Government Loan Validates Project While Lowering Debt Costs
On October 24 (AMEX: URG)(TSX: URE) Ur-Energy announced the closing of its long anticipated US$34M Wyoming Industrial Development Revenue Bond financing. The company used this lower cost loan5.75% fixed interest rate maturing in 8-yearsto immediately repay two higher cost RMB Australia Holdings (RMB) bridge loanstotalling US$35M at 7.5% + LIBOR. In addition to significantly reducing high-cost all-in effective interest rates of around 18%, URG gets RMB rebates of US$450K in closing fees, and 1.5M warrants at US$1.25/share are cancelled.
URG's CEO states, "I am very pleased to announce the successful completion of this funding. It is a testament to the viability of the Lost Creek project that it can stand up to the State's lengthy and rigorous due diligence process. Converting the Company's debt instruments to the more favorable State Bond Loan provides a manageable debt service schedule that will serve the Company and its shareholders well. Ongoing operations at the Lost Creek Project will provide Ur-Energy with the opportunity to advance its Wyoming growth strategy."
The news release also states that a portion of the RMB first loan facility remains available to be redrawn for specific purposes. With URG presumably having around US$20M at year's end, this might come into play again as URG pursues its next key driver, to complete the US$18.25M purchase of Pathfinder Mines and its high-quality Shirley Basin and Lucky Mc mine sites1960s-1990s production of 71Mlbs. of uranium with an estimated non-NI 43-101 resource of 15Mlbs. remaining.
URG's 100% owned Lost Creek mine in south-central Wyoming commenced production in August and is now fully operationalset to produce 275Klbs. in 2013 as it ramps up towards the mine's planned rate of 1Mlbs./year, with a 2Mlb./year capacity. Some expect the Shirley Basin project to contribute to URG's production in about two-yearsramping up to ~1Mlbs./year.
Ur-Energy has constructed, is producing and is expected to commission in Q4 its first ISR uranium mine. The company's stock has understandably outperformed most uranium producers or developers that are down with U3O8 prices this year. URG is not just down as much, it is actually up +69% from its US$0.70 low last December to Monday's close price of US$1.18, with a market cap of US$145M.
The protracted closing of the company's state loan was obviously weighing on URG's price recently, which has seen a 12% pop since last Thursday's news release. Analysts who follow the stock have significantly higher targets that are already getting upgraded to reflect higher NAVPS amounts in light of de-risking and catalyst events: lower debt costs with more flexibility as principal payments are not due now until January 2015, production and sales are advancing on or ahead of schedule, with the Shirley Basin transaction and quarterly financial updates anticipated over the next few weeks.
Ur-Energy has other exploration and development uranium projects in the United States and Canada. These include its Lost Soldier project 14-miles to the northeast of Lost Creek, Mustang in Nebraska and others. Their Screech Lake exploration project in the Thelon Basin NWT covers 140K+ acres.
Is Uranerz Energy's US$20M Bond Loan Closing Next?
U3O8 yellow-cake is an important industry in Wyoming, and a strategic U.S. resource needing to be developed quickly for its 100 nuclear power reactors that provide 20% of the country's electricity. The U.S. produces only 8% of its consumption and with the 20-year HEU Agreement now ending, it needs reliable new uranium resources to replace the half of its supply that came from Russian warheads.
We have mentioned several Wyoming based uranium miners before including Ur-Energy and (AMEX: URZ)(TSX: URZ) Uranerz Energy. URZ is to the north of URG, but in the prolific Powder River Basin (PRB) which produces most of the U.S.' uranium. URG applied a couple of months ahead of URZ for this state's coveted low-cost loansfunded by its Permanent Mineral Trust Fund.
Ur-Energy applied to the Wyoming Business Council for its US$34M loan in June 2012, which took around 17-months until last week to close. Uranerz applied for its US$20M loan in September of last year, which was approved this spring and waits to be closed. However instead of taking a few more months, one might reasonably argue that URZ' loan could close soonerperhaps weeksas URG had to resolve an environmental group's court petition, which likely delayed its loan closing.
Assuming Uranerz' US$20M loan closes on similar interest rate and payment terms, and for the entire amountlike URG's loanURZ will likely also pay back its higher cost bridge loan. June's US$6M short-term note financing was needed to keep construction on pace at Nichols Ranch, URZ' first ISR uranium mine located in the central PRB, surrounded by (TSX: CCO)(NYSE: CCJ) Camecoworld's largest public uranium minerand (TSX: UUU) Uranium Onenow a Russian private company.
Uranerz did not take on a second bridge loan when needed last month; instead US$10M in equity financing was completed at US$1.17/share. This avoids walking the high-cost financing tightrope and may leave URZ with US$20M in debt and over US$14M in cash versus URG's US$34M in debt and little cashassuming URZ' US$6M note is repaid on its state loan closing, and URG's Shirley Basin closes. URZ' mine is also licensed for up to 2Mlbs./year, but at double URG's grade and with only 7 out of URZ' 30 PRB projects explored so farversus URG's mine in the less established Great Divide Basin. URZ also has significantly fewer shares outstanding with 85.8M versus URG's 122.5M.
Some uranium miners were smart and lucky enough to lock in past prices at much higher than today's US$35.25/lb. spot U3O8 price. URG could be selling its first U3O8 as early as next month, delivered to its six premium sales contracts going out to 2019some at prices over US$60/lb.. URZ also has multiple premium long-term contracts with major utilities such as (NYSE: EXC) Exelon and others, plus a processing agreement with Cameco to save time, operating and CAPEX costs into production.
We continue to watch for Uranerz' state loan closing, completion of drilling at its second of two Deep Disposal Wells and other mine construction milestones, with production anticipated around year's end. URZ closed just 3-cents above its 52-week low at US$0.91, with a market cap of US$78M. This makes little sense with most analysts having targets over double URZ' current pricewith similar de-risking and catalyst events unfolding that may soon result in a stock re-rating going into production.
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