21-Mar-2021:  Since making a low back in early November 2016, Uranium futures have been trending higher, as the graph below demonstrates.  If the futures price breaks down below that channel, like to US$25/pound, that would be bearish, however if they can maintain that upward trajectory, the upside, even within that rising channel, looks pretty good. 

It is pleasing to see that the majority of ASX-listed uranium project developers have enjoyed healthy positive reratings of late, with VMY rising +300% from 3.5 cps to 14 cps in the past 4 months (since 26-Nov-2020).  These are highly speculative plays of course, as none of them are currently producing anything except reports, presentations and awareness of the future opportunities.  They are not uranium producers.  They are uranium explorers and project developers. 

It's important to note that uranium is not generally traded at the "spot" or futures price.  It is sold under long-term supply contracts as the users of uranium - who are mostly global energy companies running nuclear power plants - need to lock in certainty of supply.  However, the prices involved in those contracts - as new contracts are being negotiated - have also been rising recently, as the previous contracted prices had been below the marginal cost for mining companies to produce uranium - resulting in so many uranium mines being put into care and maintenance (being "mothballed" until the price rises back up to where it makes economic sense to start producing again).  The higher prices being realised in recently inked contracts are giving the industry a huge shot in the arm which has translated into renewed confidence after a period of years in which the vast majority of investors had given up on the sector and sold out).  Uranium companies are certainly runing now.

VMY is my favourite in the space, firstly because of their Mulga Rock and Aligator River project economics, but secondly because of Mike Young, who I've posted straws about here previously.  I've followed him since his BC Iron days and have a lot of respect for his knowledge, ability and tenacity.  You couldn't ask for a better person to head up a company liked this one.  I have made money in prior years from trading VMY, and also BC Iron and Cassini Resources (now a subsidiary of OZL - OZ Minerals) when Mike was running those companies.

All that said, I'm not a current holder of VMY.  I wish I was, but I sold out at lower levels to rotate the capital into the gold sector, which played out reasonably well in the short-term, but not in the past couple of months.  I'm sticking with gold at this point, as I think the risk/reward in the gold sector is more favourable than in the uranium sector, however I can certainly see why uranium bulls are getting a little excited at this point.

18-Sep-2020:  VMY Morgans Research Flash:  The uranium price remains weak.  It's an opportunity to buy Vimy.

Research Flash

Vimy  Resources (VMY)                                                                                         
Market Cap @  A3.7cps: A$29.5M
Cash @ 30 June ’20:   A$7.2M
Valuation & TP: N/A

Buy Quality when no one else is looking – isn’t that the Buffett hypothesis? 

• Just to re-cap the fundamentals for Vimy Resources (ASX:VMY), the Mulga Rock deposit, WA is Australia’s largest undeveloped Uranium project with Federal and State government approvals in place, a 15 year mine life at 3.5Mlbs U3O8 production per year, and life-of-mine upside from resource conversion using open pit, free dig mining, with performance and costings confirmed by test pits and pilot plant processing, and details are shown below
• There is substantial value in the 20-60Mlb Angularli high grade uranium deposit (VMY 79% with Rio) in the Alligator Rivers area, NT, which sits in highly prospective exploration tenements, and in the broader highly prospective exploration acreage. 
• Recent metallurgical test work on Angularli samples, grading 1.2% U3O8 (the resource grade is 1.3% U3O8 – that’s 13,000ppm, compared with Mulga Rock’s 800ppm) showed a 70% grade increase in grade using the TOMRA X-Ray Transmission (XRT) ore sorter to 2% U3O8.  

See Map - click here to view Map 

• The refreshed DFS is for the Mulga Rock project with a +15 year life with annual production of 3.5Mlbs U3O8 and capital cost of A$393M.
• It has low sensitivity to capital and operating cost risks.
• As proposed the development will generate significant socio-economic benefits, and indigenous enterprise opportunities.
• This study assumes an A$/US$ exchange rate of 0.65 (previously 0.70), and an Average Weighted Contract Price of US$55/lb U3O8 (previously US$60/lb), as shown in the Table below.

See Table - click here to view the Table

Our View and comment

Vimy has a fully approved, financially robust project in Mulga Rock, with financing and the FID dependent on completion of long term sales contracts and financing. The value of Mulga Rock is not reflected in the VMY share price.

The value of Angularli and the broader Alligator Rivers tenements is totally ignored in the Vimy share price. Our take is that the Angularli deposit adds substantially to value for VMY, giving offtakers the comfort of production from a second high grade, low cost development. There is further exploration upside in the broader project region, and in a stronger uranium price market we’d expect to see substantial value recognition.

For the Mulga Rock study, Vimy worked with Piacentini & Son, who has experience with the location and geotechnical conditions, having successfully excavated the 2016 test pits at Mulga Rock, to develop a unique hybrid contract mining model. Vimy will purchase fit-for-purpose mining equipment from Piacentini, which Piacentini would run on a cost-plus basis. Longer term contract prices remain critical to the FID and the inking of long term contracts is expected to be the catalyst for an uplift in the share price of uranium stocks. Vimy is well placed to benefit with the fully permitted, large, relatively low grade, but long life Mulga Rock project, attractive to utilities looking for long term contracts. The Alligator Rivers exploration, and the potential to advance the high grade Angularli project towards development, are also expected to prove share price catalysts.

Disclosure:
The Consultant involved in the preparation of this report holds shares in Vimy Resources (ASX:VMY).  

Morgans Corporate Limited was a Participating Broker to the Placement of shares in Vimy Resources Limited in June 2020 and received fees in this regard.

Morgans Corporate Limited was a Joint Lead Manager to the Placement and Share Purchase Plan in Vimy Resources Limited in October 2019 and received fees in this regard.

Regards,
Chris Brown
Senior Analyst

Level 29, Riverside Centre, 123 Eagle St Brisbane, QLD 4000
Email: [email protected]
Direct: 07 3334 4885 | Mobile: 0418 737 810

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Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410

[source:  sent to me by VMY today, via email.  The email title was "VMY Morgans Research Flash:  The uranium price remains weak. It's an opportunity to buy Vimy."]

03-Sep-2020:  Mike Young talks to Ausbiz - September 2020

08-May-2020:  Vimy Resources Share Cafe Webinar Presentation

14-May-2020:  The video of that Share Cafe Webinar Presentation can be viewed here.

[Disclosure:  I hold VMY shares - very speculative, no income yet, and developing uranium projects.]

20-Feb-2020:  Vimy Presentation at RIU Explorers Conference, Fremantle, WA, February 2020

I do hold VMY shares.  Vimy Resources (ASX:VMY, formerly Energy and Minerals Australia) is one example of where I have purchased shares in a very-high-risk explorer/developer with no cashflow or profits, and no clear timeline to achieve profitability.  This one is a punt based on an improved uranium price, and I bought the shares prior to Trump's decision not to impose a tariff or quota on uranium imports into the US (the "section 232" decision) after US uranium miners Energy Fuels Inc and Ur-Energy sparked an investigation in early 2018 after filing a petition under section 232 of the US 1962 Trade Expansion Act citing the US’ increasing reliance on uranium imports, particularly from high risk countries, was a threat to national security.  Trump decided it was not, and other than establishing a new committee to investigate the industry further, he declined to make any changes to the status quo at the time.  It had been widely reported that Uranium supply contracts to US companies (such as nuclear power plant operators requiring uranium) had all been on hold awaiting that decision and the uranium price had remained very low also due to the uncertainty.  Trump's decision was widely welcomed by Australian uranium explorers and developers such as Vimy (VMY) and Boss Resources (BOE).  However, the uranium price still remains very low, below the cost of production for most wannabe-uranium-miners like VMY.  They need a higher uranium price before their projects become economically viable.  Many companies globally that had previously produced uranium have mothballed their mines and plants (put them on "care & maintenance") due to the low uranium price, and aren't interested in starting up those operations unless the price rises materially, which many expected it would have by now - but it hasn't.  Most believe it's just a matter of time.  However, being right but too early is the same as being wrong in this game.  As the old saying goes, the market can stay irrational longer than you can stay solvent.  For that reason, my "punt" on VMY (which is a rare exception to my usual rule of avoiding such companies) is for a small holding with a relatively small amount of money (relative to my investments in investable - i.e. profitable - companies).  I also view that holding as a trade rather than an investment, so I will quickly sell those shares at a profit on a share price spike on the back of improved sentiment around uranium.  That's what I've done previously, and there is money to be made occasionally that way.  However, it certainly doesn't always work out that way.  High risk!

Mike Young is impressive and I've followed him for years.  He has been involved in other companies also - such as Cassini Resources (ASX:CZI), and was previously the MD of BC Iron where he took them from first drill-hole to first iron shore shipment in under 4 years.  When he left BC Iron in May 2013, they had a market cap of $500 million.  VMY is currently my only uranium exposure and the holding that I would consider to be the riskiest in my main trading portfolio, but it's a small position, and if it went to zero, it would be unfortunate, but not particularly material to me.  I like VMY because they never miss an opportunity to promote themselves, and they do it all on a very small budget (smell of an oily rag sort of company).  They have a volatile share price, but that can work in your favour with a trading stock.  VMY is certainly NOT investment grade however.

18 July 2019:  Vimy presentation at Noosa Mining Conference

28 June 2019:  Successful Placement of A$1.8 million