INTRODUCTION
In the news: Anatolia Energy (ASX:AEK) & Berkeley Resources (LON:BKY)
Jim Taylor and Imogen Whiteside have articles below about Anatolia Energy and Berkeley Resources. Anatolia, which is pushing ahead with a merger with the US-based URI, has released a quarterly activities report, while Berkeley has June quarterly results out. Berkeley has recently been a star performer in the uranium space, and has just put out some significant announcements regarding permitting progress at Salamanca in Spain.
We have a new recruit at RFC Ambrian this week. Jonathan Stephens has joined us as Senior Adviser in the London Corporate Finance department. Jonathan has over 18 years of investment banking experience, with ten of these focused on the mining industry, most recently as a Managing Director at RBC Capital Markets. Jonathan joins our team to offer long-term, specialist advice to help clients both address current markets and identify future opportunities. He can be contacted on +44 20 3440 6800 or at jonathan.stephens@rfcambrian.com.
METALS & MINING EQUITIES
Anatolia Energy — 2Q15 Activities Report — The ASX-listed uranium developer and explorer based in central Turkey has released an activities report for the June 2015 quarter. The key development for the quarter involved the agreed merger between the company and Uranium Resources Inc (URI); this will create a group primarily focused on bringing Anatolia’s Temrezli Project to near-term production. URI has a portfolio of uranium projects in Texas and New Mexico, including two 0.8Mlb pa processing plants in south Texas and a number of ISR projects. Under the all-share agreement, Anatolia shareholders have been offered 0.06579 URI shares for each share they own. At a share price of US$0.86/URI share and an exchange rate of US$0.73/A$, this values each AEK share at A$0.078, representing a 21% premium to its last close.
Operational developments for the quarter include the progression of environmental permitting at Temrezli, with the final EIA Permit expected to be issued in 4Q15. The Phase 2 drilling programme at the Sefaatli prospective satellite project demonstrated continuing strong grades, with a third prospect (Akcami) identified, where drill testing is planned.
RFC Ambrian Comment: Operating cash outflows were of A$1.8m for the quarter, and the company drew down A$1m of the A$2m convertible loan facility provided by URI to fund near-term cash requirements (at a 12% coupon, convertible into AEK shares at A$0.08/share until December 2015). This left Anatolia with a cash balance of A$1.9m at quarter-end, with projected cash outflows over the coming quarter of A$1.9m and A$1m of the debt facility remaining to be drawn. We anticipate the combined group’s balance sheet would be bolstered by URI’s cash position, which stood at US$8.4m as at end-March 2015.
In our piece Anatolia Energy — Announces Merger with Uranium Resources Inc, 4 June 2015 we revised our valuation to allow for: the likely decrease in the capex requirement (due to cost efficiencies and processing synergies with URI’s Rosita plant); the improved access of the combined group to capital; and the value of URI’s existing portfolio. Adjusting our TP/NAV risking from 0.45x to 0.60x to allow for this improved access to capital, and assuming that Anatolia shareholders account for 41% of the combined group on an equivalent basis, our TP moved from A$0.20 to A$0.16, a 150% premium to the last close of A¢0.064.
Berkeley Resources (to be renamed Berkeley Energy) — June Quarterly Report and Background — The Spain-focused uranium exploration and development company announced its June quarterly results yesterday. This gives us the opportunity to present a brief profile of a company that we believe has potential for significant value addition through the expected continued advancement of permitting and the integration of the high-grade Zona 7 deposit into the overall Salamanca Uranium Project.
RFC Ambrian Comment: Although this is not a ‘new’ story, we suspect that the company has been revitalised following a number of recent developments, particularly the appointment of Paul Atherley as MD in mid-June and also the announcement a week ago of some significant permitting progress. These positive developments have been reflected in a very strong share price performance over the last couple of months; it has almost doubled from A$0.21 at the start of June to its current level of A$0.35. We are encouraged by these developments and believe that this is a stock to watch.
In brief, the company owns a 100% interest in the Salamanca Uranium Project, located in central western Spain. The project holds three licence areas; two of these (Alameda and Retortillo) have been the focus of attention to date.
The company completed a scoping study on the project in November 2012 and a positive PFS in September 2013. The project comprised shallow, low strip ratio, open-pit mining and heap leaching using on/off pads to produce an average of 2.7Mlb pa U3O8 over an initial mine life of 11 years (production averaged 3.3Mlb during the first seven years). C1 cash costs were estimated at US$24.60/lb and pre-production capex of US$95m to develop the Retortillo deposit and the plant, with a further US$74m required in Year 2 to develop the Alameda satellite deposit and to achieve steady-state production.
The PFS was based on the development of the Retortillo and Alameda deposits and their then resources of 34Mlb U3O8 at a grade of 424ppm. Additional resources at the time outside of these two deposits and the scope of the PFS totalled a further 27Mlb.
A DFS is currently underway on the Salamanca Project (the Alameda and Retortillo deposits), but — significantly — scoping studies are also underway into the integration of Gambuta (a deposit on the company’s third licence area, 145km from Retortillo) and, more importantly, the shallow, high-grade Zona 7 deposit (on the Retortillo licence).
The Zona 7 resource was updated in November 2014, increasing from 3.6Mlb to 30.1Mlb, at a grade of 589ppm (39% higher than the average grade of the Retortillo and Alameda deposits used in the PFS), increasing the total project resource by 43% to 88Mlb. We believe that the integration of Zona 7 into the project has the potential to improve project economics further. An infill and extension drill programme is underway on Zona 7, with the aim of delivering an updated resource statement during September.
Given its European location, mine permitting is always going to be a sensitive issue. However, there is a well-defined process for permitting and the project is based on an area that was mined for uranium by a Spanish state entity in the past. The Mining Licence and the Environmental Licence have already been granted for the Salamanca Project, and applications for the remaining permits have been lodged with the authorities. The company plans to submit initial documents for the permitting of Zona 7 in 4Q15.
The company is well funded, with cash resources of A$13m at the end of June 2015. It has a current market cap of A$63m and an EV of A$50m/US$37m.