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Ur-Energy (URG, URE) released its Q3/2024 results which were highlighted by the on-going developments at Lost Creek. Though ISR production continues to ramp higher on a sequential basis, the latest 75,075 lbs captured was well below our and management's forecasts. Given the continued challenges to reach a steady state operations as production increases, FY/2024 production was cut to a mid-point of 260,000 lbs, a marked decline from the ~550,000 lbs expected just last quarter. As such we have adjusted our production estimates going forward and have pushed forward our Shirley Basin production start to 2026. Factoring in the latest corporate adjustments, our 1.10x NAV8% valuation methodology remains, equates to a price objective representing +112% from the most recent close.
With eight operating Header Houses (HHs) in Mine Unit 2, Ur-Energy continues to (slowly) ramp towards the targeted production levels. As evidenced by the quarterly operational update, the ramp higher has proved to be challenging at Lost Creek. Management admitted that the ramp-up "has progressed at a slower rate than anticipated". A total of 12 rigs were on site at Lost Creek in Q2/2024, increasing to 17 rigs in Q3/0224. By year-end, management expects to have approximately 20 rigs active on site. In terms of development, the fabrication of HH2-13 through HH2-15 continues to progress. HH2-15 is a newly planned production area for which development and construction also continued to advance. Drilling at Mine Unit1 is ongoing for the next phase of its production. That said, FY/2024 production was been decreased from an expected ~550,000 lbs as forecast last quarter, to a current lower range between 240,000-280,000 lbs.
On the contracting front, during the Q3/2024 quarter, the company sold 100,000 lbs U3O8 at an average price of $61.65 per lb. The cash cost of these produced lbs totaled $37.98 per lb bringing the total production cost to $48.91 per lb (net margins of 20.7%). The remaining 390,000 lbs contracted for the year will be delivered in Q4/2024, sourced from Lost Creek production and from alternatives. This final shipment will conclude the 570,000 lbs contracted for FY/2024. Recall that the contracts for 2024 were negotiated in 2022 when the LT uranium price was between $43-$52 per lb. That said, the 170,000 lbs sold in the first nine months of this year where at an average price of $61.65 per lb. At quarter end, the company's in-process inventory was ~90,140 lbs, drummed inventory at Lost Creek totaled 26,580 lbs, and finished inventory at the conversion facility totaled 40,713 lbs U3O8.The contract book for FY/2025 stands at 740,000 lbs.
Though our FY/2024 production estimate was below company guidance, we have decreased the next few quarters expected production, going from 460,000 lbs to 264,000 lbs in FY/2024 while also decreasing our FY/2025 production estimate from 800,000 lbs to 580,000 lbs. We have also pushed forward the startup of Shirley Basin production from late 2025 to mid 2026. The buildout with Shirley Basin will nearly double the annual permitted mine production to 2.2M lbs U3O8.
Though partly market and sentiment related, the company has underperformed since its pre-financing $60M share offering as announced in July (57.15M shares priced at $1.05 per share). Near that time, the company stated that it was "currently bidding on an acquisition opportunity involving a significant non-producing uranium asset in the United States". Whether that opportunity has come and gone, the market is likely still anticipating some sort of acquisition given the sizeable cash balance. Recall that Ur-Energy presently has two assets - the currently producing Lost Creek and the rapidly progressing Shirley Basin. Combined, these two assets amount to ~28.0M lbs (global) of U3O8.
Compared to US based peers such as enCore Energy (EU) and Peninsula Energy (PENMF), Ur-Energy's 28.0M lb resource base lags far behind. We continue to highlight this point, as is best demonstrated above. Barring any strategic acquisitions, given the current asset portfolio, management remains adamant that when Shirley Basin is brought online (now expected sometime in 2026), the annual production capacity will grow from 1.2M lbs annually to 2.2M lbs.
We continue to see the company as having some of the best internal fundamentals among US based peers given the strong contract book (5.7M lbs contracted for deliveries between 2024-2030) which includes pricing escalators and some market based pricing features. Moreover, the company has an unrestricted cash position of $110.3M as of October 30, 2024. The cash position represents nearly 25% of current market capitalization.
Our valuation methodology continues to be underpinned by a $120 per lb LT uranium price while our NAV8% multiple remains at 1.10x. Factoring in the latest corporate adjustments, our 1.10x NAV8% valuation methodology equates to a price objective representing +112% from the most recent close.