Energy

This week, Wyoming-based in-situ uranium producer Ur-Energy released a preliminary economic assessment for its wholly owned Shirley Basin in-situ leach operation. On the whole, it indicates better-than-expected results.

With the spot uranium price taking its time to climb back to its November high, investors can take some comfort in knowing that interest in the market remains robust.

Case in point: this week, Wyoming-based in-situ uranium producer Ur-Energy (TSX:URE) released a preliminary economic assessment (PEA) for its wholly owned Shirley Basin in-situ leach operation. On the whole, it indicates better-than-expected results.

As the company’s satellite facility, Shirley Basin is expected to produce 6.3 million pounds of U3O8 over the eight-year life of the mine. The company has slated construction of the facility for January 2017, and is aiming for production in October of the same year. Ur-Energy plans to truck resins from Shirley Basin 175 miles down the road to the Lost Creek mine for processing.

Ur-Energy estimates an operating cash cost of US$14.54 per pound for Shirley Basin. According to Cantor Fitzgerald’s Rob Chang, this figure is lower than the firm’s forecasted US$21.74. The company notes in the PEA that the total cost of uranium production, including severance taxes and operational and capital spending, is estimated at US$31.26 per pound.

Meanwhile, Shirley Basin is estimated to generate net cash flow of US$215.9 million (before tax) over its life. The project’s before-tax internal rate of return is calculated to be 117 percent, along with a before-tax net present value of US$146 million with an 8-percent discount rate starting in 2017. While the costs associated with Shirley Basin are higher than expected, both Raymond James’ David Sadowski and Chang are not discouraged.

“The PEA demonstrates the viability of the Shirley Basin Project as the next satellite In-Situ Recovery project for Ur-Energy,” Chang noted in a email to clients, adding, “[i]n addition, the PEA forecasts have come in better than our expectations.”

Indeed, as Steve Hatten, vice president of operations, noted in the press release, “[w]e are very pleased to confirm the solid prospects for the Shirley Basin Project through the PEA. Production from our latest project will not only enable Ur‐Energy to produce from a second low cost resource base, but will allow us to fully utilize the Lost Creek processing facility at its designed capacity.”

In a note to clients, Sadowski said that despite the higher costs, “economics are nevertheless very robust, suggesting a positive production decision is likely with only a small increase in prevailing uranium prices.”

Where to go from here? 

Shirley Basin currently has a Source and Byproduct Material License from the US Nuclear Regulatory Commission and a Permit to Mine from the Wyoming Department of Environmental Quality — Land Quality Division. Ur-Energy has started the process of amending the permit and license for ISR operations. According to the company, the PEA is based on the assumption that construction activities will start in January 2017, followed by production in October. When all the permits have been secured, construction at Shirley Basin should only take 10 months.

During Wednesday trading, the company’s share price remained relatively flat, ending at $0.98. Raymond James holds an “Outperform 2″ rating for the company with a price target of C$1.90. Likewise, Cantor Fitzgerald holds a “Buy” rating at C$2.30.

 

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any of the companies mentioned in this article.

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