-- Posted Wednesday, August 12 2015 | Digg This Article | Discuss This Article - Comments:

Uranium Resources has spent the past two years restructuring itself to be able to make money in a weak uranium environment and thrive when the market bounces back. The NASDAQ-listed (URRE) company has been shedding non-core assets and cutting overhead costs while boosting its low-cost in-situ uranium project holdings.

Now a sharp deal to acquire Turkish-focused Anatolia Energy has dramatically accelerated the company’s timeline to production, while opening further growth possibilities just as uranium is looking set to rebound.

Restructuring

URI has been around since 1977 and produced 8 million lbs. of uranium in Texas before getting hit hard by the financial crisis. The company was forced to suspend production in 2009 and halt construction of a major expansion at the Rosita facility that was 95% through construction. The Fukushima nuclear disaster made sure the company couldn’t make a quick recovery, and the company started to struggle to stay afloat. 

In 2013 a management shakeup brought a whole new team to Uranium Resources, with Christopher Jones bringing his mine engineering expertise and 30 years of industry experience to the role of president and CEO.

Joining him were Jeffrey Vigil as VP and CFO, with 30 years of financial experience including 10 years in the uranium sector and Ted Wilton as chief geologist with more than 40 years of professional experience. Meanwhile long-time staff member Dain McCoig was promoted to VP of South Texas Operations and holds a wealth of institutional knowledge, including as the designer and builder of the company’s Rosita facility.

The new team closed company offices, sold off properties including its Roca Honda project for $2.5 million recently, and generally trimmed the fat from the company.

At the same time the company was building up near-term projects close to its licensed, 800,000 lb/year Rosita and Kingsville Dome facilities held on stand by for restart in South Texas.

Using a straight land swap the company gained control of 8,834 acres of property that includes the Alta Mesa Este, Sejita Dome and Butler Ranch in-situ recovery (ISR) projects, and it launched drill programs on two of the projects earlier this year.

Those projects brought the company’s U.S. claims portfolio to 207,000 acres in Texas and New Mexico. In all the company put together about 40 million short tons of conventional and ISR rock containing some120 million lbs. of uranium.

The company’s uranium deposits include quicker start-up deposits such as Butler Ranch in South Texas that could be put into construction in a few years, as well as larger projects in New Mexico.

The company’s Cebolleta project in New Mexico has a resource of 5.6 million short tons grading 0.17% U3O8 for 18.9 million lbs. Its Juan Tafoya project hosts a resource of 4.2 million short tons grading 0.15% U3O8 for 12.2 million lbs. uranium. And its Churchrock project has a federal license to produce up to 3 million lbs. of U3O8 per year and hosts almost 30 million lbs. of U3O8 in a non-compliant in-situ resource.

Plus the company has 419,000 short tons of reserves holding 674,000 lbs of U3O8 at a grade of 0.08% at its Kingsville and Rosita projects.

Over the past couple years the company has also raised more than $27 [j1] million in funds, excluding non-core asset sales, while having one of the largest natural resource private equity funds in the world, Resource Capital Funds as a major shareholder with 23.5% share ownership, and having Global X Management and BlackRock Institutional Trust as further institutional support. The company managed to raise the funds while keeping outstanding shares below 30 million!

Overall the company was positioning itself for a relatively quick production restart thanks to the ISR reserves in Texas, while also advancing its large conventional uranium projects including Cebolleta and Juan Tafoyak.

Overseas Prospects

But earlier this year management noticed news coming out of a Turkish ISR uranium project, and the wheels started to move quickly on due diligence for an acquisition of Australia-based Anatolia Energy (ASX:AEK) to significantly improve prospects for both companies.

Anatolia controls the high-grade, low-cost Temrezli ISR uranium project in central Turkey and was already working on a pre-feasibility study with TetraTech when Uranium Resources came to kick the tires.

By February the NI 43-101 compliant study was out and the numbers were encouraging. A pre-tax net present value of $191.1 million using an 8% discount rate, free cash flow of $345.5 million, and an internal rate of return of 65%.

Over a 12-year mine life under a bullish case, Temrezli could produce just under 10 million lbs. of uranium from the 4.2 million measured and indicated tonnes grading 0.13% U3O8 and from 80% of the 1 million inferred tonnes grading 0.09% U3O8.

The study used a bullish base case uranium price of $65/lb, but with average cash operating costs of $16.89 a lb., even at $40 uranium the project shows a pre-tax  NPV of $52 million.

“This project is profitable right now, in this price environment, regardless of what happens to price. That’s really why we got interested,” Uranium Resources CEO Christopher Jones told GoldSeek.

Thanks to the low capital costs of in-situ recovery the mine is only expected to cost $41 million to build, with payback in less than a year.

Management at URI already liked what they saw, but realized they could put their idle processing capacity to use by shipping the Rosita facility off to Turkey, and after crunching the numbers found they could save up to $8 million or 27% of the capex after the move.

Plus, with the in-house expertise of in-situ mining at Uranium Resources, the company won’t need to hire outside engineering for the plant and well field design, saving $3 million more.

Anatolia also offers longer-term production potential in Turkey, controlling the Sefaatli project about 40 km from Temrezli and the Temrezli mineralization itself remains open.

Combined Forces

With URI’s in-situ recovery expertise, financing capabilities, and facility synergies, and Anatolia’s near-term project ready to benefit from those attributes, the two companies agreed in early June to an all-stock business combination valued at A$25 million.

“What we’re talking about here is creation of a leading international uranium developer with high-quality ISR and conventional uranium projects, and real potential for near-term production at the Temrezli ISR Project in Turkey,” Jones said in a conference call.

“We’ve moved forward our productive capacity by several years with this one transaction without needing higher uranium prices and our jurisdictions are now Texas, New Mexico, and Turkey.”

In the deal Uranium Resources will take over Anatolia in a stock-based deal giving Anatolia shareholders 0.06579 Uranium Resources shares for each Anatolia share. If the deal goes as planned Anatolia shareholders will control 20.5 million or about 41% of the 50.2 million Uranium Resources shares outstanding post-merger. 

The combined company is expected to have a basic market cap of $48.7 million, with cash and liquid investments of $10.4 million (using the last published May 2015 cash level and $2.5 million plus $0.4 million of marketable securities from the sale of Roca Honda closing, and before a burn rate of $9 million for 2015, excluding transaction costs) and debt of $8 million for a $46.2 million enterprise value.

Along with combining assets, the merger will bring a stronger depth of experience, with Paul Cronin, current CEO of Anatolia Energy, and Patrick Burke, an Anatolia director, joining the board of Uranium Resources.

On the operational side, Anatolia has Tom Young, who was previously VP of Operations at Cameco Resources, as chief operating officer in Turkey, and Cevat Er will bring 30 years of Turkish mining and environmental experience to the role of general manager in Turkey as part of the combined company.

Uranium Rising

The deal comes as optimism is rising in the uranium space.

In Japan applications are in for 25 reactors to restart, with five already passing safety reviews and at least two expected to go back online this year.

China has already commissioned four reactors this year, and there are at least 64 reactors under construction worldwide, plus 174 planned and 299 proposed.

Even Turkey is starting construction of its first reactor, with several more planned in the next few years, providing a local consumer of Temrezli’s output in the future.

Meanwhile few uranium projects have moved ahead because of the low prices, leaving room for significant price appreciation once more reactors come online.

Non-stop

The Anatolia acquisition is a major shift for URI, but the company isn’t going to rely on that single acquisition. Jones says the company plans to remain active across all fronts.

“What differentiates us is the ability to go out and make these transactions creatively and quickly, with a board that supports what we’re doing,” said Jones. “Going forward we remain active in the M&A market beyond the Anatolia transaction.”

Since announcing the acquisition, the company already announced a deal to acquire data on 2,000 holes drilled on its Butler Ranch Project. The company paid $150,000 for the information, and with some confirmation drilling Jones thinks the company could prove up the historic 1.26 million lb. U3O8 resource.

“Essentially we bought, for $150,000, 1.2 million lbs. of historic resource estimate that we merely have to do some confirmation drilling,” said Jones.

“Those resources are coming at about a dime a pound, which is pretty cheap in our business.” 

The company will continue to advance projects stateside while awaiting the close of the Anatolia deal at the end of September.

With permitting, environmental and social impact assessments, and project finance discussions already underway for Temrezli, the project could begin construction early next year with production soon after, just as uranium prices are expected to be climbing.

That would bring URI back to producer status with a healthy line-up of development projects to choose from, and the cash flow to move them forward.

With momentum building with their share structure, $25 million market cap being moved forward with an experienced management team, I believe URI is one of the top uranium stocks out there. Even more lucrative is the share price is now lower by over 80% since its peak, in the recent macro pull back of commodity and energy prices and stocks, even with near-term profitable production at these uranium prices.

Peter Spina

President, GoldSeek.com, SilverSeek.com & UraniumSeek.com

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Uranium Resources Inc.

NASDAQ: URRE

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-- Posted Wednesday, August 12 2015 | Digg This Article | Discuss This Article - Comments: