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Uranium Miners enCore Energy and Azarga Uranium Agree to Merge; Both Stocks May Be Ahead of Themselves

On September 7, enCore Energy Corp. (TSXV: EU) announced an agreement to buy Azarga Uranium Corp. (TSX: AZZ) in a
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This article was originally published by The Deep Dive

On September 7, enCore Energy Corp. (TSXV: EU) announced an agreement to buy Azarga Uranium Corp. (TSX: AZZ) in a share-for-share exchange agreement. Shareholders of Azarga, a U.S.-focused uranium development company, will receive a minimum of 0.375 shares of the bigger company enCore, a firm with a similar focus, per share held.

The exchange ratio could potentially increase to as high as 0.49 shares if the 15-day VWAP of enCore stock prior to the transaction closing were to weaken from current levels.

The companies cited the opportunity to create a top-tier U.S. uranium in situ recovery (ISR) mining company with a large resource base (90 million pounds of uranium on a Measured & Indicated basis and 9.9 million additional pounds on an Inferred basis) as the key reason for the merger. ISR mines use fluid to recover valuable minerals from the ground without digging and moving giant chunks of earth.

Closing of the transaction requires approval by two-thirds of Azarga shareholders at a special shareholders meeting to be held in October or November. Assuming that a sufficient number of Azarga shareholders vote to approve the combination, the merger is expected to close in November.

Both stocks have soared in recent weeks — since mid-August, enCore shares have gained around 60% and Azarga shares have approximately doubled — primarily on the basis of a 30% increase in the spot price of uranium over this time frame. Many uranium industry observers credit the creation of the Sprott Physical Uranium Trust, a commodity fund that buys and holds physical uranium, as a key reason for uranium’s recent price action. In Twitter postings, the trust said it bought 900,000 pounds on August 21 alone and an additional 1.1 million pounds through the end of last month.

Uranium prices in US$ per pound. Image via TradingEconomics.

In turn, uranium spot prices have increased to the low-US$40 per pound level. The rub in all this is that uranium miners generally acknowledge that a price of US$60 or more must be achieved before it becomes economic to re-start or open new mines. Attainment of that price level seems like a distant prospect.

Neither enCore nor Azarga have recorded any revenue for some time, and, based on the price dynamics noted above, recording any future revenue seems unlikely for some time. As a result, enCore and Azarga shareholders may want to consider capturing some recent share price gains by lightening their positions.

enCore’s Cash Flow Deficit Has Widened in 2021

enCore’s operating cash flow shortfall expanded noticeably in the first half of 2021, reaching $5.5 million, up from $0.6 million in 1H 2020 and $1.4 million in the full year 2020. Shareholder dilution has been significant, as shares outstanding have risen nearly 70% over the last 2 ½ years.

(in thousands of Canadian $, except for shares outstanding)1H 2021Full Year 2020Full Year 2019Full Year 2018
Revenue$0$0$0$0
Operating Income($5,893)($2,261)($1,367)($427)
Operating Cash Flow($5,494)($1,448)($876)($245)
Cash – Period End$4,929$6,603$2,787$926
Debt – Period End$8$433$0$0
Shares Outstanding (Millions)199.3178.4143.8118.3

Many uranium mining stocks, including enCore and Azarga, have spurted higher over the last month on rising spot uranium prices. Uranium investors may want to consider trimming some of their holdings, as the movement higher in the price of the commodity may not translate into incremental revenues for some time.

enCore Energy Corp. last traded at $1.79 on the TSX Venture Exchange. Azarga Uranium Corp. last traded at $0.62 on the TSX Exchange. 


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Uranium Miners enCore Energy and Azarga Uranium Agree to Merge; Both Stocks May Be Ahead of Themselves appeared first on the deep dive.

Energy & Critical Metals

LEL reckons its Burke graphite deposit suited for lithium battery applications

Special Report: Lithium Energy’s teamed up with CSIRO for optimisation testwork for its Burke graphite project in Queensland. … Read More
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Lithium Energy’s teamed up with CSIRO for optimisation testwork for its Burke graphite project in Queensland.

The research agreement with CSIRO covers further testwork, including attempting spheronisation and purification of the natural graphite particles.

Essentially, the graphite is shaped into ‘potato-like’ structures with the objective of easier processing of Burke natural graphite flakes into electrode materials to reduce capacity losses and enhance cell efficiency.

The idea is to demonstrate to potential graphite purchasers the benefits of the natural flake graphite within the deposit.

The project will be 50% funded by the CSIRO Kick-Start Program and is expected to take four months to complete.

Lithium Energy (ASX:LEL) is confident the deposit presents an opportunity to cater to the growth in demand for graphite in lithium-ion batteries.

Encouraging electrical storage capacity

Burke has a JORC inferred mineral resource of 6.3 million tonnes at 16.0% Total Graphitic Carbon (TGC) for 1,000,000 tonnes of contained graphite – including a high-grade component of 2.3 million tonnes at 20.6% TGC.

Its high grade and low impurities make it particularly attractive for use in lithium-ion batteries.

In previous test work, Burke graphite cells had generally higher levels of capacity compared with control coin cells when repeatedly (50 times) charged and discharged over a 10-hour cycle time.

The company considered this electrical storage capacity highly encouraging and it was the driving force to undertake the further testwork required by battery manufacturers looking to acquire graphite for use in their battery manufacturing operations.

Pic: Total Graphite Content (TGC) comparison of ASX listed company graphite projects

Potential offtake partners

The company is planning to re-engage with Chinese and Japanese parties who have previously expressed a strong interest in the graphite from the Burke Project.

Lithium Energy said that companies in China are increasingly looking outside of the country for stable supplies of high-quality graphite concentrate – due to increasing environmental concerns as well as grades being typically lower in the country.

Once the latest round of testwork is complete, the company will pursue discussions with the aim of forming binding commercial off-take and development agreements.

 


 

 

This article was developed in collaboration with Lithium Energy Limited, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

 

The post LEL reckons its Burke graphite deposit suited for lithium battery applications appeared first on Stockhead.

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Energy & Critical Metals

Power Supply Shock Looms: “Global Markets Will Feel The Pinch Very Soon” Of China’s Next Crisis

Power Supply Shock Looms: "Global Markets Will Feel The Pinch Very Soon" Of China’s Next Crisis

Distracted by the ‘grandness’ of the collapse…

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Power Supply Shock Looms: "Global Markets Will Feel The Pinch Very Soon" Of China's Next Crisis

Distracted by the 'grandness' of the collapse of China's property development market, many have missed the fact that China faces a crisis that could directly hit Asia's economy just as hard as a financial collapse - a nationwide power supply shock.

After ramping up its coal-based power production earlier in the year, it appears Beijing has suddenly grown a conscience over its emissions and the 'average joe' could be about to feel the pain of that decision.

As Bloomberg reports, the crackdown on power consumption is being driven by rising demand for electricity and surging coal and gas prices as well as strict targets from Beijing to cut emissions.

It’s coming first to the country’s mammoth manufacturing industries: from aluminum smelters to textiles producers and soybean processing plants, factories are being ordered to curb activity or - in some instances - shut altogether.

"With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed,” Nomura Holding Inc. analysts including Ting Lu warned in a note, predicting China’s economy will shrink this quarter.

As a reminder, China pollutes more than the US and all developed countries combined...

More problematic for Greta and her pals, between the years 2000 and 2020, the amount of electricity generated by burning coal increased more than four-fold in China, hitting around 4,600 terrawatt hours in the past year.

Infographic: China’s Energy Demand Sees Coal and Renewables Soar | Statista

You will find more infographics at Statista

As the scene below suggests, this is not the first time China has faced winter power demand surges (which prompted many to turn to diesel generators to plug the shortages of power from the electricity grid).

However, this year is different.

The danger is that, as Zeng Hao, chief expert at consultancy Shanxi Jinzheng Energy, warns: government policies will significantly limit the energy industry’s potential to increase production to meet the demand increase.

2021's worsening power crunch in China reflects three specific factors:

1) Extremely tight energy supply globally (that's already seen chaos engulf markets in Europe);

2) The economic rebound from COVID lockdowns that has boosted demand from households and businesses (as lower investment by miners and drillers constrains production); and

3) President Xi Jinping tries to ensure blue skies at the Winter Olympics in Beijing next February (showing the international community for the first time that he's serious about de-carbonizing the economy).

Simply put, it is the third factor - which is all of its own making - that has raised the risk of a severe shortage of coal and gas - used to heat homes and power factories - this winter; and more ominously, expectations of the need to ration power to those deemed worthy.

“The power curbs will ripple through and impact global markets,” Nomura’s Ting said.

“Very soon the global markets will feel the pinch of a shortage of supply from textiles, toys to machine parts.”

As we noted earlier in the year, China needs to shutter 600 coal plants to meet its emissions goals of net zero greenhouse emissions by 2060.

If Xi's recent actions in the interests of "common prosperity" are really about forestalling social unrest, we suspect his commitment to meeting self-imposed carbon emissions targets may quickly evaporate as the Chinese people are unlikely to stand sustained black-outs for long without upheaval.

Tyler Durden Sun, 09/26/2021 - 20:30
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Energy & Critical Metals

Which uranium producers are ready to pounce when the price is right?

The uranium price is going gangbusters, and the spot price has punched through $50/lb for first time in nine years. … Read More
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The uranium price is going gangbusters, and the spot price has punched through $50/lb for first time in nine years.

The spark for this price rise is the Sprott Physical Uranium Trust, which used a US$300 million at-the-market equity raise to buy up 28.3 million pounds of uranium in recent weeks.

That’s more than the amount of nuclear fuel required to power France for a year.

And it’s aiming to ramp its buying spree up even further, revealing plans to increase its at-the-market offer limit by US$1 billion to US$1.3 billion.


 

When will the price be right for uranium producers to restart?

Lotus Resources (ASX:LOT) managing director Keith Bowes agrees with the general  consensus that aroundUS$60/lb is the magic number that will justify new operations to start – or to dust off operations like the company’s Kayelekera project in Malawi.

“There’s a common theme with most of the developers in the last two years or so – and you’ll see that when you look their reporting, the scoping studies and feasibility studies – that the mid-60s is a realistic number for development to come back online again,” Bowes said.

“There’s obviously a little bit of flexibility around there, depending how you want to go about your contracting.

“If you could get your initial period at maybe $55 or $60 and know that’s going to grow as you go through your production protocol, that may be something that somebody would have a look at – if you can get the pounds into a contract.”

 

Spot price still has plenty of room to grow

The company doesn’t know when it will look to lock in prices just yet, especially since Bowes reckons there’s still some spot price growth to come.

“There’s been a massive rise because of Sprott coming in, but they’ve only effectively used a very small portion of the $1.3 billion available to them – they’ve probably only used $200 million at the moment,” he said.

“So, there’s still a lot of buying power to come from Sprott and I think we can expect to see the spot price increasing more over the coming months.

“And then you’ll see the term price coming up with that as well.”

The prevailing spot price would influence the starting point of discussions, but it’s just an indicator of the term contract market, where most of the action happens between uranium miners and the utilities.


 

Mothballed projects have a better chance of catching the uranium ride

Kayelekera produced 11Mlbs over five years, ceasing operations in 2014 due to sustained low uranium prices.

And projects that can be restarted quickly are better placed to catch the uranium ride at the peak of the cycle.

“If you have a look at the way the cycle is going at the moment, realistically, you’d expect to reach a peak maybe next year or the year after,” Bowes said.

“And the only company that are really in a position to catch the next cycle are those companies that have got assets that are in care and maintenance and can be brought back on relatively quickly.

“Any of the companies that have got greenfield projects, it’s a 5-to-10 year sort of timeline for them to come into production.

“And I don’t know whether they’d make the cycle this time.”

Not to mention, the cost of restarting a mine is much less than developing one – and Lotus is looking at around US$50 million to recommence production at Kayelekera.
 

Focusing on feasibility study in the meantime

While they’re waiting for the price to peak, Bowes said the company is focusing on having its feasibility study in place.

“We want to have the results from our feasibility study available so we can provide assurance to any utilities that we understand what is required to restart the asset back up again,” he said.

“Our feasibility study will be finished the middle of next year and we would expect to start serious negotiations with utilities after that.

“However, we have already started the process with North American utilities – so those in the US and in Canada – to reintroduce the Kayelekera project to them, and to introduce Lotus as a new company.”

He said because Kayelekera product has been previously sold and processed by utilities in the US and Canada, it’s known to the market – which gives the company an advantage over its peers who are starting from scratch.

But the fact remains that most stocks are years away from even thinking about production.

The current market dynamics are conducive to increased term market contracting activity. Pic: Paladin.

 

Which other uranium producers are waiting in the wings to restart?

Here are the companies like Lotus who have been doing the work quietly in the background before the uranium market exploded – and could potentially pull the trigger on production once the price is right.

 

PALADIN ENERGY (ASX:PDN)

Paladin is a former producer at the Langer Heinrich mine in Namibia which has been on care and maintenance, but – following a big $218 million cap raise earlier this year — is ready to relaunch.

Peak production was 5.6 million pounds in 2014 (2,540t) before operations were suspended due to low prices.

The company’s timetable envisages a restart of production with a modest capital outlay of around $80m once contracts with utilities have been signed.

 

VIMY RESOURCES (ASX:VMY)

Advanced uranium explorer, Vimy, wants its shovel-ready Mulga Rock project up and running to take advantage of the uranium price surge.

It raised $18.5 million this year to advance early works at Mulga Rock in WA and to continue exploration at the Alligator River project in the Northern Territory.

In August the Project Management Plan was approved, with just two WA Government departmental approvals remaining.

“Combined with renewed activity in the term uranium market, this approval augurs well for a project Final Investment Decision in the year ahead,” managing director and CEO Mike Young said.

 

BOSS ENERGY (ASX:BOE)

Boss has just appointed the key EPC contractor for the electrical, instrumentation and control system at its 2.25-million-pound Honeymoon project in South Australia.

CEO Duncan Craib said the company was advancing multiple work streams in parallel to minimise the lead time between FID and the start of production.

“We are making project preparations on several fronts to ensure we can capitalise on the rapidly turning uranium market at the moment of our choosing,” Mr Craib said.

“We are already the most advanced of all the non-producing Australian uranium projects, with a production plant and key infrastructure in place.

“By making these preparations now, we are ensuring Boss is on track to be Australia’s next uranium producer.”

In March, Boss raised $60 million to buy 1.25 million pounds of uranium on the spot market at an average price of US$30.15 per pound – which it says will provide greater flexibility for financing and off-take negotiations.

 

DEEP YELLOW (ASX:DYL)

Deep Yellow has three uranium projects in Namibia – Reptile, Nova and Yellow Dune.

A PFS was completed in early 2021 on its 3 million pound per annum Tumas project – within the Reptile tenements — and a DFS commenced March 2021.

The company raised A$42 million in July to advance feasibility studies on the Reptile project and M&A activities.

 

BANNERMAN RESOURCES (ASX:BMN)

Bannerman’s Etango-8 project — also in Namibia — has been ‘reimagined’ as smaller scale mine initially, but with the ability to ramp up production as demand improves.

In February, it raised $12 million to complete the Pre-Feasibility Study (PFS) at the Etango-8 Project, and is busy with a Definitive Feasibility Study (DFS).

The company says the Etango-8 development pathway will enable it to get into production to benefit from the current uranium cycle – whilst having the option of increasing the production rate in the future to take advantage of deepening forecasted deficits in the uranium market.

 

BERKELEY ENERGIA (ASX:BKY)

Project developer Berkeley Energia (ASX:BKY) is battling through the approvals process to build its contentious Salamanca uranium mine in Spain.

 

PENINSULA ENERGY (ASX:PEN)

This US-based company can get back into production within six months – and for just $US6 million — once a final investment decision is made.

The flagship 3 million pound per annum ‘Lance’ project, located in Wyoming, is the only US-based uranium project authorised to use the industry leading, low-cost, low pH ISR process.

In early September, the company completed a sale of 200,000 pounds of U3O8 pursuant to a long-term contract.

The uranium was sourced from the existing portfolio of binding purchase agreements and a net cash margin of US$3.8 million will be generated from the sale.

 

AURA ENERGY (ASX:AEE)

This long-suspended uranium stock has re-joined the ASX with a bang last week and is focused on the advanced ‘Tiris’ project in Mauritania, which the company calls “one of the most compelling uranium development projects in the world today”.

The company says it has executed an offtake agreement for the project, with financing discussions currently advancing.

Highlights of recent DFS include low start-up costs of $US74.8 million and a low All-In Sustaining Cost (AISC) of US$29.81/lb – well below current prices.

Vanadium by-product recovery may lower costs further, Aura says.

 

At Stockhead we tell it like it is. While Lotus Resources is a Stockhead advertiser, it did not sponsor this article.

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