Ur-Energy (TSX: URE; NYSE-MKT: URG) has impressed many analysts with stellar uranium grades from its relatively new Lost Creek in-situ recovery facility in Sweetwater County, Wyo., despite missing initial production targets.
The Littleton, Colo.-based firm, which started up Lost Creek last August, said it generated 141,200 lb. uranium oxide (U3O8) during the fourth quarter of 2013. This brings the full-year production to 190,400 lb. — well below analysts’ expectations of 250,000 to 405,000 lb.
The company says it had intentionally lowered the rate of solution pumped into the new plant to ensure it could keep up with the higher-than-projected grades.
The production head grade averaged 211 mg per litre in the fourth quarter, exceeding the third quarter’s 65 mg per litre. The better grades led to an 87% increase in the average U3O8 produced daily, which equalled 1,535 lb. per day in the December quarter.
To manage the higher rate of incoming product, the company throttled the flow rate and curbed production. The average flow rate fell from 1,114 gallons per minute in the September quarter to 694 gallons per minute in the following quarter.
It exited the year, however, at higher flow rates of 830 gallons per minute at 270 milligrams per litre U3O8.
“Reaching a daily recovery rate of 2,700 lb. U3O8 is an outstanding achievement for an in-situ operation only five months into its mine life,” writes Raymond James analyst David Sadowski. “Irrespective of grade flare-up, in our view this performance is a testament to the orebody, design and build quality of the wellfield and plant, and the excellent execution by a veteran management team.”
He expects higher production, as the operation ramps up, to offset any decline in grade. Lost Creek can generate 3,250 lb. U3O8 per day at a processing rate of 6,000 gallons per minute grading 47 mg per litre.
Of the 190,400 lb. U3O8 produced last year, Ur-Energy dried and drummed 131,200 lb. and sold 90,000 lb. at US$63 per lb. in December, marking its first-ever sale.
Sadowski reckons the junior will sell the remaining 100,000 lb. from 2013 this year. He forecasts full-year 2014 sales of 1 million lb. U3O8 and $17 million in cash flow. Sadowski has a $1.80 price target and “strong buy” on the stock.
Rob Chang, an analyst at Cantor Fitzgerald, has a more conservative guidance. He estimates 2014 production of 720,000 lb., but says the Lost Creek project could surpass his target if it produces at similar rates achieved at the end of 2013.
Chang adds that he will wait until the company publishes its fourth-quarter financials later this month before revisiting his forecast. Meanwhile, the analyst has bumped his target from $1.70 to $2, and maintains a “buy” on the stock.
Lost Creek will remain Ur-Energy’s focus this year, but it has also initiated a technical report for its newly acquired Shirley Basin uranium project, also in Wyoming.
It plans to release a National Instrument 43-101-compliant resource estimate for Shirley by the end of September 2014.
Ur-Energy closed Feb. 5 at $1.43, 14% off its 52-week high of $1.66 in January.
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