URE.TO Ur Energy snips from Sprott report:
FEBRUARY 14, 2007
SPROTT SECURITIES INC. Pg. 84
Ur-Energy Corporation
(URE - C$4.05, TSX)
Recommendation: BUY Target Price: C$5.10
Shares Outstanding:
Basic 73.4 MM
Fully Diluted 79.2 MM
Management 3.6 MM
Market Capitalization C$320.8 MM
Market Float C$306.2 MM
Cash $28.7 MM
Debt Nil
Average Daily Trading Volume 760,746
High-Low (52 Week) C$4.70 – C$1.07
Source: Company reports, Sprott Securities estimates
Initiating Coverage On An Emerging US Based Producer
Ur-Energy (URE) is an exploration and development company with both late and early stage uranium projects based in North America. The Company was incorporated in early 2004 and began trading on the TSX in late 2005. The Company’s primary assets are its Lost Creek and Lost Soldier properties, situated in the Great Divide Basin of Wyoming. It should be noted that Wyoming is a prolific uranium producing state with over 200 MMlbs of production. In conjunction with Lost Creek and Lost Soldier, Ur-Energy has the Bootheel, Radon Spring, Horth Hadsell, Toby, and Kaycee properties situated in Wyoming, which have a previously defined historic uranium resource of approximately 49 MM lbs U3O8. Further enhancing its US position, URE recently acquired early stage concessions through 79 Mineral Leases that contain approximately 46,363 acres in Harding County, Northwest South Dakota. In Canada URE is engaged in exploring for high-grade unconformity style uranium deposits in the Thelon Basin of Northern Canada and with. Triex Minerals Corporation (TXM, TSXv) in the Hornby Bay Basin located in the Western Arctic.
US Assets in Prolific Uranium District
Wyoming hosts in excess of 40% of America’s uranium resources focused within three main geological basins, The Powder River, The Shirley and The Great Divide Basins. At present Cameco produces within the Powder River Basin and represents the only active ISL operation in the state. Ur-Energy is actively progressing its Lost Creek and the Lost Soldier deposits towards production, anticipated for Q4/08. The Lost Creek and Lost Soldier properties have a defined NI 43-101 compliant resource of 24.9MMlbs. The Company is actively advancing these deposits and as the two deposits lie adjacent to one another a satellite-operating concept similar to what is being attempted by Energy Metals Corporation (EMC) at its Texas in-situ leach operations could be applied.
US Assets- The Primary Focus
Ur-Energy has focused its attention and efforts on becoming a US based Uranium producer. The Company has systematically acquired properties and performed resource drilling to convert historic resources into NI 43-101 compliancy at both Lost Creek and Lost Soldier. In parallel with resource definition the Company has diligently progressed through significant fieldwork, a better understanding of the Lost Creek and Lost Soldier deposits. During 2006 the Company began and completed necessary baseline environmental data collection surveys on the two properties. Environmental water quality baseline testing has been completed and radiological baseline monitoring has been initiated and is on-going. Most importantly the company has successfully completed pump testing on its Lost Creek property allowing for a detailed understanding of the hydrological characteristics associated with the sandstone media hosting uranium mineralization. In 2007 the Company is budgeting approximately $7.0 MM for further drilling, pump testing, water quality testing, and environmental baseline studies at its Lost Creek and Lost Soldier properties.
Why We like Ur-Energy:
1. Near-Term Production: URE has aggressively advanced its Lost Creek and Lost Soldier deposits throughout 2006. We expect further development of these properties through 2007 and ultimately production should begin in late Q4/08, ramping to full production in H2/09 at an annual rate of 1.0 MM lbs per annum. Environmental baseline studies are in progress; initial vegetation sampling and analyses are ongoing as is a field study associated with the socio-economic impacts of the operation. The Company has successfully completed hydrological well testing on both properties, which indicate that they will be amenable to in-situ leach processing. Both the Lost Creek and Lost Soldier Properties have a 43-101 resource of 24.9MMlbs of uranium at an average grade of 0.061%. The deposit is located at relatively shallow depths (400-500 ft) compared to other ISL deposits and as such the cost of well field construction will likely be significantly less than deeper operations located in other uranium producing basins.
2. Focus on The United States and ISL Extraction: URE is levered to US production within a period when security of US based supply is of utmost importance. Though ISL at times is considered more art than science and the production ramp can at times be difficult it is environmentally low impact and proven to be a relatively low cost method of extraction. With URE’s experienced management team confidence can be gained that the company should have few issues bringing the Lost Creek and Lost Soldier deposits into production.
3. Potential Production Growth In Wyoming: Wyoming hosts in excess of 40% ofAmerica’s uranium resources focused within three main geological basins; The Powder River, The Shirley and The Great Divide Basins. At the present time Cameco produces within the Powder River Basin representing the only active ISL operation in the state. URE owns 100% of two advanced properties in the Great Divide Basin and several other properties with historic resources. We believe that once Lost Creek and Lost Soldier are put into production it will then focus its attention on its other regional properties and start the process of establishing a 43-101 resource and ultimately putting another deposit into production. As previous owners have extensively drilled these properties, Bootheel, Radon Spriing, Horth Hadsell, Toby, and Kaycee and an accurate database exists that outlines a historic resource. The experienced gained by taking the Lost Creek and Lost Soldier deposits through to production should allow the Company to efficiently put all future projects into production.
4. Production Around The Corner: We have modeled URE starting production in 2009 with its Lost Creek deposit coming on line and ramping to full production in 2010 at 1.0 MM lbs per annum. We have forecast the company bringing its Lost Soldier into production in 2011 and hitting full production in 2012 at 1.0 MM lbs. In total we have modeled URE producing 2.0 MM lbs per year of U3O8 at a conservative average cash cost of $25.00/lbs over a mining life of 14 years. We believe that upside remains in our production forecast, as the Company should continue to add further resources at each property through its active exploration program. We have based our production forecast on the company striking a toll agreement with one of the area players. Based on this scenario we have modeled capex for the resin plant to be $16 MM and a tolling service charge of $3.0/lbs U3O8. We have model that capital outlays will be paid for with a combination of cash on the balance sheet and operational cash flows. We have given further value to the Company’s historic resources as we have valued them at $3.50/lbs in the ground. Based on these assumptions we have calculated the total value of the company at approximately C$365 MM.
5. Further Value Through Strategic Database: URE has been diligent in assembling a strategic database on its properties and in some cases its competitor’s properties. The database allows the Company to enhance its overall understanding of its properties and hence target its drill program at delineation and conversion of historic resources into NI 43-101 compliancy. As well, the database provides the Company leverage when dealing with its competitors as the data could streamline drill programs and hence save a competitor capital, while shortening the time it may take to put an ISL field into production. We believe the company should be able to monetize this database by receiving royalties or possibly earn-ins on projects going forward. Currently we do not give the company any value for this database.
6. Management Has What It Takes: Bill Boberg the CEO and Director of URE has over 35 years experience investigating, assessing and developing a wide variety of mineral resources in a broad variety of geologic environments in Western North America, Africa, Asia and South America. Bill has over twenty years experience exploring for uranium in the continental US with particular emphasis on Wyoming. He has worked for Hecla Mining Company, Anaconda, Conoco Minerals, World Nuclear, Kennecott, Western Mining Corporation and Canyon Resources, holding management positions in most of these companies. While with Conoco he discovered the Moore Ranch uranium deposit as well as several smaller deposits in Wyoming's Powder River Basin. While with World Nuclear he managed a nationwide uranium exploration program, which significantly increased the company’s reserve/resource base as well as making new deposit and new uranium district discoveries. Through Bill’s guidance the company has assembled a strong uranium team with over 400 yrs of combined experience. We believe that this is quite a testament to the leadership and knowhow of Bill as human capital in the uranium space is in severe shortage. As such we are confident that the management team at Ur-Energy will be more than capable in transitioning the company from a development to a production Company.
7. Valuation: We have divided our valuation for URE into 2 components 1) A DCF derived NAV 7.5% for its Lost Creek and Lost Soldier properties, 2) $3.50/lbs applied to the Company’s compliant historic resource base. In total we derived a blended NAV for Company of C$5.10 per fully diluted share. As such we are initiating coverage with a Buy recommendation and a C$5.10 target price based on a 1x multiple of our blended NAV.
We believe that there remains upside to our valuation as URE moves closer to production we could see the Company being valued at 1.5x NAV, which would put URE’s multiple in-line with other uranium companies advancing towards production.
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