Merger of Uranium Resources, Inc. & Anatolia Energy, Days Away From Crossing the Finish Line
Colorado based Uranium Resources, Inc. “URI” (Nasdaq: URRE) announced that Anatolia Energy shareholders overwhelmingly approved the merger with Uranium Resources, Inc. The expected closing is November 9th. URI shareholders will own 59.4% and Anatolia shareholders 40.6%. On October 22nd, URI and Anatolia jointly announced that it was granted approvals for the deal merger. The Company intends to file with the Australian Securities Commission on October 23rd. At that time, the Company will make a detailed announcement in relation to the merger, including confirming timetables.
The merger creates a dual-listed (NASDAQ + ASX) company with one of the lowest Enterprise Value, “EV” per In-Situ Recovery, “ISR” pound, [EV / In-situ lb.] ratios in the junior sector. A potential re-rating could be at hand as URI advances Temrezli’s low-cost, high-grade, ISR project towards production as soon as late next year, possibly in 1h 2017. Implicit in the above mentioned, EV / In-situ lb. ratio, is the assumption that URI is sitting on massive historical resources in the U.S, albeit (Non NI 43-101 compliant). I’ve made that crucial assumption and believe that it’s not unreasonable to do so. Perhaps not every pound will transition from historical to NI 43-101 compliant, but there’s no reason to think that the vast majority of uranium pounds will not become NI 43-101 compliant over time. [NOTE: This is entirely my opinion, not guidance from URI management]. Please visit URI’s corporate presentation for more information.
In my interview of Christopher Jones, President & CEO of Uranium Resources, Inc. the focus was largely on Turkey’s tremendous Temrezli ISR project. The combined company will also hold a 100% interest in 9 licenses covering over 44,479 acres, (~18,000 hectares), including several advanced exploration opportunities in the central Anatolian region of the country. Initial production from Temrezli in the next 18 months is extremely important for the Company. Consider that China has 25 nuclear reactors under construction on top of its 26 operational reactors, and plans to place a lot more into the construction phase. According to the World Nuclear Association, 43 additional reactors are planned and 136 proposed. That’s in China alone.
URI’s Temrezli ISR Project in Turkey is World-Class and Does not Require a Major Rebound in the Price of Uranium to be Profitable
Most emerging and producing uranium companies around the globe require a substantial rebound in the uranium price to develop projects or restart them. I believe that a higher uranium price is a necessity for new supply to meet rising demand from the global expansion of nuclear power. Only the precise timing of when prices will begin to move up is unknown. However, waiting for higher pricing is not necessary for Temrezli, that is expected to be in the lowest quartile of industry costs. Investors might be better served by not waiting for a meaningful uptick in the uranium price either. Upon receipt of permits, URI hopes to commence construction of Temrezli in 2016. The combined company is trading at an Enterprise Value, “EV” [Market Cap + debt – cash] of roughly $35 million. Readers and investors alike should pay closer attention to the Company’s assets in the U.S. These assets, like so many globally, are currently out-of-the-money, but offer very substantial leverage to a higher uranium price.
Uranium Resources Inc. (Nasdaq: URRE) has approximately 17,000 acres, (~ 6,880 hectares) of prospective ISR prospects in Texas. In New Mexico, URI holds a Federal Nuclear Regulatory Commission license to recover up to three million pounds per year using the ISR process. The Company controls mineral rights encompassing approximately 190,000 acres (76,890 hectares) in the prolific Grants Mineral Belt of New Mexico. New Mexico is endowed with one of the largest concentrations of sandstone-hosted uranium deposits in the world. [Please see expert interview here] by Jeb Handwerger of goldstocktrades.com.
In reviewing my notes on URI and ongoing conversations with management, I believe that several very important attributes need to be reiterated. I’m confident that most readers are unaware of these facts. First, the Company is a past producer, not an explorer or developer. URI produced 8 million pounds of uranium over the years and is one of the oldest uranium producers in the U.S. While not currently producing, given current weak uranium prices, URI has vast experience and two licensed processing facilities on standby in Texas. One of those facilities will be relocated for use at Temrezli, meaningfully reducing time and capital costs there. The second facility is ready to jump back into use as warranted.
Second, speaking of vast experience, management and Directors form a highly seasoned team, one of the best among juniors and mid-tier peers. See Mgmt & Directors.
Third, the combined company will have far better access to funding and stronger trading liquidity on both the NASDAQ and Australian markets. The pro forma and existing largest shareholder, Resource Capital Fund, “RCF,” voted in favor of the merger and has the financial wherewithal to participate in funding initiatives at the project level, or extending non-onerous debt. [NOTE: I have no indication of what RCF is thinking on this topic]. Alex Molyneux, Chairman of Azarga Uranium, had this to say, “I’m a huge supporter of the Temrezli project. It’s the world’s lowest cost, undeveloped ISR uranium project, now in the hands of an experienced ISR team with demonstrated financial support from RCF.”
Funding of Temrezli Should not be Difficult, and a Takeover of URI is Not Out of the Question
To be clear, project financing of Turkey’s Temrezli is yet to be determined. Management is looking at a variety of alternatives, many not including the issuance of new shares. In addition to RCF, there are numerous uranium players, both producing and not, public and private, strategic and financial, that could be interested in acquiring URI outright. Energy Fuels has been in acquisition mode, recently acquiring Uranerz Energy Corp. In fact, there are a number of uranium companies including Paladin Energy, Denison Mines, Toro Energy, Peninsula Energy Ltd., Uranium Exploration Corp., each with market caps comfortably above $100 million, that could be interested in taking out URI for its blue-sky potential. A key consideration is that assets in Turkey represent both geographic and project level diversification to any potential suitor. For example, Toro Energy has a few projects in Australia that probably won’t reach for production for 5 + years, it could be a contender.
URI has 119 million pounds of non-reserve, non resource, mineralized material in the U.S. alone and a NRC license to produce up to 3 million pounds per year. In my opinion, this is a crucial factor holding URI’s stock back. I believe that the in-ground pounds are a free option in URI’s current valuation, representing, “hidden” assets that could become tangible and quite valuable over time. As mentioned, URI’s deposits are in the prolific Grants Mineral Belt of New Mexico, one of the foremost uranium basins in the world. The Company has also expanded its feeder pipeline of high-potential ISR projects in Texas, near its processing infrastructure. Please visit URI’s corporate presentation for more information.
Anatolia’s Pre‐Feasibility Study indicated an after-tax NPV of $126 million based on a uranium price of $65/lb. Assuming a uranium price of $55/lb., the after-tax NPV is still a respectable ~ $85 million, more than twice the EV of the Company. Therefore, investors effectively get exploration targets in Turkey, Texas & New Mexico & 2 processing facilities for free. Also, a long-term call option on the uranium price breaking sustainably through $55/lb. Recall that the Temrezli project is profitable at $40/lb. long-term uranium contract is currently at $44/lb., placing Temrezli squarely in the lowest cost quartile. Temrezli’s cash flow could be used to fund select Texas and New Mexico projects.
Investors seeking to articulate pure-play exposure to uranium stocks should take a closer look at Uranium Resources, Inc. The combined company has substantial near-term and longer-term potential. With an EV of just ~ $35 million, (well under half that of Turkey’s Temrezil NPV of $85 million), investors are also getting a free option on highly perspective assets in Texas and New Mexico. URI’s Temrezil ISR project is world-class by any measure, suggesting that a number of larger uranium companies could be considering a takeover of URI in the intermediate time frame. Please visit URI’s corporate presentation for more information.
Disclosure: Uranium Resources Inc. has a small market cap. Small market cap stocks are highly speculative, not suitable for all investors. I, Peter Epstein, own shares of Uranium Resources Inc. purchased in the open market. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stocks.
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