quakes99 wrote: Those of you following the Fission and NexGen sagas are, I'm sure, interested in what market valuations are being assigned to both companies and their assets. To that end I have a compiled a spreadsheet that calculates that information to provide a comparison of the two.
Interestingly, as expected by regression to the mean theory, the valuation spread has been closing recently to the point where NXE is being valued by the market just 10% higher than FCU. Back in March of 2017 that spread was over 70% when NexGen was in its discovery "honeymoon" phase. Now their valuations are moving closer to convergence (which some might say is a sign that a merger may be in their futures).
Here's my comparison table based on Friday's closing share prices & issued shares, outstanding options, cash on hand, debt, etc.
| | Fission | NexGen |
| Project Ownership Share | 100% | 100% |
| Working Capital in hand (estimated) | ~$40M | ~$162M |
| Outstanding Debt | None | US$120M + 7.5% p.a. - convertible |
| Strategic Investors | CGN Mining - 19.9% | CEF - US$120M debt + 8.4% shares |
| Shares held by Management | 7,546,418 | 1,704,715 |
| Shares held by CEO | 4,388,823 | 100,000 |
| Options Granted as of 31 December 2017 | 46,365,000 | 37,858,334 |
| Options % of Issued | 9.55% | 11.16% |
| Maximum Allowable Options % Issued | 10% | 20% |
| Convertible Debt dilution (if converted) | None | 48,083,337 |
| Outstanding Warrants | 0 | 0 |
| Total diluting shares | 46,365,000 | 85,941,671 |
| Total dilution as % of Issued | 9.6% | 25.3% |
| Shares Issued as of 1 January 2018 | 485,263,630 | 339,339,356 |
| Fully-Diluted Shares | 531,628,630 | 425,281,027 |
| Current Share Price as of 5 January 2018 | $0.87 | $3.48 |
| Market Capitalization | $422,179,358 | $1,180,900,959 |
| Enterprise Value (EV) | $382,179,358 | $1,168,900,959 |
| Total NI 43-101 Indicated + Inferred | 108.3M lbs | 301.6M lbs |
| $/lb U3O8 by EV | $3.53 | $3.88 |
| US$/lb U3O8 by EV | US$2.82 | US$3.10 |
| FCU $/lb discount compared to NXE | 9.8% | 0% |
| Consensus Target Price | $1.60 | $5.43 |
| Implied 12-month Upside Return | 84% | 56% |
| Consensus Net Asset Value per share | $1.47 | $5.65 |
| Share Price/NAV | 0.59 | 0.62 |
The $/lb U3O8 by Enterprise Value is essentially how much an acquirer would be paying to own all the company's uranium assets in a takeover at the current Enterprise Value (defined as Market Cap + debt - Cash on hand). So, in essence, that is how much YOU, the investor, is paying per pound of U3O8 when you buy shares in each company.
On Friday, FCU investors were basically paying US$2.82/lb and NXE investors US$3.10/lb to own the U3O8 assets of each company... NXE investors were paying nearly 10% more for a lb of U3O8 or... FCU investors were buying PLS U3O8 at a 10% discount compared to NXE's Arrow, depending on how you want to look at it.
Taking that a step further, the current U3O8 Long Term Contract Price is
US$31/lb... so
the market is essentially saying that the cost to develop each project's lbs into production is about US$28/lb right now... worth US$3/lb in the ground... worth US$31/lb if was being sold into long term contracts at today's prices. So, what happens if U3O8 Long Term prices were to essentially double from here to say US$60/lb, the price most analysts say is needed before miners make enough profits to keep existing mines open and develop new ones? Intuitively, you might say that the share prices of FCU & NXE would double, right? BUT, it doesn't work that way. This is where "
leverage" comes in and can drive share prices up by many multiples more than the underlying commodity.
If the market currently feels that it will cost US$28/lb to develop those pounds of U3O8 at PLS to sell at US$60/lb, then those "pounds in the ground" are now worth US$60/lb - US$28/lb = US$32/lb.... that's over 10x higher value than the US$2.82/lb the market is currently assigning. Yes, that's right...
a doubling of the U3O8 commodity price results in a ten-fold increase in the value of those "pounds in the ground" which would translate into a ten-fold increase in the FCU/NXE share price. The evidence of that is found in the last Uranium Bull Market where share prices of the 500 or so uranium players at that time went up by tens of thousands of percentage points. Right now there are less than 50 companies operating in the Uranium space, so the potential is for even higher gains if all that investment capital sitting on the sidelines was to come into play in such a small number of uranium plays... as Mike Alkin says, putting a pig through a python. Doug Casey says it will be like trying to pass the contents of Hoover Dam through a soda straw. ;-)
However, we are talking about "potential" for gains based on current market valuations and commodity price. Markets are rarely predictable and rational... so the gains could be lower or higher. Only time will tell...
One last thing.
I know a number of you are wondering what will happen to Fission's share price when a new updated Resource Estimate is released in the immediate term. My spreadsheet can provide an estimate on that by doing the reverse calculation... apply the current $ per lb U3O8 to the higher resource pounds, calculate the resulting Enterprise Value and Market Cap, then divide by the shares outstanding to come up with an estimated new share price.
First of all, let's face it... essentially no one other than a handful of investors on the FCU Stockhouse Bullboard are following the PLS story and reading the analyst reports to stay in touch with estimated growth in PLS "pounds in the ground". That's why I used only NI 43-101 published Resource Estimates in my spreadsheet. Those are the only pounds confirmed by an independent consultant, RPA in both cases, so they are the only ones that are certain at this time.
David Talbot of Eight Capital, who I believe to be the most experienced analyst in the uranium space, was estimating back before the Summer 2017 drill program that the U3O8 resource at PLS has grown by over 60% to around 170M lbs. Let's use that as our estimate for this exercise.
Based on a new 170M lbs RE, the share price of FCU should rally up to: | | 170M lbs as per Eight Capital |
| Projected Share Price at current $/lb by EV | $1.32 |
That's if the market continues to value PLS "pounds in the ground" at the same US$2.82/lb after the RE update comes out. But, as I say, markets are not normally rational and predictable.
If the U3O8 Long Term contract price was to double after that... you do the math on a further 10-fold potential increase in the share price. Easy to see then why Rick Rule was telling all the Fission investors at a VRIC 2016 shareholder gathering that when the next bull market comes "you all are going to be dirty, filthy, stinky, slimy rich." Rick Rule is good at math. ;-)
Good luck with your own analysis and due diligence. Every investor is unique, with their own set of investment goals, tolerance for risk, time horizon, investment thesis and style... be it long term buy & hold or a short term trade. Invest according to your own due diligence. It's your money, not mine.
Best of luck with your investments!
John
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Cheers!