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Ur-Energy: Meaningful ISR Production Following an Expected 2023 Restart Decision

DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.

Having originally started ISR uranium production in 2013, Ur-Energy’s (URG) Wyoming based Lost Creek ISR operation is on the verge of a production restart and is poised to be one of the country’s more significant, near-term uranium producers. Using our base LT uranium price forecast of $70/lb, we establish our 1.20x NAV8% target of $1.60 per share. Though we think much of the current story is priced in, upside remains post restart decision once additional clarity is provided in terms of size and scope. We see Ur-Energy as a low risk restart story. We note that the company has previously achieved an annual production rate of nearly 800,000 lbs U3O8 (FY/2015) before the strategic decision to curtail production. Note that we conservatively model production from Lost Creek and Shirley Basin however we currently give zero value to a third potential production area, Lost Soldier.

Much like just about every producer in the domestic uranium industry, production was gradually curtailed over the years due to depressed pricing which has lingered ever since the Fukushima accident. Given the strategic production cutback/pause which began in 2015, domestic US production declined from nearly 5.0M lbs per year in 2014, to the minimal levels as seen since 2019. For what it’s worth, a whopping 3,245 lbs of U3O8 was produced in the entire United States in Q3/2022 with the YTD figure totaling a mere 19,233 lbs. All of this comes in light of recent import levels which have averaged ~50M lbs per year.

Though Ur-Energy’s production pause has continued to this day (along with announced pauses from Energy Fuels (UUUU), Peninsula Energy (PENMF) and Uranium Energy Corp (UEC)), the plant has been kept at an operational state of readiness while the entire staff has been maintained. Recall that since initial production in 2013, Lost Creek has to date produced ~2.7M lbs U3O8. Since 2021, a new construction and development program was undertaken and highlighted by a new header house in Mine Unit 2 (MU2). The Lost Creek facility can ramp up to nameplate capacity of ~1.2M lbs per year in as little as 9 months along with development capital of ~$15.0M needed. Moreover, in 2021, six additional mine units (all permitted) have been added to the Lost Creek licenses, bringing the total licensed mine units to nine. Given this expansion, note that in addition to the Lost Creek facility’s nameplate capacity of 1.2M lbs per year, note that toll processing can add an additional 1.0M lbs of U3O8 production.

During this operating pause, Ur-Energy continued with the development of wellfields in additional mine units surrounding the Lost Creek plant. Construction has begun on the next Mine Unit 2 header houses (HH 2-4) while the well installation for HH2-5 is ongoing, as is the necessary delineation drilling for the next 5 Mine Unit 2 header houses. Given the improving market dynamics (uranium pricing, geo-politics, zero carbon, the importance of domestic supply chains and the creation of a domestic uranium repository) Ur-Energy is on the verge of announcing a full production re-start. Though the company currently holds LT uranium supply agreements for 200,000 lbs ranging between 2023-2028 (at prices above the average LOM AISC$ cost), management has been stating that the official re-start decision will be dependent on the signing of additional LT contracts. We expect additional contracts to be signed in the months ahead, leading to a re-start decision coming sometime in 2023.

Located in the northeast corner of Sweetwater County, approximately 90 miles southwest of Casper, Wyoming, the Lost Creek property comprises six contiguous projects (combining for 35,400 acres of federal mineral claims and state of Wyoming mineral leases) surrounding the core Lost Creek property.

The current mineral resource at Lost Creek stands at 11.9M lbs grading 0.046% U3O8 in the Measured & Indicated category, along with an additional 6.6M lbs grading 0.044% U3O8 in the Inferred category. Since initial production in 2013, recoveries have averaged ~90% with all the resources pipelined to the existing Lost Creek plant. Note that peak production occurred in FY/2015 when 784,000 lbs U3O8 was captured. In our view, given an imminent production investment decision (expected next year), a relatively low capital requirement will be needed (we model sub $15M for a re-start in production) in order to reach a gradual ramp to a modeled 740,000 lbs U3O8 production for FY/2025. The following year in 2026 we see meaningful production coming from the Shirley Basin property as well, bringing combined production to 2.0M lbs by FY/2027. Note that the Shirley Basin project has a resource totaling 8.8M lbs grading 0.23% U3O8 in the Measured & Indicated category. The project is located approximately 30 miles to the north of Lost Creek. With production expected until 2036, we forecast a LOM average cash cost of $19.20/lb along with an all-in cost of $44.18/lb.

In addition to the aforementioned delivery contracts extending until 2028, Ur-Energy maintains strong corporate fundamentals with $37.7M cash on hand along with 324,000 lbs of drummed uranium inventory (equating to nearly 7% of current EV given the latest Trade Tech spot quote of $48.25/lb).

For the table above, note that the enCore Energy transaction to acquire Alta Mesa from Energy Fuels is yet to close. That said, We value both Lost Creek and the Shirley Basin project using our base LT uranium price forecast of $70/lb, and establish our 1.20x NAV8% target of $1.60 per share, thus equating to +40% upside. We also feel that even further upside may be warranted however only after production/strategy clarity is ascertained following the upcoming re-start decision. Additionally, note that we ascribe zero value to the Lost Soldier project which will very likely become a third project in the slightly longer term, for ISR production. Note that we also give zero in-situ value for Inferred resources and zero value to the Lucky Mc mine and the Excel Gold project.

Ur-Energy shares trade in both New York (URG) and Toronto (TSX). Currently reflecting a 0.87x P/NAV multiple, we feel that much of the low-risk story is currently known however anticipate additional strategy details following the restart decision. The company fundamentals are solid given the $37.7M cash on hand coupled with the 324,000 lbs in finished uranium inventory. Lower risk (specifically in the uranium space) is certainly a refreshing change however we stress that the risk is on the upside in terms of production and additional assets not factoring into our valuation model.

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