ENCUF - enCore Energy Corp. (ENCUF)(EU:CA) - enCore Combines with Azarga Uranium
enCore Energy and Azarga Uranium agree to merge. The merger will combine enCore's leading position as an aggregator of domestic uranium assets and controller of in-situ processing plants with Azarga's ownership of several high-grade, low-cost in-situ exploratory projects. We think the combination makes sense for both companies and see the announcement as a continuation of enCore's goal of becoming the leading uranium ISR producer in the U.S.Why it makes sense for Azarga. Azarga shareholders receive 0.375 shares worth $0.71 per share, a 31% premium. Azarga gains a partner with experience as a uranium aggregator, a strong balance sheet (C$5m cash + C$12m inventory and no debt), and control of permitted processing plants. Azarga was going to need to bring in a partner to develop its Dewey Burdock project (initial capital costs of US32m) and its Gas Hills project (US$26m capital costs). The combined company may be able to fund development through external financing instead of bringing a partner.Why is makes sense for enCore. enCore receives access to several premier uranium projects. The Dewey project has a pre-tax NPV of US$171 million, IRR of 50%, opt/royalty costs of US$15/lb, and 17m lbs of meas.+ind. resources. The Gas Hills project has a pre-tax NPV of US$121m, an IRR of 116%, costs of $14/lb, and 8m lbs of meas+ind. resources. Permits are in hand and management was shooting for a 2023 production date. Other projects (Juniper, Centennial, Aladdin, Dewey Terrace) are smaller and not as close to production, but hold great promise for future development. Azarga has three analysts following the company that may join us in covering the combined company.enCore is completing all the catalysts we identified when we initiated coverage nine months ago. The company closed on the Westwater acquisition, signed a long-term sales contract, began work to restart the Rosita plant, announced plans to drill around Rosita, and is now beginning to consolidate the fragmented uranium industry. The stock has responded well to these developments and should continue to do well if these steps continue and uranium prices rise. Our rating remains Outperform with a US$1.50 price target. Read More >>