![]() The uranium mining sector is small and the annual global output is around $5 billion. Uranium prices continue to be low and the NPV of Patterson Lake is close to zero at the moment. I view this as unlikely in the near term considering best-selling authors like Jim Rickards, uranium company CEOs, as well as investors, have been talking about a new great bull market for a decade now, but this has so far failed to materialize. Second, uranium prices could finally increase and this would make the current valuations of uranium miners look reasonable. First, we can’t forecast how long this disconnect between uranium prices and the share prices of uranium companies will last. There are two risks for the bear case that I can think of. In view of this, I’m bullish on uranium but bearish on uranium miners like Fission Uranium in the near term. However, the amount of secondary supply on the uranium market is unclear, so it could take years to reach the $50 per pound. Almost everyone in the sector is losing money at the moment and this is the level required to stop the shutdown of current mines and incentivize the opening of new ones. I’m bullish on uranium and I think that prices need to return to at least $50 per pound of U3O8. I covered the uranium market in detail in my article on Uranium Participation Corp. This disconnect can’t last for long – either uranium prices need to increase or the share prices of uranium companies will tumble. The uranium sector is small and a sudden influx of new investors can significantly boost prices. Uranium prices have been low for years and there are just a handful of companies left at the moment. In my view, the reason for this is a boom of interest in commodities over the past several months. There appears to be an ongoing disconnect between uranium prices and the share prices of uranium companies. This phenomenon doesn’t seem to be limited to companies listed in the west, as the price of the shares of Kazatomprom has also been soaring on the Kazakhstan Stock Exchange. Just take a look at some of the main names in the market. The whole uranium sector has been on a wild ride since the end of November 2020. If we assume that PLS is almost worthless from a fundamentals point of view, then how have I been so wrong about the share price? Well, my theory is that Fission Uranium’s valuation isn’t soaring because something changed within its business. ![]() This means that the NPV of PLS is close to zero at today’s uranium prices. At the moment, long-term uranium prices are below $35 per pound. The market values Fission Uranium at just less than $300 million as of the time of writing, so the company looks cheap, right? Well, this is until you realize that the PFS is based on uranium prices of $50 per pound. ![]() As you can see from the table above, the underground-only option has a net present value of C$702 million ($565 million). ![]() Mines have finite lives and their key financials are calculated using a DFS model. The reason I think PLS is close to worthless at the moment is low uranium prices. While the latter decreases reserves by more than nine million pounds of uranium, it also cuts costs and eliminates some of the technical issues. In order to soothe investors, the company has completed a pre-feasibility study for an underground-only operation. An open-pit mine would need a berm wall around the deposit. You see, there are five mineralized zones and two of them are located beneath a lake. The main reason I dislike PLS even if uranium prices were high, is the technical challenges. Under the underground-only option, they stand at 81.4 million pounds of uranium. The reason is obvious – reserves are relatively low. One thing I don’t like about Fission Uranium is that the company focuses its corporate presentation on resources and not on reserves. NexGen Energy’s ( NXE) nearby Arrow deposit is larger but is much deeper in the ground. Fission Uranium is marketing it as Canada’s largest near-surface, high-grade uranium project in its corporate presentation. This is the company’s main asset and is host to Triple R, which is widely regarded as one of the best undeveloped uranium deposits in the world with indicated resources of 102.4 million pounds of U3O8. ![]() Looking at current uranium prices, I continue to think there's little value in PLS and I remain bearish on Fission Uranium. Sometimes, the share price of a company keeps soaring despite the fundamentals of the business not changing. I wrote that the Patterson Lake South (PLS) uranium project looked worthless and Fission Uranium’s valuation has increased by more than 50% as of the time of writing.Īs Peter Lynch likes to say, if you're good, you're right six times out of ten. In December 2020, I wrote a bearish article on SA about Canadian uranium miner Fission Uranium ( OTCQX:FCUUF) and the result is embarrassing. Professor25/iStock via Getty Images Investment thesis ![]()
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