Boss Resources (ASX:BOE) has received a Speculative Buy from broker Patersons, with a 12-month target price of A$0.10-0.13 per share.
This is around three times the A$0.036 share price when the report was published. The following is an extract from the report.
Honeymoon: A Significant Uranium Acquisition
Investment Highlights:
Boss Resources Limited (BOE) has been transformed into an advanced uranium developer through the astute acquisition of the Honeymoon Uranium mine in South Australia (BOE 80%).
The mine, which is currently on care and maintenance, has existing infrastructure and a uranium processing facility which is in excellent condition.
As a result of the purchase, BOE has all the necessary Australian permits to mine, process and export uranium, which is something that only three other mining companies currently hold.
Furthermore, the project uses the In-Situ Leach (ISL) extraction technique which is renowned worldwide for its low operating cost base.
Overall, we see the potential to restart uranium production in the medium term, which will likely be done at an increased scale in order to be sustainable in the current uranium price environment.
We are initiating coverage of BOE with a Speculative Buy rating.
Valuation of $0.10-$0.13/sh:
We have determined a Net Asset Valuation of $0.10-$0.13/sh for BOE.
Our valuation range is calculated by using an expected “pounds in the ground” basis.
We have applied the ASX-listed uranium producer peer average of $1.25/lb to the Honeymoon projects current Mineral Resource of 27.5Mlb U3O8 (80% owned) and taken half of the exploration target of 42-100Mlb U3O8 (80%), to determine our valuation range of $0.10-$0.13/sh.
BOE is planning to commence an aggressive exploration program in the June Q which should significantly expand the current resource.
A significantly expanded resource base should be suitably rewarded by the market and allow for a feasibility study on the mine restart.
We believe that, if BOE can double the existing resource, this would allow an increased scale for the mine from the current 880,000lbpa (nameplate) to 2-5Mlbpa which would allow for a sustainable mining operation at current uranium prices.
Honeymoon: A Significant Uranium Acquisition:
The recent acquisition of 80% of the Honeymoon uranium mine catapults BOE into one of the most advanced uranium developers in Australia.
The acquisition was effectively done at the cost of the environmental bonds (c$9m) in staged payments and is an outstanding result for BOE.
We recently visited the site and were suitably impressed with the condition of the plant, camp and airstrip.
There were also a significant amount of spares (pumps, pipes etc) and vehicles that remained at site.
In total, the previous owners Uranium One (UUU) and Mitsui spent some $170m in capital on the site.
The site was placed on care and maintenance in late 2013 due to the low uranium price and the fact that UUU’s core focus was in Kazakhstan.
ISL Cost Advantage:
The ability to use the ISL method of recovery at Honeymoon provides a significant cost advantage over other uranium companies that mine hardrock underground or through open pit methods.
The ISL method uses wells to inject native ground water and acid reagents into the ore zone which dissolves the uranium after which it is pumped to surface for recovery.
Honeymoon: Compares Favourably to Kazakhstan Deposits:
The Honeymoon deposit is the same basal/paleochannel type of deposit found in Kazakhstan.
Whilst the Honeymoon deposit is currently significantly smaller than the Kazakhstan operating mines, if BOE is successful in realising its published exploration target of 42-100Mlb U3O8, this would place the Honeymoon project in the same scale as major Kazakhstan ISL deposits.
Significantly, the Honeymoon deposits are at a much shallower depth (100-120m vs 250-600m in Kazakhstan) which means a significant advantage with lower on-going drilling costs. Honeymoon is also higher grade and has a lower acid consumption.
Catalysts:
1) Ongoing reduction of care and maintenance costs;
2) June Q: Commence Resource Expansion Program; and
3) End 2016: Pre-feasibility study on scope of restart.
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