The subject of a recent successful merger with Uranium Resources Inc, the company will be able to fast-track development of its flagship uranium deposit in Turkey by relocating URI’s processing infrastructure.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Uranium | |
| Share Price: $0.06 | |
| 12-month Range: $0.052 – $0.088 | |
| Shares: 312m, Options: 110m | |
| Top 20: 60% | |
| Net Cash: $1.1m | |
| Market Value: $19m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q3 2015 Exploration Spend: $0.911m |
| Financial Security | ✓✓✓✓✓ | Q3 2015 Administration Spend: $0.594m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 61%, Admin. Spend 39% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q4 2015 Forecast Exploration Spend: $0.9m |
| Project Risk | ✓✓✓✓✓ | Q4 2015 Forecast Admin. Spend: $1.9m |
Anatolia Energy has positioned itself to become a key explorer and miner in Turkey’s emerging uranium sector. The company maintains a 100% interest in nine licences encompassing more than 18,000ha, including several advanced exploration and development opportunities within the central Anatolian region. The Central Anatolia region has been identified by the Turkish government as one of the nation’s key uranium districts.
All project activities are undertaken by Adur Madencilik Ltd Sti (Adur), a wholly-owned subsidiary company considered to be one of Turkey’s foremost uranium exploration companies. The company’s flagship project, Temrezli, has seen the completion of a positive Pre-Feasibility Study (PFS) that involves the construction of a central processing plant at the Temrezli site, which is planned to have a production capacity of 1.2 Mlb of U308 p.a. over an initial 12-year mine life, processing uranium-bearing solutions from the Temrezli well field.
There is also the potential for processing of uranium-loaded resin transported from any satellite uranium deposits developed in the future from the company’s other projects in the region. Adding to the project’s development potential is the just-approved merger with North American uranium stock, Uranium Resources Inc, which will see Temrezli developed through the relocation of URI’s US-based processing infrastructure. This will significantly reduce start-up costs and also minimise the timeframe to first production.
Recent Activity
Approval for Merger with Uranium Resources
Anatolia has recently received shareholder and Australian Supreme Court approval for its proposed merger with North American uranium play, Uranium Resources, Inc. (Nasdaq: URRE; URI), with a detailed announcement to follow shortly outlining the timetable for completion.
The merger proposal was first announced during June 2015, when Uranium Resources announced a merger proposal with Anatolia Energy by way of a binding Scheme of Arrangement. The consideration payable involves 0.06579 common shares in URI for each Anatolia share held (an implied offer price of A$0.115 per share at the time of the offer and a 29.1% premium to Anatolia’s pre-bid share price.
The boards of both Anatolia and Uranium Resources unanimously recommended the terms of the offer and that shareholders vote in favour of the offer.
Uranium Resources plans to seek to establish an ASX listing of URI shares via ASX-listed CHESS Depositary Interests (CDIs). Anatolia ordinary shareholders will receive their consideration shares as either URI shares traded on the ASX (in the form of CDIs) or URI shares traded on the NASDAQ Stock Market.
Anatolia shareholders will own approximately 41% of the merged company, with URI shareholders owning around 59%. Two existing Anatolia directors will join the seven‐man composite board.
Post-merger, Uranium Resources will have a basic capitalisation of around US$61m and a total enterprise value of around US$59m. Furthermore, RCF, which has provided US$8m in loan funding to URI, has indicated that it will evaluate providing project finance for the development of Anatolia’s Temrezli project.
Project Overview
Anatolia’s strategy is backed by an experienced project team and is geared towards becoming a key explorer and miner within Turkey’s uranium sector. The company’s activities in Turkey are undertaken by Adur Madencilik Ltd Sti (Adur), which has an office in Ankara employing technical, administration and public relations staff. Adur is considered to be one of Turkey’s foremost uranium exploration companies.
Anatolia’s current focus is on the development of its advanced Temrezli uranium project in central Turkey, where a Pre-Feasibility Study (PFS) has been completed on the establishment of an ISR uranium facility that can leach the ore in-situ and recover uranium from Temrezli and other satellite deposits.
The company’s Sefaatli project is an advanced exploration project situated to the southwest of Temrezli, with the potential for a mineralised uranium corridor between the two areas.
The Turkish Government remains committed to plans to construct a nuclear power facility in SE Turkey; with an ultimate goal that nuclear power provides 20% of Turkey’s energy requirement by 2030.
Temrezli Project
Anatolia’s flagship operation is the Temrezli uranium project in central Turkey. Temrezli is located within one the richest uranium districts in the country, situated 200km east (and a comfortable 3‐hour car journey along well-maintained bitumen roads) of Turkey’s capital city, Ankara.
Through its wholly‐owned Turkish subsidiary company, Adur, nine exploration licences are currently held of which three licences extend over the entirety of the Temrezli uranium deposit. Adur is currently in the process of converting these exploration licences into operation licences.
The project area is serviced by an established infrastructure network centred on the regional towns of Yozgat and Sorgun. The project is also ideally located next to a 154 kV electric transmission, essential for electric power for operating pumps and plant facilities.
The Temrezli deposit is the largest and highest-grade uranium deposit known in Turkey. An independent PFS was released during March 2015 that was managed by Tetra Tech, a global engineering firm with vast experience in uranium ISL operations, was prepared to an accuracy of ±25%, in accordance with NI43‐101 Standards.
The PFS confirmed the technical viability of the project, as well as the robust returns capable of being achieved. Two scenarios were evaluated in the PFS: the base case, based on the Measured and Indicated Resources only and the development case, which included Measured and Indicated Resources as well as 80% of the Inferred Resource.
The Anatolia Board considers the development option to be a more accurate representation of the project economics, based on the assumption that a large volume of Inferred Resources are likely to be recovered in the ISL process. Measured and Indicated Resources constitute 85% of the contained uranium.
The development plan is based on the construction of a central processing plant at the Temrezli site, with a planned production capacity of 1.2Mlbs per annum of U3O8. The PFS modelling is based on the current resource of 5.206Mt at a grade of 1,157 ppm eU3O8 containing 13.3 Mlb U3O8. The project is expected to produce 9.9 Mlb of U3O8 over an initial mine life of 12 years.
The PFS confirmed the Temrezli Project to be technically low-risk and highly-profitable, driven by its relatively high-grade, low upfront capital expenditure and low operating costs – which would position Temrezli as one of the lowest-cost uranium producers in the world. There is also potential to further boost project economics and mine life through the integration of satellite opportunities, such as the company’s wholly‐owned Sefaatli project.
Detailed plant engineering studies are expected to further reduce capital costs and there is additional scope to reduce on‐going development costs. Relocation of URI’s Rosita plant from Texas to Temrezli could alone reduce upfront capital costs by US$8m, with a further savings of US$3m in EPCM and engineering costs.
At the uranium price of US$65/lb used in the PFS, the pre‐tax NPV of the project (for the development case, at an 8% discount rate) is US$191.1m. At a US$/A$ exchange rate of 0.75, this equates to $A254.8m or $0.82 per Anatolia share.
However, even at significantly lower uranium prices, the NPV is still robust. At a uranium price of US$50/lb, the pre‐tax NPV8% is US$107.6m or A$143.5m (A$0.46/share) and at a uranium price of US$40/lb, the valuation is US$52.0m or A$69.3m (A$0.22/share). At the current long-term contract price for uranium of around US$46/lb, the pre‐tax NPV would in the order of A$0.34 per share, several orders of magnitude above the current share price.
It is the intention to use In-Situ Leach Mining (ISL), also known as In Situ Recovery (ISR) to extract uranium from the Temrezli uranium deposit. The method is widely used, particularly in the USA and central Asia (Kazakhstan and Uzbekistan), as well as in Australia, China and Russia. In 2013, an estimated 47% of world uranium mined was from ISL operations.
Unlike conventional mining, ISL leaves the ore where it is in the ground, recovering minerals by dissolving them and pumping the pregnant solution to surface, where the minerals can be recovered. Once the pregnant solution is returned to surface, the uranium is recovered in much the same way as in any other uranium plant.
Sefaatli Uranium Project
Parallel to the preparation of the Temrezli project PFS, the company has been advancing its exploration program on its Sefaatli project, which is located just 40km from the Temrezli site. The Sefaatli project area covers approximately 50 sq km and includes the region’s most significant occurrences of uranium mineralisation outside the Temrezli project.
Uranium Resources’ Projects
Uranium Resources, Inc. is a uranium exploration and development company that was incorporated in 1977 to acquire and develop uranium in South Texas using the in‐situ recovery process (ISR). The company has successfully completed several projects in the region, producing more than 8Mlb of uranium over extended periods between the 1980s and 2009, when production was suspended at the company’s Kingsville Dome project due to unfavourable market conditions.
URI has two licensed and currently idled processing facilities and approximately 17,000 acres of prospective in‐situ recovery (ISR) projects in Texas. The company also holds a Federal Nuclear Regulatory Commission (NRC) licence to recover up to 3 million pounds of uranium annually (using the ISR process) at certain properties in New Mexico.
URI controls mineral rights encompassing approximately 190,000 acres within the Grants Mineral Belt in New Mexico, which hosts one of the largest known concentrations of sandstone-hosted uranium deposits in the world. URI currently has a Non‐Reserve Mineralised Material inventory of almost 120Mlb of uranium at its properties in Texas and New Mexico.
Merger Rationale
Anatolia Energy will have access to a board and technical team with vast experience in uranium mining and production, especially in‐situ leaching. Furthermore, the relocation of the existing Rosita ISL facility could save up to US$11m in upfront costs and therefore have a positive impact on project economics. Importantly, Anatolia shareholders will still retain a sizeable exposure to Temrezli project returns.
Through URI, Anatolia shareholders will also gain an exposure to large, strategic landholdings in uranium rich regions of New Mexico and Texas, substantial databases of these regions, potential royalty streams from medium term development properties and the ability to monetise non‐core assets.
Being part of a larger group will have obvious advantages when it comes to marketing uranium and financing, while market liquidity should improve significantly with both ASX and NASDAQ listings.
As a low cost-producer, Temrezli should be able to withstand uranium price volatility and even at uranium prices well below the US$65/lb used in the PFS, the project still has a substantial NPV.
Summary
We believe that now is the right time to introduce Anatolia Energy to our Portfolio. The company has received all necessary approvals with respect to the combination with Uranium Resources and there are clear and obvious synergies to the merger. Whilst uranium presently remains generally out-of-favour with investors, attention will ultimately switch to those companies with the greatest chance of developing new mines. Companies like the soon-to-be-merged Anatolia-URI are at a distinct advantage, given their capacity to develop mines using existing infrastructure and hence much lower capex requirements.
