Kivalliq Energy Secures $11.5 Million Financing at Market Premium

At a time when many junior exploration companies are struggling to secure financings – at any price – Kivalliq Energy (TSXV:KIV) has announced it has raised $11.5 million in a bought deal financing agreement at a premium to its market price.

Dundee Securities is leading the financing with a syndicate of Underwriters including Versant Partners, Canaccord Genuity and National Bank Financial. According to the deal they will purchase 16,772,900 flow-through common shares at a price of $0.50 per Flow-Through Share and 7,124,000 common shares at a price of $0.45 for total gross proceeds of $11,592,250.

Based on Kivalliq’s 10 day trailing average share price of $0.38, this works out to a 31% premium on the Flow Through Shares and a 18% premium for the regular common shares. When we add this to the $9.5 million KIV raised in Februrary, the company is flush with cash.

The Flow Though money is earmarked for the continued exploration of company’s 2,528 sq km Angilak property and the delineation of its high-grade Lac Cinquante uranium deposit in Nunavut, while the non-flow through funds will be used for general corporate purposes.

The Lac Cinquante deposit, hosts a NI 43-101 Inferred Mineral Resource of 1,779,000 tonnes grading 0.69% U3O8, totalling 27.13 million pounds U3O8, (15.2 pounds U3O8/tonne) at a 0.2% U3O8 cut-off grade, the Lac Cinquante Deposit is Canada’s highest grade uranium deposit outside of the Athabasca Basin.

So the big question is… Why is this syndicate of financiers scrambling to finance Kivalliq in this market? They obviously feel this particular uranium asset is highly undervalued and a market correction is on the horizon.

If we look at the current Enterprise Value of Kivalliq, (The total market value of a company after subtracting its working capital and adding its debt) we see that KIV is being valued at $50 million. Put another way, the market is paying $1.84 per lb of U3O8 resource KIV has in the ground. (This is based on a $0.40 share price and a post financing structure of about 170 million shares outstanding and no debt).

Let’s put this into perspective, Rio Tinto purchased Hathor for $654 million or the equivalent of about $16 per lb of U3O8 resource in the ground. Yes, Hathor’s Roughrider deposit was much higher grade but it is also only accessible via underground development. Kivalliq’s asset starts at surface and is potentially open-pitable.

Analysts have recently been squawking about Cameco and their stated plan to double their annual production to 40 million lbs of uranium per year by 2018. Cameco recently filed with the U.S. SEC a registration statement on Form F-10 for US$983.9 M of securities. The company has also made similar filings with Canadian regulatory agencies, for the equivalent amount: Cdn$1 billion worth of securities.

Salman Partners analyst, Ray Goldie, recently commented that “These filings were to allow Cameco to offer common or preferred shares, warrants, subscription receipts or debt instruments or any combination thereof.”

He concluded that with Cdn$1,843 M in working capital and just Cdn$795 M in long-term liabilities, and with major spending at its new Cigar Lake uranium mine largely completed, Cameco would most likely issue a billion dollars of debt in order to make acquisitions.

“It is cheaper to buy metals on the equities market than on metals markets, and that cash is a more efficient way to make such purchases than are undervalued shares,” he stated.

What does this all mean for Kivalliq? A major like Cameco will most likely decide to purchase a producing asset before it decides to opt for an earlier-staged developing asset, unless there is synergy with one or more of its currently producing mines. Nevertheless, quality uranium assets are being gobbled up faster than they are being found. Assuming that there are no fatal flaws with the Lac Cinquante project, and Kivalliq continues to expand its resources and de-risk the project – Kivalliq’s market valuation will undoubtedly increase – especially if there is a significant and sustained rise in the spot price of uranium.

As the threat of the end of the HEU (highly-enriched uranium) accord becomes more apparent towards the end of 2012, many analysts believe the price of uranium will begin to rise. They believe there is not enough uranium production, either current or planned, to satisfy reactor needs, initial core requirements, and inventories for new reactors.

Global mined uranium supply was 53,663 tons in 2010, according to the World Nuclear Association. That’s not enough to cover global demand, and so some utilities also use fuel recovered from Russian warheads under the HEU agreement, which has run since the 1990s.

Tim Gitzel, CEO of Cameco, believes Russia will withdraw from the HEU accord by the end of 2013, removing 24 million pounds of supply. “There’s a lot of people who think the HEU agreement is still going to be around,” commented Gitzel in an interview with Bloomberg in December 2011. “We don’t.”

Since acquiring the Angilak Property in 2008, Kivalliq has invested approximately $30 million conducting systematic exploration, including ground and airborne geophysics, geological mapping, prospecting and approximately 48,000 metres of RC and diamond drilling.

With its coffers filled, Kivalliq intends to aggressively continue exploration on its Angilak property. This year’s $20 million work program includes;

• 26,000 metres of core drilling
• 9,000 metres of RC drilling
• Ground geophysical surveys consisting of gravity, magnetics and electro-magnetics
• Continued prospecting to advance high-priority areas defined last year and identify new targets
• Ongoing deposit modeling along with geological, metallurgical and archeological studies
• Continued emphasis on community consultation
• Engineering studies focused on expanding infrastructure to support future programs
• Update the current Lac Cinquante inferred Resource by the second quarter of 2013

Bottom Line

In the current mining equity slump, Kivalliq has had no problem raising money to it advance its uranium project; in fact, large brokerage firms have jockeyed to be included in the recent financing syndicate. This indicates that institutional money believes the future of Kivalliq and the uranium market is bright.

Kivalliq Energy Closes Financing Worth $11.5 Million