Ur-Energy (TSX: URE; NYSE-Arca: URG) has seen its shares nearly double in the past year, as it gears to become the next U.S.-based uranium producer.
In a July presentation, the Littleton, Colo.-headquartered firm said construction at its Lost Creek in-situ recovery (ISR) operation in Wyoming should be done before September, with production planned shortly after.
Cantor Fitzgerald analyst Rob Chang, who toured the project in July, said in a note to clients that he was impressed with the plant design and management at Lost Creek.
Raymond James analyst David Sadowski points out that “several members of Lost Creek’s management team have experience with — in some cases, running — several other ISR projects in the U.S.”
Both analysts agree that Lost Creek contains several features that could improve operational flexibility and maintenance downtime. These features include: an advanced monitoring system that allows operators to remotely control and automate the entire project; using cone-bottomed decantation tanks instead of flat-bottomed ones to facilitate solid removal; and two temporary surface-storage ponds so that operations can continue while the deep disposal wells go offline for regular maintenance.
The analysts predict that Ur-Energy will start production before September, after a final inspection by the U.S. Nuclear Regulatory Commission.
The junior began construction at Lost Creek — located in Wyoming’s Great Divide basin — last October, after receiving a green light from the U.S. Bureau of Land Management. While development met some resistance from a conservationist group in late 2012, Ur-Energy was able to carry on without much delay.
Lost Creek is slated to churn out more than 7 million lb. uranium at a rate of 1 million lb. per year, at operating costs of US$16.12 per lb.
Once production kicks off, Ur-Energy shouldn’t have any trouble selling yellowcake from Lost Creek, as it secured another sales contract with a U.S. nuclear company in July. The latest agreement calls for deliveries ranging from 200,000 to 300,000 lb. uranium concentrate each year, starting in 2017. The junior noted that the average delivery price was in line with the current published long-term uranium oxide (U3O8) price, but hasn’t released the contract’s terms.
Commenting on the transaction, Chang wrote in a July 3 note that “Ur-Energy now has six uranium supply agreements signed with four U.S. utilities at prices notably higher than the current spot price of US$39.50 per lb., and above our estimated all-in average cost of US$32.70 per lb.” Chang predicts the term is for three years, adding that Cantor Fitzgerald’s “conservative average realized price now averages US$59.60 per lb. over the length of all contracts [2013–2019].”
Two of Ur-Energy’s contracts are slated to begin in the fourth quarter. In a June 2013 initiation report, Chang said Ur-Energy will produce 405,900 lb. U3O8 in 2013, reaching 1 million lb. per year by 2016.
However, Sadowski predicts the junior will sell 100,000 lb. in this year’s fourth quarter, followed by 800,000 lb. in 2014 and 1 million lb. in 2015, before hitting 2 million lb. per year in 2017 with the start-up at the satellite facility at Shirley basin.
Shirley is one of the Wyoming-based assets that Ur-Energy will receive as part of its takeover of Pathfinder Mines. Shirley contains a historic resource of over 10 million lb. averaging 0.21% U3O8. The transaction, set to close shortly, will also give Ur-Energy the Lucky Mc asset — hosting a historic estimate of 4.7 million lb. — and the licensed ISR by-product disposal facility.
To ensure it has enough funds to conclude the US$13.3-million Pathfinder acquisition, signed in July 2012, and construction at Lost Creek, Ur-Energy secured a US$20-million loan with RMB Australia Holdings in June. The proceeds from that loan would also repay an existing US$5-million bridge loan. Ur-Energy intends to pay off the RMB loan with a US$34-million Wyoming industrial revenue bond that it anticipates getting this year.
Chang rates the stock as a “buy” with a $1.55 price target. Raymond James’ Sadowski has a “strong buy” and a $1.80 target on Ur-Energy.
“Though the stock has been a top performer in recent months . . . we continue to expect URE to trend towards producer valuations as it reaches de-risking milestones in 2H13E. Our expectation of a strengthening uranium price during 2014E should also benefit the stock,” Sadowski says.
Ur-Energy closed July 11 down 2% at $1.30, within a 52-week range of 64¢ to $1.37.
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