RAYMOND JAMES- FCU
Raymond James analyst David Sadowski said he urges investors to bolster positions in Fission Uranium Corp. (FCU-T).
On Monday, China’s CGN Mining Co. Ltd. announced it has bought a nearly 20-per-cent stake in Fission Uranium Corp. in a $82.2-million deal. It is the first time a Chinese firm has directly invested in a Canadian uranium company.
Mr. Sadowski said the deal “de-risks development financing” for Fission and should fund the Patterson Lake South deposit through the full feasibility and permitting process.
“Pro-forma cash of $90-million should be sufficient to fund several years of additional exploration, feasibility and permitting, clearing the overhang of further small equity financings,” the analyst said. “One could argue that CGN’s 20-per-cent equity control block may give pause to other entities seeking to takeout Fission, but a strategic partnership with such a powerful end-user should lower the hurdle on financing PLS’ large capex …. Accordingly, while the deal is dilutive to our [net asset value], lower financing risk compels us to increase our P/NPV multiple on PLS to 0.6x (from 0.5x), offsetting the impact, and leaving our share price target unchanged.”
Mr. Sadowski moved his NAV per share estimate for 2016 to $1.91 from $2.19. His “outperform” rating and $1.50 target price for the stock did not change. The analyst average is $2.05
“CGN’s financing price of $0.85 per share implies a 60-per-cent discount to our pre-deal NAV on Fission of $2.19 per share – to us an excellent entry point on the stock,” he said. “One could argue that this low price could spur another buyer to make a bid for the company before the deal closes, particularly as CGN’s 20- per-cent equity control block could complicate a takeout bid in the future. However, given the short, six-week timeline to close, as well as the fact that no competing bid emerged during the failed merger attempt with Denison earlier this year, we are comfortable assuming the financing with CGN closes successfully and have incorporated the deal into our financial model.”