According to Dundee Securities:
Uranerz Energy Corporation
BUY, High Risk*
Dundee target: C$2.65
June 7, 2013
Critical Path Deep Disposal Wells to Start With $6 MM Bridge
Conclusion: We recommend Uranerz Energy as a BUY with an adjusted share price target of C$2.65 from C$2.70 due to adjusted production expectations.
Shortly Uranerz will likely become the fourth uranium producer in Wyoming. Unlike some of its other peers, Uranerz has a hub-and-spoke philosophy, advancing its abundance of uranium projects through the pipeline towards production. It has decreased operating and financing risk by taking the toll milling route through Cameco's (CCO-T, Not Rated) ISR operations. Uranerz 'simply' needs to keep guiding its numerous projects through the permitting process.
Today Uranerz announced it entered into a $6 MM short-term secured note to finance ongoing construction at its flagship Nichols Ranch ISR uranium project in Wyoming. This should tide the company over while its approved $20 MM Wyoming Business Loan closes, expected June to early July. Importantly from a timing perspective, the funds now in hand will allow the drilling of the required two deep disposal wells (at ~$3 MM each). Given the company had run through most its treasury this year for construction, we had expected some form of bridge financing, similar to what peer Ur-Energy (URE-T, Buy, High Risk, C$2.30 Target) announced in mid-May. It seems the Wyoming Industrial Development Revenue Bond program is taking longer than expected to process loans, although the company had previously been approved. We now estimate URZ has at least $6.5 MM cash, with ~$13 MM left of spending. That leaves a $6.5 MM short fall, which the Wyoming Business Loan should more than sufficiently cover, after leaving room for repayment of the bridge and working capital needs.
- US$6 MM short-term loan. Provided by a select group of investors, carries a 6% interest rate, repayable on the earlier of the receipt of its $20 MM Wyoming Business loan, or 31-Dec-13. The note increases to 10% pa after 5-Aug-13.
- Deep Disposal Well installation. Drilling of the two deep disposal wells, deemed critical path items, will begin immediately. As per URZ's NRC license, both wells must be installed prior to production. We expect this could take 4.5- 5.5 months bringing the company into Q4/13.
- 2014 production. Given the financing and deep disposal well construction delays we expect production to begin by Q1/14. Originally anticipated during summer 2013, that was contingent on a more buoyant equity market. Our model has been adjusted to reflect these new assumptions, with 500,000 lbs of production at $37/lb in 2004. The adjacent Jane Dough project is due up next.
- Construction continuing, albeit at a slower pace due to cash concerns which are almost behind the firm. The satellite plant is over 80% complete, including tanks, pumps, IX columns, sand filters and ancillary equipment. Initial well fields are also essentially drilled. A few things remain to do including install process piping, electrical controls, the control room, and the deep disposal wells.
- Valuation. We have revised our 12-month price target slightly to C$2.65 from C$2.70, after factoring slightly higher Capex and the 2014 production start date. We now assume 500,000lbs production in 2014, with an ultimate ramp up to ~1.5 MM lbs by late this decade. We also factored in today's financing, and the $20 MM State of Wyoming bond loan in Q3/13. Uranerz continues to trade at a premium to its developer peers of about 3x (Figure 1), and has outperformed both developer and explorer peers over the past year (Figure 2).