CA - Global Atomic: My Top Pick Among Uranium Explorers And Developers

Summary

• Intelligent investors are supposed to invest in "eating sardines," with Global Atomic being one.
• Exceptional project economics. Full permit. The right jurisdiction. Ongoing construction. Undervaluation. Near-term catalysts. Great management. Global Atomic ticks every single box of a winning investment opportunity.
• Global Atomic provides long-term investors with a rare opportunity to participate in the currently unfolding uranium up-cycle.

There is a significant amount of recent literature available that presents a positive outlook for the uranium mining industry, such as this article . While not delving deeply into the bullish case for uranium in this piece, it is worth noting recent developments in the nuclear energy industry. Climate activist Greta Thunberg now supports keeping German nuclear power plants running, Japan is reactivating its nuclear reactors closed after the 2011 Fukushima disaster, and China and India are significantly expanding their nuclear reactor capacities. Additionally, the uranium enrichment segment of the nuclear industry is shifting from underfeeding to overfeeding . On the supply side, the uranium mining segment has faced a lack of investment for over a decade, resulting in a structural supply deficit. Taken together, it is clear that the upward trend in the uranium market has a lot more room to run (Fig. 1).

The uranium mining industry is dominated by Kazatomprom (KAP.LSE), Orano, and Cameco ( CCJ ), with smaller pure-play players such as Energy Fuels ( UUUU ) and Paladin Energy ( PALAF ) also present. While exploration and development companies have attracted investor interest, it may be more prudent to focus on advanced-stage developers with a realistic chance of becoming producers in the current mining cycle (Fig. 2), such as Denison Mines ( DNN ), NexGen Energy ( NXE ), Deep Yellow ( DYLLF ), and Global Atomic ( GLATF ).

Allow me to present the compelling investment case for Global Atomic, a company with a stake in two distinct projects: the Dasa uranium project in Niger and Befesa Silvermet Turkey SL, a producer of zinc from aluminum slag and steel dust in Turkey.

Dasa Uranium Project

Global Atomic holds an 80% ownership in SOMIDA, the local subsidiary responsible for operating and directly owning the Dasa project. The Niger government retains the remaining 20%, consisting of a 10% stake to be carried by Global Atomic and an additional 10% interest to be funded by the government.

The Dasa project is geologically analogous to operating uranium mines in the 114,000 sq-km Tim Mersoï basin, such as the Somair and Imouraren mines operated by Orano, Cominak's Akouta mine, and the Azelik mine owned by CNNC. The uranium mining district in Niger is well-established with existing infrastructure and a skilled workforce.

Global Atomic has booked a total of 101.6 Mlb of U ₃ O ₈ at a grade of 0.78% in the indicated category, and 87.6 Mlb of U ₃ O ₈ at a grade of 0.68% in the inferred category, based on 146,100 meters of drilling data. Of that mineral resource, 47.2 Mlb of U ₃ O ₈ at a grade of 0.53% have been designated as probable reserves for Phase 1 development, as shown in Table 1.

• It is important to highlight that Dasa's U ₃ O ₈ grades are notably higher, by an order of magnitude, than other African uranium deposits and mines, including Orano's Trekkopje, Somair and Imouraren, Paladin's Langer Heinrich, CNNC's Azelik, Rio Tinto's ( RIO ) Rossing, Deep Yellow's Reptile, Bannerman's ( BNNLF ) Etango, and GoviEx's ( GVXXF ) Falea, Madaouela, and Mutanga.

Since the above-discussed mineral resource and reserve estimates were published, Global Atomic conducted an additional 16,000 meters of drilling in 2022 to capitalize on the significant exploration potential at Dasa. I anticipate that the updated mineral resource estimate, scheduled for the first quarter of 2023 , will result in the expansion and upgrade of the lower-confidence resources.

Global Atomic is executing a three-phase development plan, as illustrated in Figure 3. The January 2023 revised feasibility study indicates that Phase 1, which is underway and slated for completion by the fourth quarter of 2024, will produce 44.1 Mlb of U ₃ O ₈ over a 12-year mine life at an average all-in sustaining cost (or AISC) of US$22.13 per pound of U ₃ O ₈ .

• Phase 1, with an initial capital cost of US$208 million and a sustaining capital cost of US$137 million, is projected to deliver a robust return on investment. At a conservative uranium price of US$50 per pound of U ₃ O ₈ , Phase 1 is expected to yield an after-tax net present value of 8% (NPV-8) of US$456 million, with an impressive internal rate of return (or IRR) of 44.4%.
• A comprehensive development plan, including Phases 2 and 3, positions Dasa as a premier mining project with an estimated after-tax NPV-8 that surpasses US$1 billion, which elevates Dasa to tier-1 status.

• The Dasa project holds tremendous upside potential thanks to its timely production commencement just as the uranium price is ready to swing higher. Even with a conservative U ₃ O ₈ price of US$35/lb, the project remains economically viable. However, the true upside lies in the high likelihood of U ₃ O ₈ prices surpassing the assumed US$50/lb, which would result in a substantial enhancement of project economics as demonstrated in Table 2.

Valuation

Global Atomic is currently undervalued, with a P/NAV multiple of 1.0X when only considering Dasa Phase 1 or a P/NAV multiple of ~0.52X when taking all three phases of Dasa into account. These multiples are calculated with its 49% stake in Befesa Silvermet Turkey SL and the recent C$100 million public offering factored in. This represents a significant discount compared to established producer Cameco, whose P/NAV multiple is at ~1.3X.

Once the Dasa project begins production in 4Q2024, Global Atomic will become one of the largest publicly-listed primary uranium producers, joining the ranks of industry leaders such as Cameco and Kazatomprom. As one of the few pure-play uranium developers/new producers, Global Atomic is poised to attract significant market interest during a bullish uranium market. This heightened market interest is expected to result in a revaluation of the company's stock, bringing it closer to the valuation of Cameco.

In addition to the production outlook, Global Atomic's potential for capital appreciation lies in its upcoming operational advancements. As the company advances its exploration efforts, updates its mineral resource estimates, and releases its Phase 2 and Phase 3 mine plan, along with the Isakanan satellite deposit, investors can expect to see continued growth in the company's value.

Near-term catalysts include the updated mineral resource estimate in 1Q2023, a refined mine plan with updated capital costs and detailed engineering in 2Q2023, the financing of Dasa Phase 1 in 2Q2023, the start of ore extraction in 4Q2023, an agreement with Orano for direct shipment of ore to the Somair plant, and the announcement of additional uranium off-take contracts. Substantial capital appreciation can be expected as Global Atomic emerges as one of the top publicly-listed primary uranium producers, along with Cameco and Kazatomprom, in a thriving uranium market.

Risks

Jurisdiction

Investors may have concerns about investing in a mining project located in a Sahel country like Niger. However, it is important to note that Niger has a well-established uranium mining industry with a favorable fiscal regime, developed infrastructure, and a skilled workforce. The country levies a mining royalty ranging from 5.5% to 12% and has a 30% income tax rate with a three-year grace period from commercial production. Projects are also exempt from the 19% VAT until first production.

• In December 2022, the Biden Administration announced a significant US$504 million grant for upgrading surface transportation infrastructure, including the port and road networks between the Port of Cotonou in Benin and Niamey, the capital of Niger. This commitment to the Benin-Niger supply route corridor is a positive development for Global Atomic and demonstrates Washington's support for the region.

Uranium price volatility, foreign currency

Uranium price may be volatile. However, uranium mining projects, including Dasa, benefit from the relative stability provided by long-term supply contracts, which are typically protected against short-term price volatility through the inclusion of a floor reference price and a variable component linked to an inflation indicator.

Global Atomic exposes investors to foreign currency risk as a result of operating costs at its subsidiary Befesa Silvermet Turkey SL being denominated in Turkish lira, and in Niger being denominated in West African CFA Franc, while revenue is received in US dollars.

Off-take

In June 2022, Global Atomic received a letter of intent from a major North American utility to supply 2.1 Mlb of U ₃ O ₈ over a six-year period starting in 2025, at an average price of more than US$52.4/lb of U ₃ O ₈ . The company has also signed a definitive agreement with a major Western utility to supply 2.4 Mlb of U ₃ O ₈ over a multi-year period beginning in 2025, at an average price of more than US$58.3/lb of U ₃ O ₈ . Despite these agreements, Global Atomic still needs to secure additional off-take contracts, to cover the additional 86% of Phase 1 production, in the near future. Furthermore, the company is in ongoing discussions with Orano regarding the direct shipment of development ore to the Somair processing facility, which could provide early revenue.

Project financing

Global Atomic is in the process of securing project financing for the construction of its Dasa mine. The company has engaged a banking syndicate, including the Export Development Canada, which planned to have a site visit slated for mid-January 2023 as the final part of the due diligence process. By the end of 1Q2023, Global Atomic is expected to receive a loan term sheet, and the financing package is expected to be signed by the end of 2Q2023. To complement the debt portion of the financing package, the company has also scheduled to close a C$100 million public equity offering by February 14, 2023.

Global Atomic stands out among pre-production uranium stocks in terms of financial resilience, due to its stake in the cash-flowing joint venture Befesa Silvermet Turkey SL. The company is poised to receive quarterly dividends from this operation, which are estimated to be in the range of C$2.5-6.3 million and could potentially resume in the second quarter of 2023. These dividends are expected to effectively cover, or at the very least, offset the general and administrative expenses of the company. In addition, Global Atomic has access to 49% of the US$6.8 million revolving credit facility of Befesa Silvermet Turkey SL, further contributing to its strong financial footing.

Management

Global Atomic is led by its founder, Chairman, President, and CEO Stephen G. Roman, who previously worked as VP-Exploration at Denison Mines and is the recipient of the Bill Dennis award from the PDAC in 2016. Roman is backed by a team of seasoned executives, including COO Ron S. Halas, a mining engineer, and CTO Santiago Faucher, a chemical engineer with metallurgical expertise.

The insiders and management of Global Atomic hold a substantial stake in the company, with an estimated ownership of 13.4% of the outstanding shares, which gives them substantial skin in the game.

Investor takeaways

Seth Klarman once shared a story:

There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."

Like sardine traders, many financial-market participants are attracted to speculation, never bothering to taste the sardines they are trading. Speculation offers the prospect of instant gratification; why get rich slowly if you can get rich quickly?

In the uranium mining space, the stocks of the vast majority of the junior explorers can be called "trading sardines", which are unlikely to become a producer in this mining cycle. Only can a handful of advanced-stage developers and producers be called the "eating sardines".

Global Atomic distinguishes itself as a leader among uranium developers. Its 80%-owned flagship project Dasa boasts an impressive set of characteristics, including being the highest-grade project located in a well-established uranium mining district in Africa and possessing robust project economics. This project has already secured full permitting and is several years ahead of competitors in Canada's Athabasca Basin. The company officially began construction on the mine in November 2022 with an opening blast ceremony , setting its sights on commencing commercial production by the end of 2024, perfectly timed to capitalize on the expected supply deficit in the uranium market. Undervalued, the stock may experience significant re-rating as the company advances the Dasa project to production.

The Global Atomic stock has experienced a period of consolidation since September 2021, as depicted in Figure 4. However, the next two years are loaded with catalysts that are poised to propel the company to new heights, ultimately positioning Global Atomic as the third largest publicly-traded pure-play uranium producer at a time when the uranium price is expected to reach a substantially higher level.

As a long-term investor, I believe that Global Atomic presents a rare opportunity for individuals looking to gain exposure to the impending uranium bull market.

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