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Energy Fuels to become significant uranium player should higher prices take hold: H.C. Wainwright

H.C. Wainwright (HCW) reiterated its buy rating and $11.00 price target on Energy Fuels (NYSE MKT:UUUU) (TSE:EFR) after the company announced the proposed acquisition of Uranerz Energy (NYSE MKT:URZ) (TSE:URZ), which HCW said would create a US uranium powerhouse.


H.C. Wainwright (HCW) reiterated its buy rating and $11.00 price target on Energy Fuels (NYSE MKT:UUUU) (TSE:EFR) after the company announced the proposed acquisition of Uranerz Energy (NYSE MKT:URZ) (TSE:URZ), which HCW said would create a US uranium powerhouse.

Under the terms of the deal, Uranerz shareholders will get 0.255 common shares of Energy Fuels for each Uranerz share held, for ownership of 55 percent of the combined company, with Energy Fuels shareholders owning the remainder.

"The transaction would create the largest integrated U.S. focused uranium producer through the combination of both ISR and conventional uranium operations, in addition to significant development pipelines," said HCW analyst Jeffrey Wright in a research note released late yesterday.

The capital markets firm expects the transaction to close sometime in the first half of this year, following regulatory approvals, and a 50 percent +1 majority vote in favour of the deal from existing Uranerz shareholders.

"Given both valuation and the presence of a $5M break fee, we do not anticipate an outside bid or either company to terminate the agreement," Wright added.

"Ultimately, we believe the transaction should be accretive for shareholders of both companies as various corporate synergies could be realized in a reduction of combined corporate G&A."

HCW said that while Energy Fuels' White Mesa mill in Utah and Uranerz's Nicholas Ranch are located too far apart for immediate meaningful operational synergies, Wright highlighted the relative size of the combined company.

The deal will build the only integrated conventional and in-situ recovery uranium mining company focused solely on the US, and will have a combined NI 43-101 resource base that will be the largest in the US among producers and near producers.

Energy Fuels operates the only conventional uranium mill in the US at White Mesa in Utah, while Uranerz uses a process known as in-situ recovery (ISR) in which a leaching solution extracts uranium from sandstone uranium deposits in the Powder River Basin area of Wyoming. It is the newest uranium producer in the US.

In addition to the White Mesa mill in Utah and the Nichols Ranch ISR operation in Wyoming, the combined company is expected to own various development projects located throughout Utah, Wyoming, Arizona and New Mexico.

"As a result, we believe Energy Fuels can become a significant player in the U.S. uranium market if higher U3O8 prices take hold," said Wright.

Uranium prices have been depressed ever since the nuclear disaster in Japan in 2011, but spot prices have been on the rise recently as new reactors in Europe, the Middle East and Asia are setting up a far greater longer-term supply-demand imbalance.

Wright said that Energy Fuels is poised to take advantage of this rising spot uranium price environment, as the timing of the transaction "could not have been better".

"Should uranium spot prices continue to rise, above $50 per pound, we believe Energy Fuels could ramp up production from its existing project portfolio quickly. The White Mesa mill remains on care and maintenance, and we continue to believe Energy Fuels retains the ability to restart the mill in a short period of time."

The combined entity will also have six long-term contracts, providing it with downside protection in the event the uranium market does not recover. The longest contract currently in place extends to 2020.

While Wright said he expects the Uranerz acquisition to create value for Energy Fuels, HCW has chosen to remain on the sidelines with respect to valuation of the combined company until the deal closes.

Shares of Energy Fuels were trading almost 2 percent higher at US$5.43 in New York on Tuesday.

Quick facts: Energy Fuels Inc.

Price: 2.23 CAD

Market: TSX
Market Cap: $280 m

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