Uranium Plays, is nuclear regaining some cred (asx:AEK, asx:PEN, asx:AEE)

22 March 2015

In the current environment of global carbon emissions the rush to find adequate base load power that provides low carbon emissions its hard to look past Nuclear power. With the energy density of uranium being over a million times more energy dense than gas and coal without the carbon it sounds like a no brainer path follow.
However Nuclear isn’t without its pitfalls as we have learned with the recent Fukushima (Japan) disaster as well as the other major notable disaster in Chernobyl in Russia. There is also the problem of spent fuel rods and the decommissioning of what is a largely radioactive site.
Other notable technological improvements have been the introduction of small modular reactors which are smaller, easier to set up and hopefully safer.

Even so on the supply side of things there is currently more than 20 plants currently in construction with China leading the way. This coupled with the demand side problems of not enough mines digging up the uranium needed to supply the current and new plants in construction.

There are possibilities from an investment point of view with an increase in uranium demand needed over the course of the next 10-20 years

the 3 that come to mind are

ASX:AEK – Anatolia Energy

Corporate Snapshot

Market Cap (as of 22 March 2015) 22M (30M fully diluted)
Share Price: $0.07
Cash @ March 22 $ 4 M

Project: Temrezli (in Turkey)
Where are they at:
JORC: 5.2MT @ 13.3M pounds @ 1,157 ppm

Currently in a position to start building the capex to start production by 2016

Pre feasibility study reckons:
12 year life
$41M Capex
pre tax NPV – $191M
Pre tax IRR – 65%
payback in 11 months of production
Cash cost of production: 16.89 per pound (versus current market price of $40)

Reasons to buy:
– relatively high grade
– Turkish government is supportive
– Low cost producer
– half the company owned by large backers (probability for financing higher)
– Excellent infrastructure (Power and Water)
– Expected supply deficit in 2020 (globally)

Reasons not to buy:
– drop in sentiment for uranium and nuclear power
– problems with financing
– problems with getting all the right Environmental & Bureaucratic requirements

other upside:
other deposits close by being explored
other research houses projecting price targets in the 20c+ region

see bottom for my verdict

—————-
ASX:PEN – Peninsula Energy

Corporate Snapshot

Market Cap (as of 22 March 2015) 124M (fully diluted 170M)
Share Price: $0.018
Cash @ Feb $ 70 M

Project: Lance Projects, Wyoming USA
Where are they at:
JORC: 51MT @ 53M pounds @ 476 ppm

Currently in a position to be the next producer of uranium

various feasibility studies reckon:
70+ year life
Capex = $146M ($33M (stage 1) + $35M (stage 2) + $78M (stage 3)) –
Note production will begin in stage 1 (0.5-0.7M Pounds (stage 1) + 1.2M Pounds (stage 2) + 2.3M Pounds (stage 3))
pre tax NPV (8%) – $288-328
Pre tax IRR – 36%
Payback 3.4 years
Cash costs $29.16-30.65 (only at Stage 3)

Reasons to buy:
– Next ASX co to production of uranium
– recent capital raising was success – showing support for the production (top 20 own 60% of company)
– project is in USA – very low sovereign risk
– broker research indicate price target of $0.06
– all permits signed off
– Secured some large forward contracts at good prices
– Foreign currency favourable movement
– infrastructure is good as can be being in the USA

Reasons not to buy:
– drop in sentiment for uranium and nuclear power – leading to drops in demand and spot price
– problems with capex building

South African project (Karoo) showing some potential

see below for my verdict

——————

ASX:AEE – Aura Energy

Corporate Snapshot

Market Cap (as of 22 March 2015) 8M
Share Price: $0.03
Cash @ Feb $ 1 M

Project: Reguibat – Mauritania (Africa)
Haggan – Sweden
Where are they at:
Reguibat resource estimate: 50M Pounds
Haggan resource estimate: 800M pounds

Currently have 2 projects
Reguibat will provide the most near term prospects
Haggan will need a partner with deep pockets to help develop

various feasibility studies reckon:
Scoping studies

Reasons to buy:
– long term view
– needs some backers
– Haggan is 800M pounds (3rd largest undeveloped uranium resource on planet) being spruiked as a very low cost high margin project – strategically close to Europe
– both projects provide some blue sky based on initial scoping studies

Reasons not to buy:
– drop in sentiment for uranium and nuclear power – leading to drops in demand and spot price
– needs some big partners to develop both projects
– capex costs for Haggan would be astronomical
– Run out of cash

see below for my verdict

—-

In my opinion: the project that represents the lowest risk is asx:PEN with near term production
in terms of risk/reward the likely potential be made from asx:AEK being less progressed than PEN but the economics seem better overall at their current market
asx:AEE poses the largest risk but also the biggest potential reward

I would put money on AEK or Spread across all 3 if you wanted exposure to each (60% PEN, 30% AEK, 10% AEE)
depending upon how bullish you are on Nuclear energy but the future does look relatively bright as other alternatives do not tick the boxs of
– base load power
– lower emission

As always This column is the personal opinion of the writer and does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at the Date of publication at the top of the post

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