Merger of URI & Anatolia Energy almost over the finish line
Colorado based Uranium Resources, Inc. “URI” (Nasdaq: URRE) announced that Anatolia Energy shareholders overwhelmingly approved the merger with Anatolia Energy. The expected closing is November 9, 2015. URI shareholders will own 59.4% and Anatolia shareholders 40.6%. More recently, On October 22nd, URI and Anatolia jointly announced that the Federal Court has granted orders approving the schemes of arrangement between Anatolia and URI. The Company intends to file the orders with the Australian Securities and Investments Commission on October 23rd, at which time the orders will take effect.
At that time, the Company will make a detailed announcement in relation to the merger, including confirming the timetable. The merger creates a dual-listed (NASDAQ + ASX) company with one of the lowest Enterprise Value, “EV” per in-situ pound/uranium ratios. A potential re-rating could be at hand as URI advances the Temrezli low-cost, high-grade, ISR project towards production is in the cards. Implicit in the above mentioned, favorable EV/Uranium ratio is the assumption that URI is sitting on massive resources, (Not NI 401-101 compliant) in the U.S. I have made that critical assumption and believe that it’s not unreasonable to do so.
In my interview of Christopher Jones, President and CEO of Uranium Resources, Inc. the focus was largely on the tremendous Temrezli ISR project. The combined company will hold a 100% interest in 9 licenses covering over 44,479 acres, (~18,000 hectares), including several advanced exploration opportunities in the central Anatolian region of Turkey. Initial production from Temrezli in the next 18 months or so is extremely important. Consider that China has 25 nuclear reactors under construction on top of its 26 operational reactors with plans to place a lot more into the construction phase. According to the World Nuclear Association, 43 additional reactors are planned and 136 proposed. Again, that’s in China alone.
URI’s Temrezli ISR project in Turkey is world-class, it does not require a meaningful increase in the uranium price to be profitable.
Uranium Resources Inc. (Nasdaq: URRE) has approximately 17,000 acres, (~ 6,880 hectares) of prospective In-Situ Recovery (ISR) prospects in Texas. In New Mexico, the Company holds a federal Nuclear Regulatory Commission license to recover up to three million pounds of uranium per year using the ISR process at the Churchrock-Crownpoint projects. The Company controls mineral rights encompassing approximately 76,890 hectares (190,000 acres) in the prolific Grants Mineral Belt in New Mexico. New Mexico is endowed with one of the largest concentrations of sandstone-hosted uranium deposits in the world.
In reviewing my notes on URI and ongoing conversations with management, I believe that several very important attributes need to be reiterated. I’m confident that most readers are unaware of these facts. First, the Company is a past producer, not an explorer or developer. URI has produced approximately 8 million pounds of uranium over the years as one of the oldest U.S. uranium names around. While not currently producing given current weak uranium prices, the Company has meaningful production experience and two licensed 800,000 pounds/year processing facilities on standby in Texas. The Company expects to relocate one plant for use at Temrezli, reducing capital costs there, and has a second plant ready to jump back into production once uranium prices rebound.
Second, speaking of vast experience, the management and Directors form a highly seasoned team, one of the best among juniors and mid-tier peers.
Third, the combined company will have far better access to funding and stronger trading liquidity on both the NASDAQ and Australian markets. There are many Australian-listed uranium companies including Paladin Energy, Toro Energy, Peninsula Energy Ltd., Energy Resources of Australia Ltd. each with market caps comfortably above US$ 100 million. The pro forma and existing largest shareholder, Resource Capital Fund, “RCF,” voted in favor of the merger and has the financial wherewithal to participate in funding initiatives, (at the project level, or extending relatively non-onerous debt). Alex Molyneux, Chairman of Azarga Uranium, had this to say, “I am a big supporter of Anatolia’s Temrezli project. It’s the world’s lowest cost, undeveloped uranium project, now in the hands of an experienced ISR team with demonstrated financial support from RCF.”
Funding of Temrezli should not be that difficult, URI could become a takeout target by next year
To be clear, project financing of Turkey’s Temrezli is yet to be determined. Management is looking at a variety of financing alternatives including long-term supply contracts to utilities. In addition to RCF there are numerous uranium players, both producing and not, that could be interested in acquiring URI outright. Energy Fuels has been in acquisition mode, recently acquiring Uranerz Energy Corp. A key consideration in any takeout scenario is that Turkey would represent both geographic and project level diversification to any suitor. For example, Toro Energy has a few projects in Australia that probably won’t reach for production for 5+ years.
Fourth, URI has 119 million pounds of non-reserve, non reserve mineralized material and a NRC license to produce up to 3 million pounds per year. In my opinion, this is a crucial factor holding URI’s stock back. I believe that the in-ground resources are a free option in URI’s current valuation, representing hidden assets that could become more tangible and valuable over time. Note that URI’s deposits are in the prolific Grants Mineral Beltin New Mexico one of the foremost uranium basins in the world. URI has also expanded its feeder pipeline of high-potential ISR projects in Texas, near its processing infrastructure.
Anatolia’s Pre‐Feasibility Study indicated an after-tax NPV of US$126 million (based on a uranium price of US$65/lb. and a discount rate of 8%). Assuming a uranium price of US$ 55/lb. the after-tax NPV is still a respectable ~ $80 million, twice the EV of the combined company. Therefore, investors get exploration targets in Turkey and ALL the Texas & New Mexico assets for free, a long-term call option on the uranium price breaking sustainably through $55/lb. in 2017-18. Recall that the Temrezli project is profitable at $40/lb., with all-in costs of roughly US$ 30/lb, placing the project squarely in the lowest cost quartile. Temrezli’s cash flow could be used to fund select Texas and New Mexico projects.
URI Management and Board members for a detailed list, please see here.
Investors seeking to articulate pure-play exposure to uranium stocks should take a closer look at Uranium Resources, Inc. The company is close to closing its merger with Anatolia Energy. The combined company has substantial near-term and long-term potential. With an EV of about US$ 40 million, (half that of Turkey’s Temrezil NPV), investors are getting a free option on significant assets in Texas and New Mexico, not to mention a free option on a more rapid bounce in the uranium price. URI’s Temrezil ISR project is world-class by any measure, suggesting that a number of larger uranium companies could be kicking the tires.
Disclosure: Uranium Resources Inc. has a small market cap. Small market cap stocks are highly speculative, not suitable for all investors. I, Peter Epstein, own shares of Uranium Resources Inc. purchased in the open market. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stocks.
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