6,030 feet) comprised of seven drill holes. Chemical assays indicated an average thickness of 18.3 feet of 0.061% U3O8, compared to a gamma-equivalent average thickness of 21.7 feet at 0.045% eU3O8.
As such, the drilling confirmed that historical drilling results are suitable for resource estimations. The drilling also confirmed the location and tenor of uranium roll fronts on the property. Its important to note that the Churchrock project is well advanced given that the US Nuclear regulatory Commission (NRC) has previously granted a production license for certain sections of the Churchrock project while also approving the construction for a central processing plant. From a permitting standpoint, one final state permit relating to environmental restoration and remediation is still required.
The upcoming PEA will be a significant near term catalyst - given the currently defined 50.8M lbs in the Inferred category, conversion of even just 25% to the M&I category (equating to ~13.0M lbs) would place Churchrock at or near par to other US ISR projects which are currently being developed for re-start or initial production. These projects include Lance (Peninsula Energy, PENMF) at 15.8M lbs M&I, Lost Creek (Ur-Energy, URG) at 11.9M lbs M&I, Dewey Burdock (enCore Energy, EU) at 17.1M lbs and Nichols Ranch (past ISR producer, Energy Fuels, UUUU) at 6.1M lbs M&I. When looking at global resource (M&I + Inferred), Churchrock ranks as one of the top single asset projects, just below Peninsula Energy's Lance. Seeing as ownership in a company is largely ownership stake in one particular flagship asset, on a EV/specific project basis, the valuation would look as follows:
La Jara Mesa: The conventional, hard-rock asset La Jara Mesa is also located in New Mexico, approximately 70 miles to the south-east of Churchrock. The wholly-owned project currently hosts a NI 43-101 compliant Indicated resource of 7.2M lbs of uranium (1.4M tonnes grading 0.23% U3O8) with an additional 3.1M lbs of uranium in the Inferred category (0.7M tonnes grading 0.20% U3O8). As for permitting, Laramide has already received a draft Environmental Impact Statement from US Forest Services while the review process is on-going with the NEPA review for the Final EIS. Additionally, once the Record of Decision is also received, La Jara Mesa will be eligible to apply for the needed underground development permits.
La Sal: The conventional La Sal project is located in San Juan County, Utah, approximately 60 miles from Energy Fuels’ (UUUU) White Mesa mill, located in Blanding Utah. The project was previously operated by Homestake Mining (a subsidiary of Barrick Gold, GOLD). A positive Feasibility Study was released in 1978 however depressed pricing led to the mothballing of the project. Homestake did complete a mineral resource estimate for La Sal however the estimates are neither NI43-101 nor JORC compliant. The White Mesa mill will be critical to the future of the project seeing as throughput would very likely be processed at the mill. Permits are already in hand for small scale bulk sample production (400,000-500,000 lbs per year).
Switching to Australia, not that we dislike the Westmoreland asset (it is after all, one of Australia's largest undeveloped uranium deposits) but since 2017, the country has become hard to navigate in, for anything uranium or nuclear related (case in point, Cameco (CCJ) which has essentially mothballed its Kintyre and Yeelirrie assets). That said, with regards to the concept of optionality, we find it valid once a company already has once cornerstone asset in actual production. In an cumbersome financing environment, advancing one project in one known jurisdiction will always be easier than advancing two different assets, with two different methodologies, in two completely different jurisdictions. Pure-plays always garner a higher valuation multiple. In any case, the Westmoreland asset itself is large: Located in northwest Queensland, given a 51.9M lb global resource (of which, 36.0M lbs in the Measured & Indicated category), the wholly-owned project ranks as one of the largest development stage uranium assets located in Australia. With an extensive drilling program conducted over the past few years, Laramide has expanded on the previous work completed by Rio Tinto (RIO) culminating with the latest set of assay results as announced on April 23rd. The latest highlight assay results include 2.0m at 0.0403% U3O8 and 0.6m at 0.0503% U3O8 from the Long Pocket prospect along with 3.0m at 0.0507% U3O8 and 2.0m at 0.0413% U3O8 from the Amphitheater prospect. Note that both prospects are not currently included in the current resource estimate at Westmoreland. Laramide will conclude the 2023 drilling campaign by conducting a resource definition drill program at Long Pocket while drilling at Amphitheater will test along strike and down dip from mineralization observed during the 2022 program. It is important to note that though the current mining policy in Queensland does impede the ability to permit uranium mines, exploration activities are not impacted however.
This political situation in Australia is important to flag seeing as Cameco (CCJ) has essentially mothballed all development activities for its Kintyre and Yeelirrie projects, both located in Western Australia. There has been no activity conducted on either property over nearly a decade as Cameco has prioritized its tier1 assets (McArthur River/Key Lake, Rabbit Lake and Cigar Lake), located in Canada’s Athabasca Basin. Permitting has been problematic given that the current government denied project extensions for either project, despite the large scale production potential. There has been zero activity undertaken at either of Cameco’s Australian projects for nearly a decade. The situation is similar to Deep Yellow’s (DYL) Mulga Rock project located in Western Australia. Though the project did receive the necessary State Ministerial approval to mine uranium in Western Australia, the approval came in 2016, prior to a ban being implemented by a subsequently elected State government. Note that the four projects which received approvals in 2016 include Cameco’s Kintyre and Yeelirrie, Deep Yellow’s (DYL) Mulga Rock and Toro Energy’s (TOE) Wiluna. The project specifics are below:
Using a 1.00x NAV multiple we establish a C$1.05 price objective (rounded) equating to 170% upside from the current 0.37x P/NAV valuation. We note that the risk remains on the upside pending results from the Churchrock PEA (expected in the days ahead) and any possible legislative change with regards to uranium mining in Australia. We also caution readers that our methodology for valuing Churchrock (post-PEA) will change from in-situ lbs in the ground multiple (currently $2.25/lb for the New Mexico ISR assets) to DCF once clarity on size, scope and costs can be ascertained.
Our $2.25/lb multiple for the New Mexico ISR assets (Churchrock and Crownpoint) is derived based on benchmarking with Ur-Energy's acquisition of the Shirley Basin and Lucky Mc ISR deposits from COGEMA Resources (an AREVA affiliate). At time of announcement (July 24, 2012), the acquisition was for $13.25M in what at the time was believed to be a global resource of ~15.0M lbs. Note as well that at that time, the uranium spot price was ~50/lb. That said, we ascribe a higher per lb valuation for the New Mexico ISR assets.