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Given a ~40% share decline since the date of our initiation report (October 22) and well surpassing our -30% price objective target (C$1.34) at the time, we feel that though we still have certain reservations about the story, we can start being more constructive on the name, from a valuation standpoint at least. Though numerous initiatives are on-going, concrete development milestones are still lacking. This pertains to developments on the resource expansion front, a yet-to-be concluded production (toll-milling) agreement and on-going questions surrounding the proposed Maverick CPP. It’s now worth at least having a conversation given a potential entry point at C$1.15 (0.69x NAV) compared to the C$1.88 ($1.12x NAV) at time of our initiation report. Questions remain however.
Ahead of any actual toll milling agreement for production at the White Mesa mill, we continue to value the Sunday Mine Complex at a $5.50/lb in-situ value. Factoring in the other portfolio assets along with current corporate adjustments and a NAV multiple of 0.80x, we maintain our in-situ based price objective (12-months) of C$1.34 per share. Our price objective equates to +16% upside from the most recent close.
TAKING A CLOSER LOOK, HOWEVER QUESTIONS REMAIN...
WUC’s key property is the Sunday Mine Complex (SMC) which is currently being mined (ore being stockpiled) with an eye to negotiate a toll milling agreement with Energy Fuel’s (UUUU) White Mesa mill. Longer term, the company will be looking to develop the San Raphael complex as a second uranium production area while also providing in-house processing given the proposed Maverick Processing Plant. Though a lot of opportunity presents itself to the company at present, numerous unknowns remain which lead to our conclusion that the current share price is somewhat overvalued. These specific unknows include:
Updated Resource Statement at the Sunday Mine Complex + Preliminary Economic Assessment (PEA)
Toll milling/sales agreement with Energy Fuels with regards to the White Mesa Processing Plant
Economics & financing plan for the proposed Maverick Central Processing Plant (CPP)
SUNDAY MINE COMPLEX
The SMC hosts six different mines. These are the Topaz, West Sunday, Sunday, St. Jude, Carnation, and most recently, the GMG. These mines have had numerous owners dating back to the 1960s, some of which included Union Carbide Corporation, Atlas Minerals, International Uranium Corp and Denison Mines (DNN) and most recently, Energy Fuels (UUUU). The most recent historical SMC production was conducted by Denison Mines between 2007-2009 when production totaled 503,558 lbs of uranium along with 2.846M Kg of vanadium. Western Uranium & Vanadium acquired the SMC in 2014. Mining is currently underway at the Sunday, Carnation, St. Jude and West Sunday mines. Permitting for the Topaz mine will be contingent on modifying the current Plan of Operations. Management is currently determining the best way to proceed with the permitting of Topaz given the requirements needed from the Bureau of Land Management (BLM).
Drilling: the primary objective is to define additional mining areas utilizing underground horizontal drilling. This alternative to surface drilling aims to identify new high-value targets for mine development and support an ore resource upgrade program, defining additional resources for a NI43-101 technical report. Of note is that both longhole and shorthole drilling efforts have already begun on mineralized areas encountered while drifting to the GMG ore body. GMG has been previously identified as having the potential to be the largest (in terms of grade and quantity) ore body from the entire Complex however the size and scope has yet to be quantified.
Production: The goal at the SMC is to achieve a daily ore production rate of 500 tons by 2025 – this would yield approximately 3,000 lbs of uranium per day and an annualized run-rate of 1.0M lbs of uranium production (along with an estimated 6.0M lbs of vanadium).
Toll Milling: Discussions with Energy Fuels have begun in order to potentially schedule a milling run to begin sometime later in 2024 or in 2025 at the White Mesa mill, the only operational conventional uranium/vanadium mill in the US. Though initial discussion concerning delivery of mined material from the SMC have already begun, WUC is currently awaiting a Letter of Intent from Energy Fuels to understand the terms of this ore buying program. If a mutually beneficial arrangement can be established, WUC could pivot its current mining operations to begin deliveries of uranium/vanadium mined material in as little as 30 days at annualized quantities up to 250,000 lbs of uranium and 1.0M lbs of vanadium.
ONE (OR TWO?) MINERAL PROCESSING PLANTS IN DEVELOPMENT ?
Since 2023, the development of the proposed Maverick Minerals Processing plant has progressed on multiple fronts. If built, the plant would be located in Emery County, Utah just four miles from the San Rafael Deposit. The land acquisition for the plant was finalized in Q2/2023 while the permitting initiatives and plant design began in Q3/2023. Since the beginning of 2024, the baseline data required for submission for the permitting applications has been on-going with data being collected from the onsite meteorological towers. A final plant and animal study was since completed. The study confirmed that the site is clear of endangered plant life that is only observable during the spring growing season. Additional consulting commitments were made to advance the licensing and development with Precision Systems Engineering (PSE), a leading engineering, and design consulting firm headquartered in Sandy, Utah. A preliminary engineering design and cost estimate for a 500 ton per day mill is expected to be released later this year or in early 2025. Using a patented kinetic separation process, the benefits are seen in terms of cost savings and operational efficiency. As espoused by management, the kinetic separation process leads to savings in both transportation and processing seeing as up to 90% less material is needed to process the same amount of material as from a conventional mill. In addition to lower power consumption and increased output, economic recoverable resources are expected to be higher due to the use of lower cut-off grades. The plant design parameters continue to target annualized uranium production of 1.0M lbs of U3O8 with a potential expansion to as much as 3.0M lbs per year. Though the cost estimate has yet to be released, a ballpark figure is currently around the $75.0M range.
As announced on October 15, 2024, Western closed the acquisition of a second property purchase. This latest purchase (for $830,000) was for a 900 acre property located in Montrose County, Colorado. Located 25 miles from the Sunday Mine Complex, this property marks a second proposed processing plant. If built, this plant would take the entire mined feedstock from the SMC, thus making toll milling via the White Mesa Mill redundant. Both Maverick and this latest SMC plant proposal will likely be designed for potential intake from third parties as well. All other details remain unknown at this point.
CURRENT RESOURCE ESTIMATES HARDLY JUSTIFY THE CONSTRUCTION OF A PROCESSING PLANT
The main hosts for uranium-vanadium mineralization in the Sunday Mine Complex are fluvial sandstone beds assigned to the upper part of the Salt Wash Member of the Jurassic Morrison Formation. As per 2015 NI43-101 compliant Technical Report, The Sunday Mine Complex currently hosts just over 1.0M lbs U3O8 in the Measured & Indicated category (grading 0.25% U3O8) along with 1.9M lbs U3O8 in the Inferred category (grading 0.36% U3O8). At a global resource of just 2.9M lbs, we hardly see this as sufficient to justify the construction of a processing plant. The same logic goes for San Rafael with a global resource of 4.3M lbs. With an estimated price tag of ~$75M and at a proposed capacity of 1.0M lbs per year, we hardly see the need for such an endeavor as a good allocation of capital. This point is made that much more pertinent given the deposit’s close proximity ~180km to Energy Fuels White Mesa mill which is currently licensed for 2,000 tpd and up to 8.0M lbs annually. Needless to say, the White Mesa mill has more than enough excess capacity for additional intake. Additionally, the San Rafael deposit is also located ~140km from IsoEnergy’s Shootaring Canyon Mill. Given the excess capacity available at the nearby White Mesa mill, we would prefer if the company would concentrate on drilling out the resource at San Rafael and the SMC rather than devote resource to purchasing land and pushing for the construction of the Maverick (or SMC) mill.
Company-wide, the current resource estimate includes various NI43-101 compliant estimates along with one JORC compliant estimate for the Hansen/Taylor Ranch deposits. A resource for both uranium and vanadium content has been estimated.
LOWER, HOWEVER STILL TRADING AT HIGHER EV/LB MULTIPLES VERSUS PEERS
When compared to flagship projects from US focused, non-production peers, on an EV/lb basis, Western trades at one of the higher multiples, partly due to the relatively limited nature of the current SMC global resource of “just” 2.9M lbs. That said, Western comes out at the top of the valuation spectrum at $20.03/lb, a figure well ahead of the non-producing peers (ie, excluding Ur-Energy and enCore Energy). This figure is considerably higher than Laramide Resources’ (Churchrock Project) $3.38/lb and GTi Energy’s (Lo Herma) $0.93/lb. We note that Anfield Energy’s (Velvet Wood) equates to $19.71/lb is influenced by the current takeout offer from IsoEnergy (ISO), as announced on October 2, 2024.
This high EV/lb metric is further seen when extending the resource to include all tier-1 projects. In Western’s case, tier-1 would include the Sunday Mine Complex along with San Rafael, thus increasing the resource (all categories) to 8.2M lbs. In any case, Western’s Tier-1 EV/lb of $7.11 still ranks at the top of the peer list which averages $3.13/lb.
The high EV/lb multiple is not only a function of Western’s rather limited tier 1 global resource but we would argue that the company is aggressively valued with the market already pricing in several aspirational items (the Maverick CPP, a toll-milling agreement with Energy Fuels and resource expansion) which have yet to become reality.
VALUATION
Ahead of any actual toll milling agreement for production at the White Mesa mill, we value the SMC at a $5.50/lb in-situ value and provide the corresponding in-situ sensitivities. Factoring in the other assets along with current corporate adjustments and a target NAV multiple of 0.80x, we maintain our in-situ based price objective (12-months) of C$1.34 per share. This equates to a modest upside of +16% from the most recent close (December 9, 2024). Shares of Western Uranium & Vanadium currently trade at a 0.69x NAV multiple. For context, this multiple is near the median of our current uranium coverage list. Our US uranium coverage list current includes producers such as Ur-Energy (URG, currently at a P/NAV of 0.56x) and enCore Energy (EU, current P/NAV of 0.98x).
Lastly, we acknowledge the possibility of co-production of vanadium resource however all is contingent on the signing of a uranium toll milling agreement. Any potential toll milling agreement will continue to be the overarching value driver.
CONCLUSION
We continue to see Western Uranium & Vanadium as a company very much at the crossroads with plenty of ambitious plans on the horizon however in need of some concrete development milestones in the near term. These concrete development plans include actual economic projections for the proposed Maverick CPP, a possible PEA and some concrete resource growth at the SMC. Though we think the initiative to build the proposed Maverick mill is completely unnecessary, any positive news item on any of these fronts (or a change in strategy) will warrant a thesis adjustment on our end. Concrete development milestones are now needed.