Western Uranium Corp.
Symbol: WUC.CNX / WSTRF.US
Industry: Developer, U.S.-based uranium and vanadium
Primary Asset: Sunday Mine, Colorado, U.S.A.
Western
Uranium and Vanadium Corp. (WUC:CSE; WSTRF:OTCQX) was first introduced to
me by a colleague back in the spring of 2016 after which I determined that this
was a classic valuation story where the fundamentals greatly dwarfed the
share price and market capitalization. At the 2016 prices for uranium
($22/lb) and vanadium ($3/lb), I determined that WUC at CA$1.70 was
undervalued by a factor of around 70% and set a $5.25 target price. After a
number of corporate mis-starts and two years of poor pricing, the share price
hit an all-time low this past summer at $0.54 despite a substantial recovery
in uranium and vanadium prices. Accordingly, I decided to look more intensely
at the factors inhibiting the share price and at the outlook for both
commodities in light of trade wars, sentiment, demand and macroeconomic
changes. As a result of this, I advised followers to consider acquiring a
CA$0.68 unit financing being offered last June and later published a report
entitled: "Western Uranium and Vanadium Corp.: Undervaluation Woes are
Ending" (link) and set target prices at six months US$3.40 and
twelve months at US$6.80.
Since then, the shares have advanced from CA$1.40 to CA$2.44, hitting a
new 52-week high today. The shares appear poised for a technical breakout and
continued ascent as the undervaluation continues to dissipate.
Why so bullish?
One glance at the charts of gold, silver, uranium and vanadium and you are
immediately struck with the stark contrast in performance and trend between
these four commodities. I view silver as gold's high-octane little brother
while vanadium is uranium's twin counterpart. Not only do both pairs
frequently occur in nature side by side, they usually have correlated price
movements with silver outperforming (and underperforming) gold, and vanadium
outperforming uranium. Now, if you are an investor covering gold and silver
(as I am), you are considerably more inclined to take a position in uranium
and/or vanadium than you are in gold and/or silver. Regardless of the
fundamentals for the precious metals, they have acted horribly since April
while uranium vastly outperforms gold, and vanadium absolutely smokes silver
with a 600% move since the lows of 2016.
At current prices for uranium and vanadium, WUC controls approximately
US$2.475 billion worth of inventory and at the current $37.5 million market
cap, it is valued at a mere 1.5% of in-ground metal value with both
commodities in uptrends.
Keeping the Sage: The company recently issued a press release updating its corporate affairs profile in
which it terminated its LOI with Australia-based Battery Metals Resources
Ltd. whereby BMR was attempting to purchase the vanadium-rich Sage Mine from
WUC with cash payment. At the time, it was deemed a solid move because WUC
had not yet closed its financing and the sale of the Sage was a
well-thought-out fallback position in the event the funding came up short. As
it turned out, the funding ended up oversubscribed and the urgency of the
backstop facility was eliminated. As a result, WUC retains ownership of the
Sage (and 5,000,000 lb of vanadium) with the proviso that something could
still be on the horizon but at far more favorable terms given the outstanding
performance of vanadium.
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No More Debt: WUC also announced that the "$500,000 promissory
note which was secured by the Colorado and Utah mineral properties acquired
in the August 18, 2014 transaction between Pinon Ridge Mining LLC, a wholly
owned subsidiary of Western, and Energy Fuels Holding Corporation was paid in
full on August 31, 2018. The San Rafael Uranium Project, Sunday Mine Complex,
Van 4 Mine, and the Sage Mine Project which were formerly secured by a first
priority interest are now held by the Company free and clear of
encumbrances." This leaves WUC debt-free and with the improved balance
sheet, they have significantly de-risked the company, which should further
serve to eliminate the deep discount in valuation that still prevails despite
the quadrupling of the share price since April.
Uranium Imports in the Crosshairs: President Trump has been a
champion of American businesses since his inauguration with the imposition of
tariffs intended to level the playing field to the benefit of U.S.-based
companies. The Section 232 Uranium Investigation is now in front of Commerce
Secretary Wilbur Ross with over 800 letters having been delivered. A period
of 270 days may pass now after which a report must be delivered to President
Trump after which a decision will be made. This issue also carries National Security
implications such that in the event of the imposition of tariffs upon uranium
imports, domestic-based uranium resources are going to receive an automatic
and substantial increase in valuation which in kind greatly accelerates the
removal of the current discount in market capitalization for WUC.
Minuscule Share Structure and Technical Picture: With only
28,129,870 shares issued on a fully diluted basis, which includes all
warrants and options, the share float is relatively small creating
significant upside traction in the event that investor demand begins to
accelerate. Furthermore, management and other insider control over 30% of the
issued capital and this always represents positive optics for the prospective
investor.
Technically, the stock needed to overcome the downtrend line drawn off the
2015 peak above $5 and the 2017 high of $2.75 that projected out to $0.90,
which it did in the early summer. It then needed to overcome the 200 dma at
$1.24, which it did later in the summer. The next formidable resistance is at
the 2017 high at $2.75 after which a return to the 2014–2015 highs above $5
is probable.
Conclusion
The recent corporate update combined with the recent oversubscribed
placements raising over C$3.6 million in new working capital continues to
de-risk the company by way of debt elimination and allows the assets (75mm lb
uranium and 35mm lb vanadium) to be priced appropriately and more in line
with corporate peers also residing in the development stage.
History has proven time over time that companies with undervalued
resources will always stay undervalued until the underlying commodity turns
back up. With uranium now in an uptrend after six years of agony and with
vanadium on fire as the fourth pillar in the battery metals quadrilateral,
WUC has few, if any, impediments to achieving full value for its assets and a
market capitalization in line with its peers. I view WUC as a bonafide
acquisition candidate which will only accelerate as uranium and vanadium continue
to advance.
BUY
6-mo. Target: US$3.40
12-mo. Target: US$6.80
[NLINSERT]
Charts courtesy of Michael Ballanger.
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the data provided. Nothing contained herein is intended or shall be deemed to
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