TOL - 10th May, 2024
Uranium story: Bang the drum, there's a new Boss in town
Boss Energy recently drummed its first uranium at Honeymoon. This wire explores why that is significant and what happens next.
Late last month, Boss Energy (ASX: BOE) produced the first drum of uranium from its Honeymoon project in South Australia - a significant milestone.
Boss managing director, Duncan Craib, said at the time;
“This is pivotal because it paves the way for strong organic production growth by unlocking the value of our large resource and leveraging the infrastructure we have in place”.
"It's massive", says Guy Keller of the Tribeca Nuclear Energy Opportunities Fund - one of the few people to have accessed Honeymoon in recent times.
He adds that while Boss said they were going to do it, and it's not a surprise, that single drum represents both a long journey to this point and a potentially bright future ahead.
Boss took over the abandoned Honeymoon site, 400km northeast of Adelaide, in 2015. Since then, its market cap has grown from just $37 million to north of $2 billion. The share price? Well, that's gone from a handful of cents to more than $5 (and as high as $6 in February).
Production at the mine is expected to ramp up to 2.45 million pounds (Mlb) of uranium for export each year, from a total resource 71.6Mlb. Some of that production is already spoken for.
In December, Boss announced a binding sales contract to supply uranium to an unnamed US power company. The company will sell a million pounds of uranium to the public utility over seven years commencing in 2025.
Boss also has a 30% interest in Alta Mesa, a uranium-producing mine located in Texas. The stake was purchased for $92 million as part of Boss' plans to add international assets to Honeymoon. The total operating capacity at Alta Mesa is 1.5Mlb of uranium per year.
In light of the milestone and given his recent on-site visit to Honeymoon, I sat down with Keller to talk all things Boss, including the ramp-up, the Alta Mesa stake, and exactly what makes Boss special.
How significant is the milestone?
As noted above, Keller sees the first drumming on uranium as a significant milestone that could change the way investors—both retail and institutional—view the stock.
"There's a lot of investors that want to see cash flow coming from businesses - especially mining developers - and that's now going to happen.
It gets on the radar of these investors now, that previously would have looked at it as just another junior mining play."
Keller adds that the business is much easier to analyse now, as there are cash flows that can be plugged into valuation models.
What comes next - how quick and significant will the ramp in production be?
According to Keller's understanding, Boss will accelerate plans to increase the production rate and mine life at Honeymoon.
"The current mine plan utilises 36Mlb of the project’s total 71.6Mlb JORC Resource. Half of this Resource is already covered by the existing Mining Licence", notes Keller, adding that "Boss also has a valid Uranium Mineral Export Permission for 3.3Mlb a year".
Keller also points out that Boss has geologists in the field, defining the mineral resources at the Goulds Dam and Jasons satellite deposits.
When asked about the risks to the ramp-up, Keller is confident that Boss will meet its targets.
"With this project, most of the operational risks were de-risked through that six-year period when Boss acquired the Honeymoon Project because it was a previously producing asset".
The key has been ensuring that the Boss gets optimal use out of the equipment left behind by the previous operators, Uranium One, but Keller sees that as relatively low risk.
The bigger risk he sees is how Boss will deal with the fact that they are getting better results (i.e. better recoveries, higher grades, better flows) than they initially thought they would - a nice problem to have.
Having visited Honeymoon recently, what's happening on the ground?
Keller spent Valentine's evening in February at Honeymoon (much to the amusement of his wife) and what struck him mainly was the buy-in from the entire team. In previous conversations about Boss, Keller has shared with me that of all the mine sites he has been to and all the crews he has met, he struggles to remember a more engaged team - which he credits to Craib and the entire leadership. It's also what makes Boss special.
"Everybody on the site was using the word 'we'... i.e. 'we' can't wait until 'we' get to production".
That belief from that whole team was impressive and I think the decision to owner-build has been a good one".
From a nuts-and-bolts standpoint, it became clear to Keller on this trip that Honeymoon would exceed feasibility study forecasts, with uranium-rich Pregnant Leach Solution (PLS) from the well-fields, IX column resin loading, and high-grade IX column eluate all outperforming study estimates.
What is your current view on the stock and what does a full valuation look like?
Keller remains a bull on Boss, holding it in the Tribeca Nuclear Energy Opportunities Fund.
He notes that Boss has already proven its ability to grow through brownfields exploration and M&A and he expects growth to come from both exploration and additional M&A.
Keller particularly likes the Alta Mesa investment, calling it "extraordinarily shrewd and strategic", noting that Boss will now be one of just a handful of companies (Cameco and Encore came to mind) with more than one uranium-producing asset.
"I think you're going to find that deal is just the beginning of a partnership that will allow both Boss shareholders and Encore shareholders to benefit from the ability of those two teams to work together on pretty accretive deals", he adds.
As for valuation, he points out that Street valuations use Boss study assumptions that only include 50% of the Honeymoon resource, adding that market valuations also tend to undervalue the fact that an ISR operation does not need to define a large resource pre-mining, and just needs to be “two steps ahead” with well-field development.
"In terms of Honeymoon, at their 2.45Mlb plant capacity (which admittedly will take 2-3 years to reach) and AISC of A$39/lb, at full Boss will generate EBITDA of circa A$200m+ at current uranium prices around US$80/lb".
Concerning Alta Mesa, Keller assumes production reaches a plant capacity of 1.5Mlb and makes an assumption that cost is in the range of $30-35/lb AISC.
"So at US$80/lb uranium, the operation should be doing over A$100m EBITDA, which for Boss’ 30% share is circa $32m EBITDA".
"Using Cameco broker estimates of 2025 and 2026 EBITDA multiples, it can be easy to conclude BOE is not fully valued at these levels".
Whilst things can change, based on those assumptions outlined above, Keller sees plenty more upside, and that’s ignoring Boss' "proven ability to do smart and accretive M&A deals, grow existing operations and add new greenfield discoveries from their exploration program", he adds.
What else is going on in the space?
Keller and I have spoken numerous times recently about the uranium opportunity, the latest of which you can view via the link below.
Commodities
Uranium to keep running hot (and 4 ASX stocks to join the party)
View
As a final word, Keller reiterates that the thesis for uranium has not changed. If anything, it's only getting stronger.
"The drive that is coming from not only governments now, but industry, is strengthening that demand side of the equation every day".
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My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
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