As a preface to my remarks, it should be known that Western
Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX) CEO George Glasier
was the founder of U.S.-based Energy
Fuels Inc. (EFR:TSX; UUUU:NYSE.American), currently the second-largest
producer of uranium in the U.S. George departed EF in 2010. After, in 2012,
EF acquired a number of assets from Denison Mines, including the
Colorado-based Sunday Mine Complex (SMC). After founding Western Uranium
Corp. in 2014, George knew the Denison asset package intimately from earlier
work and was quick to respond when approached by Energy Fuels, which, at the
time in need of cash, notified George they were putting some or all of the
Denison assets on the block. With very little hesitation, WUC acquired the
SMC and that quickly became its major asset.
After this savage downturn in uranium pricing, since Energy Fuels owns the
White Mesa Mill (WMM), which stands close to the SMC, consensus thinking in
the uranium space was that the ore from WUC's SMC would need to be processed
at the WMM, thus placing WUC in a captive position with the command position
being held by UUUU. As Nov. 28's press release would indicate, this consensus thought is
in error.
Recent weakness in the share price stems from an interview given by Energy
Fuels' CEO Mark Chalmers in which he indicated that the company does not plan
to accept ore from any other developers and will instead process ONLY ore
from iitts existing reserves. This spooked investors in WUC as they were
given the impression that the $2 billion of in situ ore sitting at the SMC
would be locked away in feasibility limbo with "no place to go."
That is, categorically, rubbish. With vanadium at record price levels and
uranium in full recovery mode, there is no shortage of producer/users of
vanadium seeking out new sources of vanadium given that China has gone from
net exporter to net importer due to changes in construction safety laws
pertaining to steel strength all in the past twelve months.
Secondly, while you will never see this in print, sources close to me have
suggested that there have been several high-level approaches by Energy Fuels
to Western Uranium regarding a possible deal, but that the terms were not
friendly to WUC shareholders and were soundly rejected. This explains the
recent interview whereby Chalmers is inferring he has sway over WUC's
immediate future development plans. It is nothing other than gamesmanship
designed to hurt the stock price and exert pressure on George Glasier to
yield to a less-than-friendly deal.
The press release serves to refute the ploy as there is a long line of
suitors desperate for access to the 35 million (plus) (35Mlb+) pounds of
vanadium worth $1.13 billion located at the SMC. In my view, the corporate
strategy is sound. The company intends to increase the historical resources
at the SMC by way of an aggressive underground drill program while seeking
out offshore partners with whom to process the ore. By the end of the
program, the 35Mlb V2O5 resource will be increased and the replacement value
per share will be significantly higher than it is today—which is exactly what
Energy Fuels CEO Mark Chalmers sees—hence, the gamesmanship.
In review, the company was first highlighted in this space on Aug. 30 at
CA$1.55, when I penned the introductory piece entitled Western Uranium and Vanadium: Undervaluation Woes are Ending.
I laid out a base case for a US$3.40 target price to the end of February 2019
and a target price of $6.80 by Aug. 30, 2019. Now that the company has
announced intentions to redefine the resources of uranium and vanadium by way
of a reopening of the SMC and subsequent underground drilling program, those
targets are subject to revision as the historical resources are upgraded in
scale (tonnage and pounds) and certainty (Indicated/Inferred/historical).
My analysis is based on historical resources backed up by documentation
from the 2014 acquisition of the SMC from EF by WUC. While they are believed
to be accurate, they are by no means 43-101 compliant, which will be resolved
and possibly enhanced (materially) by way of the upcoming Q1/2019 underground
drill program. Using only the historical resources as a benchmark, the table
below indicates values based upon a percentage of in-ground or in situ metal
value (ISMV).
Depending upon market conditions and sentiment, ore bodies or deposits can
be valued far differently and can also be affected by location. While the
first two conditions are challenged due to tax-loss seasonality and trade war
uncertainty, the location of the SMC in a mining-friendly environment like
Nucla, Colorado, can only be a plus, especially with Section 232 coming.
Section 232 is a petition whereby the petitioners claim that "[the
United States] cannot afford to depend on foreign sources—particularly
Russia, and those in its sphere of influence, and China—for the element that
provides the backbone of our nuclear deterrent, powers the ships and submarines
of America's nuclear Navy, and supplies 20% of the nation's
electricity."
If they get their way, domestic uranium resources will carry a premium to
imported uranium, and companies such as WUC will find the valuation of said
assets substantially enhanced. While a market cap around 1% may have been
appropriate during the bear markets in uranium and vanadium, the arrival of
the new bull in both markets warrants a valuation closer to 3% with a
favorable Section 232 outcome warranting a valuation closer to 5%.
All numbers in U.S. dollars
The next table is not the work of the author but rather a
"work-up" I borrowed from a fellow shareholder. Nonetheless, the
numbers are certainly realistic, with interviews in which management has
indicated mining costs at around $300/tonne, which would include mining,
transportation, toll-milling and SGA costs. The variable would lie in the FOB
costs of moving the ore to an offshore locale for processing. But even at
$500/tonne, the profitability is substantial, particularly in light of the
vanadium price, which remains WUC's primary focus.
Last point on the topic of shipping. Circulating in the blogosphere is
once again a concerted slogging campaign regarding WUC's ability to ship ore
from the SMC without some convoluted permitting snarl as if the rock is was
shipping was refined uranium ore as in U3O8, otherwise known as yellowcake.
What I did was this: I picked up the phone and made some inquiries.
Point One: What WUC intends to ship for offshore processing is vanadium
ore, whose uranium content is no greater than a shipment of coal or iron ore
might have.
Point Two: There are currently zero restrictions for shipping
unrefined uranium ore. (If uranium content passes a certain threshold, it can
still be shipped but with an export license plus a source material license.)
Point Three: The offshore parties currently showing interest in the vanadium
are going to be responsible for the receipt of the vanadium ore for testing
and do not foresee issues.
Furthermore, after speaking to my customs agent pal this morning, it would
appear that dozens of shipping companies have U.S. Department of
Transportation certifications in place for handling vanadium ore with uranium
content below a certain threshold. The procedures for handling SMC ore will
be no different than procedures for handling gold, copper or zirconium, all
of which have uranium content, once again underscoring the dangers
surrounding chatrooms, social media, and irresponsible blogsters spouting off
without learning the art of fact-checking.
I conclude this missive by advancing the premise that with 2018 coming to
a rapid close, the outlook for the uranium and vanadium space in 2019 is
outstanding, as this is the first "up" year in seven. Western
Uranium & Vanadium Corp. closes out the year up 102% and stands a very
real chance of being revalued sharply higher than the current $2.00 share
price level in the very near term, based upon the reasons mentioned above.
I would urge current and new prospective investors to ignore the
"noise" associated with gamesmanship and focus instead upon the
ultimate prize, which is grounded in the ultimate value of the asset
represented by the SMC—a fully-permitted, Colorado-based mine.
I view recent weakness in WUC as a superb buying opportunity.
[NLINSERT]
Charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
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no liability for any loss arising from the use of the data contained on this
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