Ur-Energy (TSX: URE; NYSE-MKT: URG) has updated the preliminary economic assessment (PEA) for its Lost Creek uranium property in Wyoming, with Rich Boberg, the company’s senior director of investor relations, noting there are three takeaways from the study.
The updated PEA has confirmed the revised resource estimate released last December increased the mine’s life by nine years and shows the project’s “economic viability,” he explains in an email.
The junior has operated the Lost Creek mine in Sweetwater County since August 2013, with all production to date coming from Mine Unit 1 (MU1). In anticipation of starting production in Mine Unit 2 (MU2) this year, Ur-Energy began development drilling in MU2 last July, while finishing the second phase of its 150-hole exploration program south and southeast of MU1.
On Dec. 7, Ur-Energy published Lost Creek’s resource estimate, which included MU2’s upgraded resource, second-phase drill results and increasing the property’s resource, after lowering the grade-thickness (GT) cut-off to 0.20.
To reconcile better-than-expected uranium recoveries from MU1, the junior lowered the GT cut-off for uranium intercepts in the resource estimation from 0.30 to 0.20.
The Jan. 19 PEA confirms Lost Creek’s updated resource estimate of 13.3 million lb. equivalent uranium oxide (eU3O8) in measured and indicated, after taking away the 1.7 million lb. produced from MU1 by the end of September 2015. It has another 6.4 million lb. eU3O8 in inferred, at a GT of 0.2 and a 0.02% eU3O8 grade cut-off.
Compared to the June 2015 technical report, measured and indicated resources have increased 31%, or 3.2 million lb., while inferred resources are up 28%, or 1.4 million lb.
Boberg says the December resource update was the second resource revision in 2015. Combined, both updates last year increased measured and indicated resources by 4.6 million lb., or 53%, and inferred resources by 1.7 million lb., or 36%.
Lost Creek’s global resource stands at 19.7 million lb. grading 0.05% eU3O8. The PEA uses a 17.2 million lb. mineral inventory within 12 resource areas, and estimates a life-of-mine production of 13.8 million lb., with a future 80% recovery rate.
Annual production should average between 0.75 million and 0.9 million lb. through 2018 and 1 million lb. afterwards. Output should decrease in 2030, and stop in 2031. This represents a mine-life extension of nine years.
Net cash flow over the project life is US$409 million, after taxes. The analysis assumes a net uranium sales price of US$66 per lb.
Cantor Fitzgerald analyst Rob Chang notes the figures from the revised PEA generally match his expectations. Life-of-mine operating cost and total cost are US$14.58 and US$29.29 per lb., within “reasonable range” of Chang’s more conservative estimates of US$18.23 and US$31.90 per lb.
Raymond James analyst David Sadowski says the study was slightly below his total life-of-mine production estimate, but surpassed his cost estimates, resulting in an after-tax net present value — at an 8% discount rate — of US$207.5 million, and a 50.9% internal rate of return, at uranium prices ranging from US$28.50 to US$71.70 per lb.
Sadowski recommends that investors bolster positions in Ur-Energy given its “robust operating margins” based on the PEA’s total cost per lb. of US$29.29, and “expected strong operational performance in 2016, which should result in positive cash flow to fund significant debt repayments.”
During the fourth quarter of 2015, Lost Creek churned out 211,717 lb. U3O8, and dried and drummed 189,480 lb. Quarter-over-quarter production is up almost 23%.
Quarterly contract and spot sales totalled 225,000 lb. at an average US$34.47 per lb., for US$7.8 million in revenue. Revenue was below the third quarter’s US$8.5 million, largely due to a 39% quarter-over-quarter decrease in the realized price.
Full-year production came in at 783,500 lb., with sales from production of 725,000 lb. at an average price of US$41.33 per lb. Total sales for 2015, including purchased U3O8, was 925,000 lb. at an average US$45.20 per lb.
Ur-Energy is targeting first-quarter 2016 output of 185,000 lb. U3O8, and 200,000 lb. of dried and drummed uranium. Given the tough market conditions, it anticipates full-year dried and drummed output of 650,000 to 750,000 lb.
Ur-Energy recently closed at 84¢ per share, within a 52-week trading range of 60¢ to $1.35.
Cantor’s Chang has bumped his one-year target to $3.15 from $2.35 per share on the positive PEA update, and has a “buy” on the stock.
Sadowski has a 6- to 12-month target of $1.80 per share, and an “outperform” rating.
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