Shares of Ur-Energy(URE-T, URG-X) rose 5% to 99¢ on Oct. 5, after the U.S. Bureau of Land Management approved the company’s operation plan for the Lost Creek uranium in-situ recovery project in Wyoming’s Sweetwater County.
The record of decision 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 mid-2013. The Colorado-based junior expects to invest between US$30 million and US$40 million in the project over the next six to nine months.
The project is expected to produce more than 7 million lb. uranium yellowcake (U3O8) at a designed rate of 1 million lb. 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, writes in an Oct. 9 research note. Sadowski has a "strong buy" rating on the stock, and a six- to 12-month target price of $1.80 per share.
Ur-Energy has received all of the key 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 Wyoming Department of Environmental Quality (WDEQ) in October 2011. It has also received permits to install and operate class-one water disposal wells from the WDEQ and the U.S. Environmental Protection Agency, and was granted an aquifer exemption that allows the company to undertake injection activities in the production well fields.
The permitting allows the construction of a 2 million lb. per year in-situ uranium processing facility. Engineering for the facility is complete, and mine planning is at an advanced stage for the first two mine units.
Lost Creek is located in Wyoming’s Great Divide basin. The deposit is 4.8 km long, with mineralization occurring 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 estimates the project will generate US$283 million in lifetime net earnings, before income taxes, from producing 7.38 million lb. U3O8. The internal rate of return at an 8% discount rate is calculated at 87%, and the net present value at US$181 million.
Operating costs are 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 per share within a 52-week range of 64¢ and $1.49. The company has 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 and explorer average of 0.71 times," Sadowski notes. "[It] also trades at US$1.32 per lb. resources (66 million lb.), a large discount to its closest peer, Wyoming developer Uranerz Energy, which trades at US$5.91 per lb. We believe this disparity reflects several years of permitting delays at Lost Creek. However, with all major permits received and construction imminent, we expect this discount to close, as Ur-Energy re-rates towards developer valuations."
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