Friday, May 24, 2013 · Posted in Uranium, Uranium Companies · by Peter Epstein
Recap- Energy Fuels is an established uranium producer. It will produce and mill at its 100%-owned White Mesa Uranium Mill, 1.2 million lbs of uranium this year. That's about 25% of total U.S. production.
Energy Fuels was trading very cheap to producing peers like Cameco, Uranium One, Paladin and ERA in Australia. EFR was also trading very cheap to non-producing players likeDenison and emerging producersUranerz, Uranium Resources, (URRE), UR-Energy andUranium Energy Corp, (UEC). EFR has 71 million lbs of 43-101 compliant resources, making it a top holder in the U.S.
Strathmore Minerals has 55 million lbs of 43-101 compliant resources. It also has an additional 50 mm historical (non-43-101 compliant) lbs of resources. We won't count those historical lbs.
So, EFR is buying 55 million lbs of uranium resources for $26 million, ($28 million net of $2mm in cash) that's 47 cents per lb. However, Strathmore also owns 2 royalty streams on other uranium projects, one of which is stated in the Company's corporate presentation as being worth $10 million. Assuming that BOTH royalty streams could be monetized for $5 million, EFR is effectively paying $21 million.
But that doesn't include Strathmore's non-core gold property with a Pre-tax NPV of $160 million. Assuming that gold asset could be monetized for net proceeds of $10 million, (presumably worth more), then EFR is effectively paying $11 million for 55 million lbs of 43-101 compliant uranium resources. That's 20 cents per lb.
Combined, EFR and STM will own 126 million lbs of 43-101 compliant resources. Pro forma for the acquisition, with EFR currently trading at 17 cents per share, EFR is trading at roughly $1.15 per lb of uranium. That valuation compares to an average of about $2.55 for peers, [URRE, UR-Energy, Uranerz, UEC and Paladin]. Notice that I didn't include Uranium One, Denison or Cameco in the peer group as they trade at much higher valuations.
Therefore, the new EFR, (pro forma for STM's shares) at 17 cents per share, is trading at a 55% discount to a conservative group of producing / near producing peers. Last but not least, EFR owns the ONLY operating, conventional uranium mill in the U.S. (White Mesa) I believe this mill, with permitted throughput capacity of up to 8 million lbs per year, is worth $100 million. In a stronger uranium market the mill could possibly be spun off into an MLP structure.
Assuming the mill is worth $50 million, then EFR is trading at just $0.75 per lb of uranium in the ground, a 70% discount to the peer group. I really think that the combined company has the components to be a significant player in North America and a compelling takeout target when uranium prices rebound.