Fission Uranium Corp T.FCU

Haywood Securities comments on Fission Uranium Corporation

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According to Haywood Securities:

https://is.gd/5NHt7w

September 3, 2015

Fission Uranium Corp. (FCU-T, $0.75)

Not Rated

PEA Study of Triple R Suggests Strong Economics with Uranium Price Rebound

Robust Economics for Triple R at US$65/lb U3O8: Fission Uranium announced summary results of its maiden National Instrument 43-101 compliant Preliminary Economic Assessment (PEA) for its 100%-owned Triple R uranium deposit, part of the Company’s Patterson Lake South (PLS) project located along the south-western margin of the Athabasca Basin in Saskatchewan. The PEA study is underpinned by a maiden National Instrument 43-101 complaint resource estimate of 79.61 million pounds U3O8 grading 1.58% U3O8 in the indicated category and 25.88 million pounds U3O8 grading 1.30% U3O8 in the inferred category (Table 2). Both the PEA and resource estimate, the latter of which was released earlier this year, were prepared by RPA Inc. Based on a stand-alone mine and mill operation, a uranium price of US$65 per pound U3O8 and foreign exchange rate of C$1=US$0.85, highlights from the PEA study include (all prices in C$). We note that while the PEA uses a significantly higher uranium price assumption (US$65/lb) than current market prices (UxC spot: US$36.75, UxC Long-Term: US$44/lb), the current Haywood uranium price forecast expects spot (US$64/lb) and long-term (US$70/lb) uranium prices in this range by late 2017.

Combined open-pit/underground operation – A total of 4.8 million tonnes (350,000 tonnes per year) grading 1.00% U3O8 from a combined open-pit and underground operation is estimated to produce 100.8 million pounds of U3O8 (assuming a recovery rate of 95%) over a 14-year mine life. It is estimated that FCU will produce approximately 13 million pounds U3O8 annually for the first 6 years of production, likely mostly via open-pit extraction from a maiden National Instrument 43-101 complaint resource estimate of 79.61 million pounds U3O8 grading 1.58% U3O8 (indicated) 25.88 million pounds U3O8 grading 1.30% U3O8 (inferred; table 2). Open-pit mining at Triple R is made possible given the shallow depth of the high grade mineralization (>4% U3O8), compared to other high-grade uranium deposits elsewhere in the Athabasca Basin. Lower-grade material, most of which is situated at depth, will be produced at an annual production rate of 3 million pounds U3O8 per annum during the final 8 years of operation. Using a long-term uranium price of US$65 per pound U3O8, Fission estimates net revenue generated by the project (minus royalties and transportation charges totalling $590 million) to be $7.12 billion, and using an average operating cost of $16.50 per pound U3O8, and net of capital costs (initial and sustaining) and reclamation, “cash flow from operations” over the life of the mine is estimated at $4.12 billion. We note that the R780E zone of Triple R is situated below Patterson Lake (Exhibit 1), which is estimated to average approximately 6 metres in depth in the area of the deposit; the Company identified the use of a dyke and slurry system for water retention at Patterson Lake, costs of which are included in the development of the open-pit mine (estimated at $363 million). We also note that the recently discovered R600W zone, situated approximately 600 metres from the western edge of Patterson Lake, was not included in the study, and could provide significant upside to the project. Finally, we highlight the construction of a stand-alone mill as part of the capital development. The mill would represent the first on the western side of the Athabasca Basin since the closure of the Cluff Lake mine in 2002. The PEA estimates capital costs of a processing facility to be $198 million.

Implications: The PEA for Triple R has arrived just under 9 months after the release of the initial resource estimate in January, and approximately 3 years since the initial discovery of high-grade uranium mineralization at PLS. The PEA outlines a combined open-pit and underground operation with approximately 32.4% open pit tonnage / 67.6% underground tonnage. Open-pit mining is made possible due to the relative shallow depth of the high-grade (>4% U3O8) mineralization at Triple R compared to other high-grade uranium deposits elsewhere in the basin. This in turn allows a greater proportion of the mineral resource to be processed, with the PEA outlining a total of 100.8 million pounds of yellowcake produced from a 105 million pound indicated and inferred resource (assuming a 95% recovery rate). Despite the obvious advantages associated with open-pit mining, we note the presence of Patterson Lake which overlies the R780E zone of the deposit; Fission indicate that a dyke system will be used for water control, although more detail is required to illustrate the method and materials needed to retain water from the lake. We also acknowledge the 10% discount rate applied during the economic evaluation of the project, which we view as relatively conservative given the typical discount rates applied to similar studies elsewhere. We await the results of sensitivity analyses on assumed uranium prices (current base case: US$65 per pound U3O8) and foreign exchange rates (current base case: CAD$1=US$0.85). Finally, the PEA indicates an average mill processing rate of 350 ktpa, producing ~13 million pounds per annum for the first 6 years, reducing to 3 million pounds for the remaining 8 years. The CAPEX assumption of $1.1 billion includes $198 million assigned to a processing plant, we await further details regarding on the breakdown of costs associated with the construction of the mill and associated processing facilities. With the continued advancement of the southwest Athabasca Basin through the economic study of Triple R, plus other discoveries elsewhere in the region, we see Fission as a major player in unlocking the full potential of this revived region, with Triple R standing as a prototype for future projects in the region.