No matter what I do in this business, I can point to Tommy Humphreys as the first guy who really showed me what was possible in covering the public markets.
His words, “What are you working for that guy for? It’s you, it’s all you, you’re the product” eventually led me to realizing career freedom, monetary success, and my own gig.
So it’s with pleasure that I point anyone interested in resource opportunities to his CEO.CA chat site, where you’ll regularly find some of the brightest and biggest names in resources nattering away about this company and that, from newsletter writers to analysts to CEOs to hacky IR humps on the hard push.
For the last month, Tommy has been working on a video and story about a company he really likes, so I’ve decided to repost it here, for your investing pleasure.
Enjoy. And thanks, Tom.
Talking top value amid low uranium prices, Daniel Major gets to the crux of his pitch for GoviEx, the uranium developer he leads.
“If you believe this cycle is going to turn, then you want to be looking at projects that can be built in the cycle and generate cash flow,” says Major. He sees GoviEx as one of the best answers — if not the best answer — to that investor pursuit.
Consider: Its valuation versus a swath of peers — the uranium developers — currently trades around $0.15/lb uranium resources, of which it has an industry leading ~200 million pounds. Yet the peers trade at over $0.55/lb. Strip away the lesser developers on the list — considering GoviEx owns two fully permitted uranium projects — and the average valuation rises to $1/lb uranium. It’s a yawning gap in valuation that puts GoviEx at or near the top of the list for investors on the hunt for value in the beat-up uranium sector.
Consider also the main project, team and place. Not exactly lightweight. Niger, if extremely poor and with security issues, is one of the world’s premiere uranium districts. That much is clear in GoviEx’s neighbour at the Madaouela project, Areva. The leading uranium producer operates just 10 kilometres west of Madaouela, GoviEx’s flagship project. The deposit holds about 100 million pounds uranium outlined by an impressive 600,000 metres of drilling in a deposit that has not been closed off. Areva exploits similar deposits and, by some accounts, ones that are dwindling after 50 years of production.
It all begs the question — is Niger such a bad place to be? On the one hand, you have to weigh the safety risk of operating in Niger. The danger of Boko Haram and Islamic extremism is real. On the other hand, major uranium producers have long operated in Niger under regulation of a government that prioritizes uranium development. Major believes the risk is overstated and that operating on the ground in Niger has its advantages. For one, given its long history of uranium production, there are established companies run by Niger residents that know how to safely work in country.
As for the team and backers, GoviEx swings hard. Some of the people and shareholders: Govind Friedland, a geologist and the son of mining legend Robert Friedland, founded the company. Major, a mining engineer who formerly ran Russian titan Oleg Deripaska’s molybdenum mining and timber operations, drives it. Cameco, the major uranium producer, is an early investor. Toshiba is also aboard in recent years, even after the Fukushima disaster. Notably, Toshiba owns Westinghouse, a global leader in nuclear reactor construction. It is a long-term partner that has invested at much higher prices, with an eye to offtake. Worth pointing out here, GoviEx owes Toshiba just shy of 500,000 pounds of uranium in April 2020. It’s a debt GoviEx is on the hook to meet. But the debt is also an indication of a strong partner’s intent and view of the company. It wants and sees the potential to get U3O8 out of the ground at Madaouela. GoviEx is expecting to repay the loan from its planned 2.5 million pounds of annual production.
More recently, Ivanhoe Industries — a private Robert Friedland company — financed GoviEx. Then Denison, the uranium concern of billionaire resource developer Lukas Lundin, became a key shareholder in a deal that brought its portfolio of uranium projects in Mali, Zambia and Namibia into the GoviEx fold. That bolted on about 100 million additional pounds of U3O8 in three different projects and diversified the holdings of GoviEx.
“I think people had their discomfort,” Major notes, speaking to the Niger-only face of GoviEx before the Denison deal. But the Denison assets brought aboard a solid team of veterans in the uranium space to advise GoviEx and diversified the portfolio, Major says. “It brings in countries and regions people are more accepting of.” Of the Denison assets, Mutanga — the Zambian project — is the most advanced. Like Madaouela, Mutanga is permitted for construction.
One thing to watch: At present GXU stock is not very liquid, averaging about 35 thousand shares traded per day over the last 3 months. It trades on the CSE, and the lack of interest in it, as much a function of the depressed uranium market as anything else, remains an issue. GoviEx is planning an up-list to the TSX Venture to boost visibility and to undertake marketing initiatives, including retaining Renmark, the investor relations firm. The return of the uranium bull would also help.
Taken altogether, Major sees the market as getting the company valuation wrong — ignoring its strengths. In this he is critical of GoviEx’s communication to the broader market of investors. “We’ve done all the hard work,” Major says. “We just forget to tell people we were doing it.”
But the goal is clear. Major and the GoviEx team see Madaouela producing in 2020. It requires a US$359-million mine build and would deliver an operation with a two-decade long mine life producing about 2.5 million pounds U3O8 a year, according to a recent prefeasibility study. The flat-lying deposit is far from drilled off and notably open to the west in the direction of Areva operations. Basic costs come in at just over US$24/lb U3O8, GoviEx says, and Major pegs breakeven around $48/lb U3O8.
To be sure, the basic operating cost is close to today’s spot price of uranium. But Major considers the project financeable via debt, something it will work on through the coming year. He notes that contract prices are in the mid-$40/lb and, perhaps more importantly, that some (but not all) term prices after 2020 are over $50/lb. “There are floor term contracts available at $50 to $55/lb,” he says. “So at that price, if we can secure those kind of contracts for this project, (it) can be built for 2020.”
It’s a significant horizon. As Major rightly points out, many analysts view the market turning bullish as the current oversupply works itself out, leading to higher uranium prices. With that in mind, one of Major’s most convincing arguments in favour of Madaouela and GoviEx is that the project is uniquely poised — as it’s already permitted — to get built and make cash flow should the market pick up within the next half decade. That timeline contrasts with other projects around the world that typically require much longer permitting timelines. In Canada’s Athabasca Basin, a leading uranium jurisdiction, permitting takes longer — 7 or more years is the norm. Stuck in permitting limbo, such projects may miss the cash-flow boat when and if the tide turns.
Taken altogether, GoviEx’s chances at success given its valuation is enticing. GoviEx director Christopher Wallace puts this view well. Speaking to CEO.CA, he scratches his head at GoviEx’s current market cap: roughly $26 million (less when he spoke) for a company, operating largely in Niger, with 200 million pounds uranium, two projects with mine permits and competitive operating costs in view.
“The real question is — should we trade at the same level as the peer group?” he asks. Given the A-list shareholder group, the size of the resource, and two mining permits, it is a good question.
GoviEx Uranium (GXU)
Recent Price: .10
Shares outstanding: 264.7 million
Market cap: $26.5 million
Treasury: Roughly $3 million