CA - Global Atomic Corporation: Dasa Likely To Bring Long-Term Upside

Summary

• The Canadian uranium junior is bringing the prolific Dasa play online.
• At a time when questions regarding energy diversification could not be stronger.
• Nuclear likely to play an enduring role in future power generation given its green credentials and reliability.
• Dasa’s project financials make for a compelling investment.

Macro Backdrop

There is perhaps not a more compelling time to look at alternative energy. Conflict in Ukraine, market jitters, and a wholesale spike in commodity prices have upended global energy supply chains.

Natural gas, crude oil, even coal prices have gone haywire as the world wrestles with a supply crunch, inflationary pressures, and societal changes in attitudes towards the energy mix.

Energy supermajors have been demonized by empowered social movements to make energy more sustainable. Now taboo by money managers brandishing the ESG banner, old energy players have tightened purse strings, preferring to send money back to equity holders via dividends rather than deploy it in new capital projects.

That sets us up for an energy boom after years of underdevelopment trickle into global energy supply chains, years down the line. Whether it is natural gas, crude oil or even coal – energy projects are simply not on tap. Years of exploration, permitting, project de-risking, capital raising and construction all need to align to power the global economy.

With these risks in mind, nuclear power has perhaps not had a more prominent place in the global energy panorama. Nuclear power plants, mainly fueled by uranium-235, produce heat through fission.

Consequently, heat warms a cooling agent such as water which then generates steam. The steam is diverted to spin turbines, activating an electric generator to create low-carbon electricity.

Nuclear power, unlike coal, oil, or gas power generation, practically produces no CO2 during operating. In summary, nuclear power generates almost one third of the world’s carbon free electricity, and makes up a crucial part of the global plight to meet climate change goals.

The onset of the War in Ukraine saw sizable bouts of price volatility in Uranium prices. Since then, prices have stabilized with a slightly upwards bias, North of $50 USD/lb.

Such a backdrop makes for an opportune time to review an exciting uranium junior – Global Atomic ( GLATF ) whose subsurface Dasa uranium pureplay makes for an increasingly compelling investment proposition.

My outlook is bullish for the Canadian junior’s prospects as global energy stars align at a time when a marquee project comes online.

Company Overview

"Global Atomic Corporation engages in the acquisition, exploration, and development of uranium properties in Niger". The firm is the brainchild of Mr. Stephen G. Roman, founder and president who has a solid track record of capital raising, deal brokering and project delivery.

The Canadian junior owns a 100% interest in the Dasa deposit located in the Republic of Niger. The company also has a Turkish joint venture processing electric arc furnace dust into zinc concentrates, which is then marketed to zinc smelters. Global Atomic Corporation is headquartered in Toronto, Canada.

Listed on the Toronto Stock Exchange, the firm boasts a market cap of C$710M (C$3.94/ share). Any wager on the firm is an unresounding bet on its ability to get its marquee Niger-based Dasa project over the line.

Right now, given the latest guidance, nothing suggests otherwise. For US investors, Niger is perhaps a far-away unknown land. The country, with a population of 25M people, is one of the world’s poorest.

Its projected GDP growth is 7.8% and its top exports include gold, uranium ore, and petroleum. The country produced 2,991 tonnes of uranium (5th largest producer) in 2020 with main players including Orano, Somair & Cominak. Juniors include GoviEx Uranium and Global Atomic which we are covering here.

Dasa Project

Global Atomic is gearing itself towards first uranium at its Tier 1 Dasa underground play at the end of 2024. The Canadian uranium junior maintains a 90% stake in the lease which was initially discovered over 10 years ago. The lease distinguishes itself by the quality of its high-grade uranium.

A memorandum of understanding was signed with Areva Mines Ltds (now Orano Mining SA) to process uranium ore from Dasa at facilities some 135 km North, near Arlit.

The area spanning from Agadez to Arlit, in the heart of Niger, is a prolific uranium mining zone. Niger classes 5th in terms of global uranium production, accounting for some 30% of all French required supplies to power the country’s park of nuclear reactors. The country has a uranium mining track record spanning 50 years.

The Global Atomic permit at the Dasa play is situated due South of Agadez in a prolific Uranium mining belt

The project has already undergone a degree of de-risking, with the company receiving its mining permit from the Government of Niger and gaining its Environmental Compliance Certificate.

Phase 1 of the project boasts 20% of resources and a project life cycle of 12 years. All in, the lease covers more than 250M pounds of uranium worth about US $12.65B at today’s prices. While that calculation is a crude one insofar as the resource is not immediately exploitable, it does give an indication of the value underground.

The project has advanced well with surface infrastructure completed, the local company set-up finalized, portal development underway and Yellowcake offtake agreements with utility companies signed.

SOMIDA, which is the local company formed is owned 80% by Global Atomic and 20% by the Niger Government. Operating team and employees have been hired with the processing plant financing underway.

Lycopodium, the Australian engineering pureplay – highly regarded for its project management nous – has been engaged with construction works of the processing plant.

Project financials are conservative while providing best-in-class returns under current assumptions.

With start up costs of US $208M and an all-in sustaining cost of $21.93/lb, project economics – calculated off solely 20% of the known resource – remain extremely compelling with an IRR of 22.7%. That calculation is based on uranium prices of $35/lb, underscoring how robust the financials are. Using today’s spot uranium price of $50lb, the after-tax net present value of the project is US $468M (44.6%). As a reminder, the entire market cap of the firm is US $535M (C$710M)!

Production unlikely to get into full swing until 2025 with the venture penning in 5m pounds of uranium production.

HCF International Advisers has been engaged to facilitate project debt financing. A banking syndicate including EDC, will help also assist project bankrolling which is expected to be completed early next year. Enernet has been engaged by Global Atomic to complete a hybrid solar plant aimed at providing energy needs for the mine site.

Box Cut excavation for underground mining portal complete. Dasa will be a prolific underground mining complex.

Once completed, 150 workers will man the project which will be a conventional underground mining operation. The diagram below shows the phase one decline which will take approximately 12 years to develop.

The phase 1 underground complex will initially take 12 years to complete. That solely represents 20% of Dasa’s current mineral resource.

Befesa Silvermet Turkey

Befesa Silvermet Turkey is essentially a high-grade zinc recovery process. This is Global Atomic’s joint venture with Befesa zinc, a market leader in zinc recovery. The venture processes electric arc furnace dust containing 20% to 30% sourced from local steel mills.

The joint venture produces 65% to 70% zinc oxide concentrate that it markets to smelters. The firm plans to use cash flows from this more mature operation to bankroll its marquee Niger uranium project.

Zinc prices have been strong, averaging $1.74/ lb, a ~35% increase over the prior year. A plant modernization and expansion project had been undertaken in 2019 – this has since been paid off with the Turkish JV accruing dividend payments likely to see light of day in 2023. This joint venture is positive insofar as it allows Global Atomic to diversify risk while focusing on bringing the Dasa project online.

Key Risks

The major risks facing Atomic Global relate to project financing. During a period of ongoing restrictive monetary tightening which has pushed interest rates upwards, fund raising has becoming increasingly onerous.

The project economics are more than enough to get the project off the ground but risk appetite for African projects, particularly given the unrest in neighboring Mali and Burkina Faso could rapidly propagate.

A security risk is present in Niger which needs to be factored into expected risk premiums on such a lucrative enterprise.

Equity composition highlights that management has skin in the game. Roughly 50% of equity holding is made up by management and institutions with the remainder being held by retail investors.

The company’s balance sheet is characteristic of a mining junior – little in the way of cash on hand (solely US ~11M LTM) and not much either in the way of debt. To expand, the uranium venture will need recourse to credit markets.

Failing this, additional equity raises could dilute current shareholders. In any case, at least US $250M is required to get the project off the ground. If those funds can be locked in, big upside likely awaits this Canadian mining junior. For the time being, most of the fund raising has been achieved by equity issuances with US $41M being raised in 2021.

Key Takeaways

For investors who have the stomach to take on a pioneering uranium project and are willing to lock away capital for a couple of years, a position in Global Atomic could reap big positive risk adjusted returns.

Project financing is key, but the technical grounds to build a position are strong. The management team is extremely experienced, with its founder Stephen G. Roman, having a track record of building enduring shareholder value.

He managed and sold Gold Eagle Mines to Goldcorp Inc for $1.5B, underpinning the idea that a sale of either the lease or the company itself could be an alternative if access to credit proves too difficult.

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