RE:RE:RE:RE:TOP NOTCH GRADES PLUS SHALLOW DEPOSIT it will be NXE getting scooped, not FCU. In case you forget why:
Uranium producers can't bring lbs to market for <$100/lb. Yet spot is $50/Ib... what do you think is going to happen? I am more high conviction on Uranium prices than any other commodity.
Buying Uranium equities today is like buying coal equities when thermal coal was at $50/tone in 2020. The difference is Coal was hated because it's dirty. There is no "green" spin you can put on a coal mine. Uranium is hated because of a branding problem. A marketing problem didn't stop thermal coal from almost 10-bagging from 2020 lows to 2022 highs. The thing Uranium has going for it
-that coal and oil donn't - is it's ESG friendly. This is a green trade. And sentiment is flipping fast. From Diabolo Canyon in Cali, Illinois, French reactors, Korea is now pro-nuclear, even German...
2023 is game on.
***TOP PICK*** NXE CN - No surprise to my usual readers, I am tremendously bullish on NeGen, in both the short and long term. At risk of sounding hyperbolic, this is the most exciting development asset in the world. Period. Arrow boasts economics that catapult's NXE into a top-10 mining company from an earnings perspective, from a single asset. Think about that. It's large, low cost and low capex. The project is the largest development-stage uranium deposit in the world, with a 1-year payback on the $1.3b capex at $50/lb uranium. For context, when in production, they can produce 30mm lbs of u308 a year, or ~20-25% of global annual supply. Saudi Arabia produces ~10% of annual oil supply. It's no secret America needs to quit Russian enriched uranium, so getting assets like this online, in a friendly place like Saskatchewan, is HUGELY important from a national security perspective and for building that domestic supply chain. At $50/lb U308, Arrow will generate annual after-tax net cash flow of $1.1 Bn. At $60/lb, it's $1.25 Bn. And at the incentive price of new production closer to >$100/lb, Arrow would be spitting out $3.39 Bn of annual ebitda.
The economics at NXE are freaky. But I want to provide some context. They will produce twice as many lbs as Cameco, at 1/5th of the cost. They don't need CCO to buy them, because it makes sense for so many people too. Maybe it's Shell or CNQ or Glencore. And that should be scary for CCO... because they need Arrow... why? Well Arrow is capable of producing more pounds than
Cameco's whole portfolio! And CO's economic breakeven is multiples of NXE's.
CCO's cash costs are US$36/lb or C$48 CAD cash costs. Add sustaining costs of $10/lb and $8/lb of care and maintenance and you're looking at $65/lb... on the Cameco's earnings call, management said the incentive price for new production is *US$90/Ib... "People talked about $45 or $50, or maybe where it made sense. But it's not easy to restart things, it's not easy to put greenfield into production. If the last marginal pound from a cost curve basis, prior to a bifurcated market was somewhere in the mid 70's. We wouldn't quarrel with those who have said that the price probably needs to $20 a pound higher than that". NXE's costs are ~$15/lb (I'm rounding up for inflationary pressures from ~$12/lb).
If Uranium goes to $100/lb and production simply can't respond, what happens to the equity? Plug $100/lb spot into our NAV and NXE is C$13.37/sh, almost a triple from here. At $125/Ib, it's almost $17/sh. If you go with a more conservative $75/lb you get a $6b NPV and $2b in after tax cash flow... annually. The draft ElS approval is the big catalyst everyone is waiting. Given the work Leigh and Co. have done on community engagement, environmental efforts and the like, we think the market is discounting the likelihood of this happening incorrectly (far too low). Bottom Line:
Arrow alone could be doing $3-5bn in EBITDA a year if prices go where we think. I am max conviction this is a 4-5x over the next few years.
Greenday wrote: @ daverhughes - Even a MOU between FCU and NXE would capture some of the synergy between the two companies and advance their share prices. Hopefully something is done before a major scoops up FCU or NXE for themselves and FCU and NXE shareholders lose the price advance inherent to their synergies.