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Ur-Energy: Production Continues to Ramp with Additional Header Houses Coming On-Stream

DISCLAIMER: Any written content contained herein should be viewed strictly as observation, 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.

Following the release of the Q2/2023 operating and financial figures and yesterday’s earnings webcast, we highlight that since the December 2022 decision to re-start Lost Creek ISR operations, Ur-Energy (URG) remains on track to achieve meaningful production to match contracted requirements for FY/2023. As additional Header Houses are expected to come on-stream through to the end of the year, we continue to see a run-rate of 600,000 lbs of U3O8 produced by exit-2024. That said, we continue to value Ur-Energy at a 1.20x NAV8%, underpinned by the Lost Creek and the eventual Shirley Basin operations. Moreover, we highlight the company's best in-class financial fundamentals including cash on hand ($68.3M) + uranium inventory (223,790 lbs valued at $12.5M using spot pricing) equating to nearly 1/3 of enterprise value. We feel that the market is starting to recognize these strong internal fundamentals (including a loan principal amount reduced to $7.1M and expected to be fully paid by Q4/2024) as shares have outperformed the ISR peer group given a solid +13.6% return over the last month. Given our rounded 12-month price objective of $1.60, we see potential upside of +44% from the most recent close.

As per quarterly update, wellfield construction and development work has continued this summer with production rates increasing noticeably in June, after production flow was initiated in Header House (HH) 2-4 in May. This production trajectory is expected to continue with HH2-5 expected to be brought online later this fall, with additional header houses expected to come online through the year. Note that during the Q2/2023 period, a total of 4,392 U3O8 lbs were captured. Given that construction of the Casper based Combined Services facility has been completed, the company can react at an even faster pace with regards to header house construction and chemistry analysis for both the Lost Creek operations and eventually the Shirley Basin operations as well. Management has continued to state that they are concentrated on matching yearly production (with an element of flex) with needed delivery contracts. Our production and cost estimates are below:

As per future off-take contracts, the company now has three multi-year sales agreements which combined call for a base delivery amount of 600,000-700,000 lbs of U3O8 per year, over a five year period, beginning in 2024 (average price of $62 per lb). Later this year, the company will deliver into the first sales commitment. Though specific monetary terms were not disclosed, the sales price per lb will be profitable company-wide on an AISC basis. Moreover, prices will be escalated annually from the initial start. In addition to the initial 100,000 lbs sold to the DOE at the start of the year, a total of 280,000 lbs are expected to be sold over FY/2023 at an average price of $61.89 per lb.

Internally, the company fundamentals remain extremely strong, as of August 3, 2023 Ur-Energy had a cash position of $63.7M in treasury. Additionally, 223,790 lbs of U3O8 currently sit in inventory at the conversion facility. Barring special situations due to unwarranted third party actions (Peninsula Energy (PENMF)), Ur-Energy boasts a best-in-class cash + inventory balance equating to nearly 31.8% of EV at the current $56/lb spot price. Moreover, note that the current EV/ total resource also represents a low among ISR peers at $12.95/lb.

We continue to value both Lost Creek and the Shirley Basin project using our base LT uranium price forecast of $70/lb. Using a 1.20x NAV8% our 12-month price objective amounts to $1.60 (rounded) per share, thus equating to +44% upside from the most recent close. This comes as we ascribe zero value to the Lost Soldier project which will very likely become a third ISR project in the slightly longer term. 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.

Given that the shares are currently reflecting a 0.84x P/NAV multiple, we feel that much of the low-risk story is currently known, while the solid internal fundamentals (cash in treasury + inventory on hand) are finally being recognized. Lower risk (specifically in the uranium space) is certainly a refreshing change given the recent volatility seen by both domestic and international peers. We stress that the risk is on the upside in terms of production and additional assets not factoring into our valuation methodology.


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