Uranium Juniors to Gain Spotlight Amidst AI-Driven Nuclear Power Boom

Report Highlights

• A 10-hole drill program (5,152 m) at the Russell Lake project, optioned from Rio Tinto (NYSE: RIO), identified a shallow mineralized zone with high-grade intercepts of up to 3.0% U3O8. A follow-up drill program is expected to commence shortly. 
• Option partners are actively advancing their projects through exploration and drill campaigns. SYH anticipates receiving $1-$2M in cash/share payments from its partners in the upcoming months.
• The demand for nuclear power is expected to grow faster than previously anticipated as data centers for AI applications experience exponential growth in energy needs.
• Uranium prices have pulled back from their peak of US$106/lb earlier this year, to US$83/lb, up 50% YoY. The Sprott Physical Uranium Trust (TSX: U-UN), the world’s largest physical uranium investment fund, has increased its holdings by 4% in the past 12 months to 65.5 Mbls. 
• Paladin Energy (MCAP: $3.3B) is acquiring Fission Uranium (TSX: FCU) for $1.1B, or $1.30/share, reflecting a 30% premium over FCU’s last closing price. This acquisition is consistent with our earlier prediction that majors would pursue M&A to secure long-term supply. Given that Russia represents 35% of global enriched uranium production, we believe the uranium supply chain remains highly vulnerable.
• Upcoming catalysts include drilling at Russell Lake and Moore Lake, ongoing and planned exploration programs by its partners, and potential new option agreements to advance its prospect generator business.

Portfolio Summary

29 properties, covering 587k hectares, in the Athabasca basin. The Athabasca basin hosts some of the world’s richest uranium deposits and mines

Seven projects with JV/ option agreements. Partners could commit up to $34M for exploration, and $47M in cash/share payments to SYH

Moore Lake Uranium Project

SYH has completed a follow-up drill program totaling 2,864 m/nine holes, including seven at the Main Maverick zone, and two at the Grid 19 target.

Moore is located 15 km east of Denison’s (TSX: DML) Wheeler River project, and 39 km south of Cameco’s (TSX: CCO) McArthur River mine

The 4.7 km long Maverick corridor hosts numerous targets 

All seven holes drilled at the Main Maverick zone encountered uranium mineralization, including a few high-grade intercepts such as 3 m of 7.3% U3O8, and 1 m of 10.19%. 

Drilling intersected high-grade mineralization at shallow depths 

While we are maintaining our speculative resource estimate on Moore, the recent drill results have enhanced our confidence in this estimate

Management is planning a follow-up drill program of 2,500 to 3,000 m, focused on the Main Maverick and Maverick East zones.

Russell Lake Uranium Project

SYH has completed a two-phase drill program, totaling 5,152 m/10 holes, at the  East Grayling zone, the MZE (M-Zone Extension), and the recently discovered Fork zone.

Russell Lake is strategically located between SYH’s Moore uranium project, and Denison’s Wheeler River project, and close to Cameco’s Key Lake mill, and MacArthur River mines

35+ km of untested targets 

The Fork zone is a high-priority area with limited historical drilling. One of five holes drilled in this target encountered high-grade mineralization, with grades of up to 0.72% U3O8 over 2.5 m, starting at 338 m, including 0.5 m of 2.99%. This new discovery is relatively shallow and open in multiple directions. 

Phase one drilling uncovered a shallow mineralized zone with high-grade intercepts at the Fork zone

The Fork zone is 1 km southwest of the central Grayling zone, and 4 km southeast of Denison Mine’s Phoenix deposit

Phase two drilling comprised 2,058 m across four holes, with results pending. Management is preparing for a follow-up drill program (4,500 to 5,000 m), following further groundwork and geological modeling. We should be able to calculate a preliminary speculative resource estimate after this drill program. 

Awaiting drill results

Updates on Other Projects 

• In February 2024, SYH staked five early-stage uranium prospects (Bend, Compulsion, Genie, Hartle, and Regambal) in northern Saskatchewan. Management is seeking JV/earn-in option partners to advance these projects.
• At the Preston uranium project, partner Orano Canada is undertaking a multi-phase exploration program, including geophysics and soil sampling. This is Orano's first exploration effort at Preston since 2020.
• At the South Falcon East uranium project, partner Tisdale Clean Energy (CSE: TCEC/MCAP: $3M) has completed a phase one drill campaign totaling 442 m across two holes of a 1,500 m, two-phase drill program. Both holes intersected multiple mineralized zones, including 2 m of 0.11% U3O8, and 1.3 m of 0.02%. A 2015 resource study had returned inferred resources of 7 Mlbs at 0.03% U3O8.

• At the East Preston uranium project, Azincourt (TSXV: AAZ/MCAP: $8M) has completed its 2024 winter drill program (1,086 m/four holes), with assay results pending. This program was designed to follow up on the clay alteration zone, and elevated uranium at the H and K zones.

North Shore aims to further evaluate the three targets

Financials  

Strong balance sheet. In-the-money options can bring in $0.61M 

FRC Valuation

Uranium juniors in North America are trading at $8.1/lb (previously $6.9/lb

Uranium juniors in North America are trading at 3.4x book value (previously 3.7x

 Applying sector multiples to SYH’s flagship assets, we arrived at a revised fair value estimate of $1.21/share vs our previous estimate of $1.16/share

We are reiterating our BUY rating, and adjusting our fair value estimate from $1.16 to $1.21/share. Given the highly vulnerable uranium supply chain, we anticipate continued consolidation within the sector. Additionally, the rapidly growing demand for energy from the AI industry is likely to accelerate the adoption of nuclear power, which should in turn spotlight uranium juniors in the coming months.

Risks

We believe the company is exposed to the following key risks (not exhaustive):

• The value of the company is dependent on uranium prices
• Exploration and development 
• None of its flagship projects have a NI 43-101 compliant resource estimate
• Access to capital and share dilution 
• No guarantee that option partners will follow through with their proposed programs