Disclosure: Blue Sky Uranium Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Highlights
➢ BSK has completed an updated Preliminary Economic Assessment (PEA) for its flagship Amarillo Grande project in Argentina.
➢ The PEA reported an AT-NPV8% of US$228M, and a high AT-IRR of 39%, using US$75/lb U 3 O 8 vs the spot price of US$91/lb. BSK is trading at just 5% of the NPV.
➢ Compared to the 2019 PEA, NPV increased by 68%, and IRR by 10 pp (percentage points), due to higher uranium prices, partially offset by the impact of higher CAPEX/OPEX.
➢ BSK has also upgraded the project’s resource estimate. Indicated resources now account for 80% of total resources (previously nil), implying a higher level of confidence.
➢ We note that the project has potential for a low-cost mine, with relatively low cash costs of US$23/lb, and significant resource expansion potential as multiple prospects remain untested. Management is planning to conduct infill drilling, and engineering studies, prior to completing a prefeasibility study.
➢ Uranium prices are up 86% YoY to US$91/lb. The Sprott Physical Uranium Trust (TSX: U-UN), the world’s largest physical uranium investment fund, has increased its holdings by 3% in the past six months to 64 Mbls. Given that Russia contributes to 35% of global enriched uranium production, we believe the uranium supply chain remains highly vulnerable. According to the World Nuclear Association, uranium demand for nuclear reactors is projected to rise by 28% by 2030, and nearly double by 2040. Consequently, we believe majors will likely pursue M&A to secure longterm supply.
➢ BSK is trading at just $0.79/lb vs the sector average of $4.09/lb. Key near-term catalysts include drilling, and a PFS.
➢ Argentina has three operating nuclear reactors, but no domestic uranium production. Given the robust PEA, and Argentina’s reliance on imports, we believe BSK is an attractive acquisition target.
Portfolio Summary
BSK's Portfolio
Source: Company
Four uranium-vanadium properties spanning 400,000 hectares
The flagship Amarillo Grande project, located in Rio Negro province, hosts the largest NI 43-101 compliant uranium resource in Argentina
Amarillo Grande consists of three properties – Ivana, Anit, and Santa Barbara, spread along a 145 km long trend
Source: Company/FRC
NPV increased by 68%, and IRR by 10 pp, due to higher uranium prices, partially offset by the impact of higher CAPEX/OPEX
The study used a long-term uranium price of US$75/lb, which is in line with our forecast, vs the spot price of US$91/lb
NPV and IRR are highly sensitive to uranium prices
Updated Resource Estimate - Ivana
Ivana hosts a medium-sized/low-grade resource
Currently, indicated resources account for 80% of total resources vs nil in the previous estimate, indicating a higher level of confidence
Ivana Deposit
Source: Company
Total resources decreased by 10% due to pit optimization, and the exclusion of resources outside the pit envelope
Resource Expansion Potential
Source: Company
We believe there is potential for resource expansion as multiple targets remain untested
Management plans to continue resource expansion and upgrade drilling, along with engineering studies, before completing a prefeasibility study.
Financials
Source: FRC/Company
Subsequent to Q3-2023), BSK raised $1.5M through an equity financing
FRC Valuation
Source: FRC/S&P Capital IQ/Various
BSK is trading at $0.79/lb (previously $1.53/lb) vs the sector average of $4.09/lb (previously $3.74/lb)
Source: FRC
We are reiterating our BUY rating, and adjusting our fair value estimate from $0.38 to $0.46/share (the average of our DCF and comparables valuations). We believe the uranium sector is primed for consolidation, given the highly vulnerable supply chain. AI advancements, being highly energy-intensive, are poised to escalate energy consumption growth. Therefore, we anticipate majors will likely pursue M&A to secure long-term supply of energy sources, such as uranium.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- Uranium prices
- Exploration and development
- Geopolitical and FOREX
- Access to capital and share dilution
