Anfield Resources Stock Ignored Despite Uranium Price Spike
With the spot uranium price up to $42/lb. according to Tradetech, up about 50%! from its $28/lb. low, investors should take another look at Anfield Resources (ARY.V) and (ANLDF). Many uranium peers are rallying on the substantial spot price move and on news that 2 reactors in Japan are in the process of restarting. Analysts at Cantor Fitzgerald noted,
“We continue to view the September announcement [by the Japanese Regulatory Authority that two reactors at the Sendai plant have met the safety requirements for a restart] as a positive signaling event for the uranium sector as a significant amount of the current U3O8 inventory is a result of material earmarked for Japan not being used. We estimate that 15 reactors including the Sendai pair will restart in 2015 with an additional four restarting in 2016. Ultimately we expect 32 of the country's remaining 48 reactors will be restarted by 2018 - amounting to about 14.5 million pounds of annual U3O8 demand on a steady state basis. Prior to Fukushima, Japan consumed 21.3 million pounds U3O8 on an annualized basis. With low uranium prices not incentivizing additional uranium production, a demand environment that is expected to grow continuously (we forecast 17% growth by 2020), we believe uranium equities are well positioned to move higher."
UR-Energy is up 36%, Uranerz up 59%, Uranium Energy Corp 84% and Energy Fuels 40% since October 15th lows. However, Anfield Resources' stock is unchanged at C$0.40 per share. This, despite Anfield close to closing a game- changing acquisition of 1 of only 3 licensed conventional uranium mills in the U.S. The increases in the peers' stocks since October 15th are significantly greater than the entire Enterprise Value, "EV" of Anfield, which is about C$8 million. Anfield is flying under the radar, when it should be soaring with the rest of the industry.
Yet, Anfield will not be unknown forever as it has one of the most leverage to an increase in uranium prices. The company has only 20 million shares outstanding. It wouldn't take much to get this stock rallying. There may be some investor fears about the acquisition of the Shootaring mill from Uranium One. However, CEO Corey Dias points out,
"Based on a study commissioned by U.S. Energy (the company which sold these assets to Uranium One) in 2005, the replacement value of the mill at the time was US$80.5 million; moreover, the VP Corporate Development of Energy Fuels at a New York conference in September, 2014 was asked why it sold its licensed and permitted mill site in Colorado and he responded that the cost to build a 500tpd mill would be between US$150 million and US$200 million." (Shootaring is 750tpd, or 50% bigger than that).
On November 4, 2014 the company put out a press release in which it stated,
“Anfield has renewed the nine mineral leases on Utah State Trust Land that were issued to the Company in December of last year. The leases cover over 5,700 acres (2,306 hectares) and lie within past producing uranium mining districts southeastern Utah. The leases are complementary with the Company's other uranium holdings in the Henry Mountains District, the Montezuma Canyon District, and the Green River District.”
In the same press release, Corey Dias, CEO of Anfield, stated,
“Considering the current positive signs in the industry, we are optimistic that the price of uranium will continue trending upward. With the pending acquisition of both the Shootaring Canyon Mill and the conventional land package from Uranium One, together with Anfield's existing holdings including the renewed Utah State leases, we feel that Anfield is well positioned to take advantage of burgeoning demand for nuclear power.”
Renewing the nine mineral leases is an important development as it demonstrates continued progress by Anfield in becoming a mid-tier uranium producer by 2017 and it comes soon after 2 press releases dated October 30th and October 8th. On October 30th, the company announced,
"....that the Utah Division of Radiation Control (“UDRC”) has granted conditional approval to transfer ownership of the Shootaring Canyon Uranium Mill radioactive materials license from Uranium One Americas, Inc. to Anfield.”
I like the fact that Anfield is staying in front of investors by putting out press releases and corporate updates on a regular basis. In the October 8th corporate update CEO Dias said,
“Since late 2013, Anfield has both redefined and reinvigorated its corporate strategy as the Company sought to target undervalued assets with near-term, cash-flow- generating potential...Anfield has executed its strategy via the pending acquisition of a number of uranium properties – many associated with past-producing mines – totaling over 17,500 acres in Utah, Arizona and Colorado to become one of the largest owners of uranium landholdings in the Southwestern U.S.”
Anfield has pulled off a tremendous deal with Uranium One that gives it unparalleled leverage to a rebound in uranium prices. Most management teams and pundits believe a continued recovery is a question of when, not if. I agree. We still have a long way to go. However, the long-term contract price of $44/lb. is "only" $20/lb. away from an attractive level for Anfield. The current long-term price at $44/lb. is bound to move higher in short order with a spot price of $42/lb. some now believe we will see the long-term price hit $50/lb. within the next few quarters. Finally, it's essential to remember that Anfield has just 20 million shares outstanding. As I write this on November 10th, the latest price on the stock was C$0.40. The company has no debt. Therefore, Anfield has a market cap and EV of approximately C$ 8 million. Comparing that to ISR producers Uranerz, UEC and UR- Energy, as well as conventional uranium miner Energy Fuels with Enterprise Values of C$130 million - C$185 million is telling. Anfield has the ability to diminish the gap with these players.
Given the significant stock moves by Anfield's peers, I would venture to say that Anfield is a prime takeover target. Investors may not know Anfield as well as they should, but peer companies know about the Shootaring mill and the high grade properties that Anfield is acquiring. Any of the four mentioned peers could buy Anfield as a call option on a rebound in uranium prices. The larger peers, presumably with greater financial resources than Anfield, could more easily and cost effectively get the mill back up and running with production as soon as 2017. One might wonder why an ISR player would want to buy a conventional miner. Good question. Diversification and scale is the answer. The Shootaring mill could be upgraded to a capacity of 4 million pounds per year. However, there is already a large mill in the area which doesn't have enough feed, so that is a fate the Shootaring mill owner would want to avoid.
Diversifying from ISR production to also conventional mining could be deemed a de- risking event. At the very least it represents a call option on uranium prices that I mentioned earlier. If the long-term uranium price bounces back to $75/lb. in the next few years-- almost all producers would be happy. At $75/lb. Anfield might be able to generate more cash flow than some of its peers that are currently constrained at 1-2 million pounds per year. Make no mistake, Anfield won't be producing 4 million pounds of uranium anytime soon unless it acquires or finds more uranium, but Anfield as a long-term call option seems to me to be pretty cheaply priced.