UEX Corp T.UEX

Raymond James comments on UEX Corporation

[shakerman640]

According to Raymond James:

https://personal.crocodoc.com/K6cRB9o

UEX Corp.

UEX-TSX

Outperform 2

C$0.80 target price

Hidden Bay Site Visit: Vectoring Towards Discovery

Recommendation

Last week, we visited UEX’ 100%-owned Hidden Bay project, located on the infrastructure-rich eastern edge of the Athabasca Basin, only ~5 km from Cameco’s operating Rabbit Lake mill. The company is wrapping-up a phase 1 regional exploration campaign designed to follow-up on historic drilling, which may have overlooked basement-hosted mineralized potential. Early results have been positive, warrant further follow-up, and suggest UEX could be vectoring towards a shallow discovery; we are particularly excited about the Dwyer Lake target, where a large fluid/alteration system is clearly evident. Drilling on other regional targets (e.g. Mitchell) will start this summer.

Analysis

- Good Initial Results at Dwyer Lake. A total of 25 holes were drilled at Dwyer to test basement potential and as reported last month (see our Feb-26-15 Comment, price $0.29), a significant system has been defined in stable basement rocks, with ~65 m of strong, pervasive kaolinite and illite clay alteration. Given graphite (a key ingredient in the deposition of Athabasca Basin uranium at reduction/oxidation or ‘redox’ boundaries) is also frequently observed and is locally coincident with thin, low grade radioactive intervals, we believe there is a high likelihood of cutting higher grades in future drilling. Determining the system’s controls – appearing to us linked to the intersection of two structures: E-W trending, folded EM anomaly and N-S fault with significant, ~500 m sinistral offset – will be critical to chasing down center of gravity.

- Early Days at Wolf Lake. At the time of our visit, 21 holes had been drilled at Wolf and the program was nearly complete. Results are not yet released, but drill core suggests alteration of target rocks (graphitic, pelitic gneisses) thus far is weaker than Dwyer, to us implying a distal environment, since altered intrusives and cross-cutting N-S and (lesser) E-W faults are indicative of good regional fluid conductivity.

- Potential M&A Notes. Recent regional work at Hidden Bay aims to bolster both contained metal and development potential via new shallow discoveries, but recall, UEX has in recent years been focused on advancing the Raven, Horseshoe and West Bear zones (collectively 39 Mlbs at 0.16% U3O8). Located only a stone’s throw from Cameco’s Rabbit Lake mill (17 Mlbs/yr licensed capacity), the project has strong strategic value. Rabbit has tailings capacity to support mining at current ~4 Mlbs/yr rates until “about 2018”, suggesting a TMF expansion would be required to continue. However, in our view, an elegant solution could be acquisition of UEX for Raven, where profitable mining could be followed by tailings deposition into the water-impermeable open pit. Cameco owns 21% of UEX. We would also be unsurprised to see UEX as a buyer, leveraging both CEO Roger Lemaitre’s significant international uranium exploration experience, as well as recent share price weakness amongst potential targets.

Valuation

Our target is based on a sum-of-the-parts valuation including an in-situ value for Shea Creek, plus a 0.5x P/NAV multiple applied to our DCF(8%)-derived value for Hidden Bay.