Shares of Ur-Energy (URE-T, URG-X) rose 5% to 99¢ on Oct. 5 after the Bureau of Land Management approved the company’s plan of operations for the Lost Creek uranium in-situ recovery project in Wyoming. The record of decision (ROD) is the final regulatory hurdle the company needed to clear before starting construction and production, leading some analysts to believe a re-rating of the stock could be imminent.
Construction will begin this month and first production is slated for the early summer of 2013. The Colorado-based junior expects to invest between US$30 and US$40 million in the project over the next six to nine months.
The project in Sweetwater County is currently expected to produce more than seven million pounds of uranium yellowcake (U308) at a designed rate of one million pounds per year.
“We urge investors to add to positions on reduced permitting risk, imminent transition to development, minimal financing risk and attractive valuation,” David Sadowski, a mining analyst at Raymond James in Vancouver wrote in a research note on Oct. 9. Sadowski has a strong buy rating on the stock and a six-to-twelve month target price of $1.80 per share.
Ur-Energy now has received all of the permits and licences it needs to produce uranium at Lost Creek. It received its licence from the U.S. Nuclear Regulatory Commission in August 2011 and a permit to mine from the State of Wyoming Department of Environmental Quality (WDEQ) in October 2011. It has also received the necessary permits to install and operate Class I water disposal wells from the WDEQ and the U.S. Environmental Protection Agency. It was also granted an aquifer exemption that allows the company to undertake injection activities in the production well fields.
Permitting also will allow the construction of a two-million-pounds-per-year in situ uranium processing facility. Engineering for the process facility is complete and mine planning is at an advanced stage for the first two mine units.
Lost Creek is in Wyoming’s Great Divide Basin and the deposit is about 4.8 km long with mineralization occuring in four main sandstone horizons between 96 metres and 213 metres in depth.
Ur-Energy updated the project’s preliminary economic assessment in April 2012 and estimated the project would generate net earnings over its lifetime, before income taxes, of US$283 million from the production of 7.38 million pounds of U308. The internal rate of return at an 8% discount rate was calculated at 87% and the net present value at US$181 million. Operating costs were estimated at US$16.12 per lb. uranium produced, with the total cost of uranium production, including all required capital spending, at US$36.52 per lb.
In Toronto on Oct. 9 the company closed at $1.00 per share within a 52-week range of 64¢ and $1.49. The company has about 121 million shares outstanding.
“Ur-Energy trades at 0.46 times price to net asset value, versus Denison Mines at 0.76 times and our pre-Fukushima developer/explorer average of 0.71 times,” Sadowski notes. “[It] also trades at US$1.32 per lb. resources (66 million lbs), a large discount to its closest peer, Wyoming developer Uranerz Energy, trading at US$5.91 per lb. We believe this disparity reflects several years of permitting delays at Lost Creek. However, with all major permits now received and construction imminent, we expect this discount to close as URE re-rates towards developer valuations.”
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