quakes99 wrote: Moneysworth et al… Before seeing the results of Dave4444’s PEA exercise using Hathor as a baseline case, I also felt that a bid would come sooner rather than later, but now I’ve changed my mind. Now I’m more inclined to believe that a bid won’t come until after Japan has actually restarted some of their nuclear fleet and this summer’s PEA has been released. Let me explain…
First of all, that PEA exercise really underscored the fact that the eventual sale of Fission has nothing to do with uranium or the historical records being broken by this discovery… it is only about money. In the eyes of a potential buyer,
FCU is simply a money-printing machine… nothing more.
Think of it this way… we collectively own a money-printing machine that we are offering up for sale. At this point in time we can’t definitively tell a buyer how much money it will print, or how fast, as the machine’s behaviour depends on how much fuel (lbs of U3O8) it contains and what printing speed it will eventually run at (the U3O8 contract price). What we can eventually tell the buyer is that we’ve had an independent assessment done to analyze the machine’s behavior (a PEA) and give them an estimate on just how much money it will print based on a firm measure of the fuel level, and a range of printing volumes based on forecast printing rates 5 to 10 years from now. But we can’t supply that information just yet. Maybe by August.
Dave’s PEA exercise gives us an idea as to what that money-printing volume might be. Right now, based on the Winter drilling results we know that the fuel level is somewhere between 106M and 150M lbs. Let’s use 125M lbs for this example:
| U3O8 $CA/lb | 125M lbs | |
| $60 | $7,500 | M U3O8 sales |
| (US$49) | $3,386 | M All in Costs |
| | $4,114 | M Cash Flow |
| | $1,193 | M 29% Buyout |
| | $2.83 | Buyout per share |
| | | |
| $100 | $12,500 | M U3O8 sales |
| (US$82) | $3,386 | M All in Costs |
| | $9,114 | M Cash Flow |
| | $2,643 | M 29% Buyout |
| | $6.28 | Buyout per share |
So, for a fuel level of 125M lbs this money-printing machine could produce between $4.1B and $9.1B, depending on the future U contract price being somewhere between CA$60 and CA$100. That’s
a massive difference of $5B in output from that one single parameter! In the case of Hathor, the buyers were willing to offer the owners 29% of the money-printing machine’s estimated lifetime cash volume after costs. In our case that would range from $1.2B to $2.6B from the table in this example.
Think of it… what would you be willing to pay for a machine that you could buy today for $1B that might print $9B in the future? That’s the dilemma facing the potential buyers, so they will be throwing all their financial analysis and risk management tools at the problem to come up with an offer to put to the owners.
And here’s why I think they’ll wait until they have all the facts before making an offer:
- Only an updated Resource Estimate can clearly tell the potential buyers how much fuel is in the machine. Those with signed CA’s may get early access but the final assays are not yet in so there still remains doubt as to how many lbs it contains.
- The future U contract price still remains a strong unknown. Expectations are that it will rise, but how much and how fast is unclear. More data is needed. Actual reactor restarts in Japan would certainly point to higher prices sooner. But it comes down to “bottom picking” like you would do with technical analysis on any stock you are considering buying. Until a bottom is confirmed, you wait. Once the U spot and contract prices have risen significantly, causing a buy signal confirmation, then you would make your offer.
- FCU Management has already set an expectation of at least $3/share, and the potential buyer needs their acceptance and recommendation to accept an offer. Management holds a large number of shares and has close ties with many major shareholders, so a hostile bid is likely to fail. That makes the minimum offer around $1.3B, using our example of 125M lbs.
- The cost of waiting is significantly offset by the potential gains set by a much higher U price. You, the buyer, know that most shareholders are not going to be expecting to be offered $6/share and would very likely settle for $4, say, if your cash volume analysis showed this money-printing machine could crank out at least $9B, and maybe significantly more if further proving up of the deposit takes it to Key Lake’s 200M lbs or higher. You might be able to get away with offering only 20% of that projected cash volume instead of 29%, in which case you would stand to increase your profit margin even further.
So, in a nutshell, just as potential FCU investors appear to be waiting on the sidelines to see what happens to the U spot price, so too are potential FCU takeover bidders needing confirmation that FCU’s money-printing machine will actually deliver the cash volumes they will expect, as set by the U contract price. Acting too soon has risk… Japan may not restart, U prices may not rise, and they could end up making far less profit from such a large cash outlay. From a risk management perspective, waiting until confirmation of a U price uptrend would result in having to pay a higher purchase price, but would significantly reduce risk and greatly increase the likelihood of much much higher profits in the end.
Anyway, that’s why I think no bidders are publicly coming forward at this point in time. They are likely already discussing many of the other side issues with FCU’s negotiating team, such as spin-offs and contract language, but are going to wait for confirmation of a U price uptrend before deciding on how much to offer. Just my opinion… for what it’s worth. ;-)
Cheers and good luck!