DML - Reiterate Underperform - Credit SuisseReiterate Underperform rating and C$0.50 target price: DML has given back its initial gains after CCO announced the 2018 suspension of McArthur River on Nov. 8th. Our Underperform view on DML is unchanged as we view McArthur's suspension as a band-aid unlikely to impact uranium prices beyond 2018.
We have updated our DML NAV to incorporate a DCF-based approach for Wheeler River based on its 2016 PEA and an in-situ valuation of US$2/lb for DML's other exploration assets. This results in a US$210M NAV, or C$0.46/sh based on a 0.82 CAD/USD, to which we apply a 1x multiple and round to C$0.50. We rate DML Underperform due to our view for oversupplied uranium markets until 2026, our view for low probability of a take-over, and increased competition for scarce uranium project capital.
Cameco unlikely to consolidate DML, in our view: CCO's CEO stated on its Nov. 9th call that "if some Saskatchewan assets came available that were part of the joint ventures we're in, we'd look at purchasing them". On our clarification with the company, those comments related to CCO's operating asset JVs. CCO also reiterated that it is not currently interested in buying greenfields assets (it already owns 30% of Wheeler River).
Wheeler River bumped down the uranium industry greenfield project "pecking order" by Nexgen's July 31, 2017 Arrow PEA: In our view only a handful of the highest return uranium projects will receive capital given our view for uranium market surpluses to 2026. Nexgen's Arrow PEA shows more attractive economics than the 2016 PEA on DML's flagship Wheeler River deposit. Additionally, at 27.6Mlbs/year over the first five years Arrow has the scale to erase our forecasted supply deficits from 2027.