On June 4, 2008 David Talbot of Dundee Securities initiated coverage on UEX Corporation (UEX: TSX)
Company Profile (Courtesy UEX Corporation website)
UEX Corporation is a Canadian uranium exploration company formed under agreement between Cameco Corporation and Pioneer Metals Corporation. UEX began trading on the Toronto Stock Exchange in July 2002 and is an active explorer in the Athabasca Basin in northern Saskatchewan, which is the most important uranium-producing district in the world, accounting for approximately 30% of global primary uranium production in 2005. UEX has a total of 19 projects either 100%-owned, joint ventured or under option totaling approximately 390,000 hectares (962,000 acres) located in the eastern, western and northern perimeters of the Athabasca Basin.
UEX operates its 100%-owned Hidden Bay Uranium Project, its Riou Lake Uranium Project and the Black Lake Uranium Project, which is a joint venture with AREVA Resources Canada Inc. ("AREVA", formerly COGEMA Resources Inc.), 87.2% UEX - 12.8% AREVA as of December 31, 2006. UEX has an additional 10 projects under option from AREVA, which includes the Shea Creek Uranium Project, and one project under option from the Japan-Canada Uranium Company, Limited, all of which are operated by AREVA.
Takeaways From The Event
With an initial budget of $30 million and a further ~$10 million from Areva, UEX is primed to report significant news in 2008 including “explorations results, resource estimates, a feasibility study and likely a Project Description to kick off permitting.”
Talbot writes that UEX’s Horseshoe, Raven and West Bear deposits have NI 43-101
compliant resources of 1.6 million pounds U3O8 plus 23 million pounds of historical resources within close proximity to two active uranium mills.” As drilling continues to expand these deposits. Talbot expects to see better grades and increased ounces. In fact, Talbot hypothesizes that “Hidden Bay has the potential to produce almost 40 million pounds U3O8 beginning around 2013 given positive feasibility studies and permitting.”
UEX’s Shea project is made up of 3 world class uranium deposits - Anne, Kianna and Colette. While no resource estimates are available for these projects in the public sphere, Ta;bot infers that Shea Creek could potentially hosts between “118 and 146 million pounds of U3O8 at grades exceeding 3.0%.” UEX is currently focussed on expanding the footprint of the deposit. He writes “Preparations are being made for the sinking of one to two 950m deep shafts and development to support underground resource delineation at Shea Creek. Scoping, geotechnical and hydrological studies are underway with the expectation of filing a Project Description to kick start permitting by year end. Mine construction likely won’t come cheap, but the project could have lower operating costs as grade is king and rock quality appears to be an improvement over many of the other large Athabasca deposits. Dundee hypothesizes that Shea Creek has the potential to produce ~10 million pounds U3O8 annually beginning around 2017 given positive feasibility studies and permitting.”
In the short term, Talbot sees developments at Hidden Bay providing more of a catalyst to UEX’s stock price, notwithstanding “high expectations from Shea Creek. Potential operations at Hidden Bay have the ability to vault UEX into uranium producer status. This cash flow may benefit shareholders by helping UEX reduce the need for future dilutive financings to fund its share of Shea Creek capital requirements.”
Talbot sees UEX as a takeover target. With AREVA being UEX’s partner at Shea Creek, Cameco holding a minority equity interest, development progress, resource growth and better grades “could likely attract an offer from a company interested in obtaining a foothold in the prolific Athabasca Basin.”
Talbot believes that UEX is a core holding for uranium investors. He also notes that UEX’s stock price is strongly correlated to positive exploration results. Talbot initiates coverage with a Buy rating a 12 month target of C$7.65/sh. He bases is target price “on a 2009E discounted cast flow at 10%, adding per share value for 2008E year-end cash non-modeled mineralization at both Hidden Bay and Shea Creek.” As of March 31, 2008 UEX had cash and equivalents of $43.1 million.
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
If you like this post, please take a moment to suscribe to my feed or Stumble/Digg it using the appropriate links at the bottom of this post! You can also post a link to it on relevant forums/bullboards. Also, feel free to debate, discuss or comment on the any of the stocks you see on this page in the comments section.
|