Michael J. Ballanger - Tue, Dec 4, 2018

Western Uranium and Vanadium Corp.: The Game Is Afoot

Michael BallangerSector expert Michael Ballanger explores the latest news regarding this company's Colorado mine asset.

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As a preface to my remarks, it should be known that Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX) CEO George Glasier was the founder of U.S.-based Energy Fuels Inc. (EFR:TSX; UUUU:NYSE.American), currently the second-largest producer of uranium in the U.S. George departed EF in 2010. After, in 2012, EF acquired a number of assets from Denison Mines, including the Colorado-based Sunday Mine Complex (SMC). After founding Western Uranium Corp. in 2014, George knew the Denison asset package intimately from earlier work and was quick to respond when approached by Energy Fuels, which, at the time in need of cash, notified George they were putting some or all of the Denison assets on the block. With very little hesitation, WUC acquired the SMC and that quickly became its major asset.

After this savage downturn in uranium pricing, since Energy Fuels owns the White Mesa Mill (WMM), which stands close to the SMC, consensus thinking in the uranium space was that the ore from WUC's SMC would need to be processed at the WMM, thus placing WUC in a captive position with the command position being held by UUUU. As Nov. 28's press release would indicate, this consensus thought is in error.

Recent weakness in the share price stems from an interview given by Energy Fuels' CEO Mark Chalmers in which he indicated that the company does not plan to accept ore from any other developers and will instead process ONLY ore from iitts existing reserves. This spooked investors in WUC as they were given the impression that the $2 billion of in situ ore sitting at the SMC would be locked away in feasibility limbo with "no place to go." That is, categorically, rubbish. With vanadium at record price levels and uranium in full recovery mode, there is no shortage of producer/users of vanadium seeking out new sources of vanadium given that China has gone from net exporter to net importer due to changes in construction safety laws pertaining to steel strength all in the past twelve months.

Secondly, while you will never see this in print, sources close to me have suggested that there have been several high-level approaches by Energy Fuels to Western Uranium regarding a possible deal, but that the terms were not friendly to WUC shareholders and were soundly rejected. This explains the recent interview whereby Chalmers is inferring he has sway over WUC's immediate future development plans. It is nothing other than gamesmanship designed to hurt the stock price and exert pressure on George Glasier to yield to a less-than-friendly deal.

The press release serves to refute the ploy as there is a long line of suitors desperate for access to the 35 million (plus) (35Mlb+) pounds of vanadium worth $1.13 billion located at the SMC. In my view, the corporate strategy is sound. The company intends to increase the historical resources at the SMC by way of an aggressive underground drill program while seeking out offshore partners with whom to process the ore. By the end of the program, the 35Mlb V2O5 resource will be increased and the replacement value per share will be significantly higher than it is today—which is exactly what Energy Fuels CEO Mark Chalmers sees—hence, the gamesmanship.

In review, the company was first highlighted in this space on Aug. 30 at CA$1.55, when I penned the introductory piece entitled Western Uranium and Vanadium: Undervaluation Woes are Ending. I laid out a base case for a US$3.40 target price to the end of February 2019 and a target price of $6.80 by Aug. 30, 2019. Now that the company has announced intentions to redefine the resources of uranium and vanadium by way of a reopening of the SMC and subsequent underground drilling program, those targets are subject to revision as the historical resources are upgraded in scale (tonnage and pounds) and certainty (Indicated/Inferred/historical).

My analysis is based on historical resources backed up by documentation from the 2014 acquisition of the SMC from EF by WUC. While they are believed to be accurate, they are by no means 43-101 compliant, which will be resolved and possibly enhanced (materially) by way of the upcoming Q1/2019 underground drill program. Using only the historical resources as a benchmark, the table below indicates values based upon a percentage of in-ground or in situ metal value (ISMV).

Depending upon market conditions and sentiment, ore bodies or deposits can be valued far differently and can also be affected by location. While the first two conditions are challenged due to tax-loss seasonality and trade war uncertainty, the location of the SMC in a mining-friendly environment like Nucla, Colorado, can only be a plus, especially with Section 232 coming. Section 232 is a petition whereby the petitioners claim that "[the United States] cannot afford to depend on foreign sources—particularly Russia, and those in its sphere of influence, and China—for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America's nuclear Navy, and supplies 20% of the nation's electricity."

If they get their way, domestic uranium resources will carry a premium to imported uranium, and companies such as WUC will find the valuation of said assets substantially enhanced. While a market cap around 1% may have been appropriate during the bear markets in uranium and vanadium, the arrival of the new bull in both markets warrants a valuation closer to 3% with a favorable Section 232 outcome warranting a valuation closer to 5%.


All numbers in U.S. dollars

The next table is not the work of the author but rather a "work-up" I borrowed from a fellow shareholder. Nonetheless, the numbers are certainly realistic, with interviews in which management has indicated mining costs at around $300/tonne, which would include mining, transportation, toll-milling and SGA costs. The variable would lie in the FOB costs of moving the ore to an offshore locale for processing. But even at $500/tonne, the profitability is substantial, particularly in light of the vanadium price, which remains WUC's primary focus.

Last point on the topic of shipping. Circulating in the blogosphere is once again a concerted slogging campaign regarding WUC's ability to ship ore from the SMC without some convoluted permitting snarl as if the rock is was shipping was refined uranium ore as in U3O8, otherwise known as yellowcake. What I did was this: I picked up the phone and made some inquiries.

Point One: What WUC intends to ship for offshore processing is vanadium ore, whose uranium content is no greater than a shipment of coal or iron ore might have.
Point Two: There are currently zero restrictions for shipping unrefined uranium ore. (If uranium content passes a certain threshold, it can still be shipped but with an export license plus a source material license.)
Point Three: The offshore parties currently showing interest in the vanadium are going to be responsible for the receipt of the vanadium ore for testing and do not foresee issues.

Furthermore, after speaking to my customs agent pal this morning, it would appear that dozens of shipping companies have U.S. Department of Transportation certifications in place for handling vanadium ore with uranium content below a certain threshold. The procedures for handling SMC ore will be no different than procedures for handling gold, copper or zirconium, all of which have uranium content, once again underscoring the dangers surrounding chatrooms, social media, and irresponsible blogsters spouting off without learning the art of fact-checking.

I conclude this missive by advancing the premise that with 2018 coming to a rapid close, the outlook for the uranium and vanadium space in 2019 is outstanding, as this is the first "up" year in seven. Western Uranium & Vanadium Corp. closes out the year up 102% and stands a very real chance of being revalued sharply higher than the current $2.00 share price level in the very near term, based upon the reasons mentioned above.

I would urge current and new prospective investors to ignore the "noise" associated with gamesmanship and focus instead upon the ultimate prize, which is grounded in the ultimate value of the asset represented by the SMC—a fully-permitted, Colorado-based mine.

I view recent weakness in WUC as a superb buying opportunity.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Western Uranium & Vanadium Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies referred to in this article: Bonaventure Explorations Limited is owned by me and my wife and has earned consulting fees from Western Uranium & Vanadium in the past. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Energy Fuels. Click below for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Western Uranium & Vanadium. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Western Uranium & Vanadium Corp., a company mentioned in this article.

Charts courtesy of Michael Ballanger.

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