We boosted our stake in Denison Mines this morning by 25% following an updated analysis in which the company achieved a maximum in-house Composite Rating of 5. Denison Mines excelled in the following categories: Net Profit Margin (Phoenix), Absolute Cost Structure (Phoenix), True Value Discount, and Market Cap Growth. Our Target, however, has been lowered by 20%, as our updated calculations implied a True All-In Cost (TAIC) that was higher than expected for Phoenix, while Net Profit Margin and Absolute Cost Structure for Gryphon were average.
MTQ Scores & Composite Ratings — Study Group Comparison
There is a great deal of value in Ur-Energy that hasn’t been baked into price. Were shares to trade between 30-40% lower in a general market decline, we would be buyers.
At $65/lb., Ur-Energy will achieve excellent Net Profit Margins and enjoy an Absolute Cost Structure that will elude peers (On its worst day, the company’s TAIC won’t rise much above $36/lb.).
Update, 13 July ’19
We do not presently have exposure to the uranium sector in the U.S., and in light of recent developments, the likelihood of our future participation has dropped. Any consideration of a U.S. issue will necessitate a substantial discount to our estimate of True Value. In the case of Ur-Energy, an additional 20% discount to the 12 July close will be essential before a small initial stake is considered.
More likely, future exposure to the U.S. uranium sector will be gained via exposure to Cameco’s Crow Butte and Smith Ranch-Highland Projects, though at that time, we believe Cameco shares will be available to us up to 30% cheaper following a general market decline.
We are steady buyers of NexGen Energy on weakness and believe it represents the single best, liquid opportunity in the market whereby which to capitalize upon a future bull market in uranium.
NexGen Energy is the only development-stage uranium company with a projected Net Profit Margin approaching 50%. It also has a peer-crushing Absolute Cost Structure of 53%. Both of these already respectable values will improve at higher spot uranium prices.
MTQ Score — Global Study Group Comparison (Higher is Better)
Like GoviEx, Forsys Metals needs to bide its time for substantially higher uranium prices. Though the economics technically work at the Base Case ($65/lb.), the Net Profit Margin is too thin. To be successful, the Net Profit Margin needs to rise above 30% and the Absolute Cost Structure needs to drop below 70%, which implies a spot uranium price of $80/lb.
So where is the value?
The Forsys Metals value proposition stems from a discrepancy between share price and True Value, as the present discount to True Value is 97%. Similarly, the value proposition for Bannerman Resources stems from its 97% discount to True Value, as opposed to value being derived from Net Profit Margin or Absolute Cost Structure, neither of which are particularly good at a Long-Term Price Case of $65.
We take it for granted that the merits of the Forsys Metals story have not gone unnoticed and that it is daily becoming more ripe as an acquisition target. Naturally we’d like to witness and profit from Market Cap growth up to 1,282%, but we would also be delighted to learn that the Norasa Project had found a good home on an acquirer’s long-term development schedule.