Ground Breakers: Uranium fever is back and investors are frothing for yellowcake large caps this morning
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Uranium prices got back on the move overnight (here’s why), and there was some feverish buying this morning in the headline uranium stocks, with Paladin Energy (ASX:PDN) gaining more than a fifth of its value.
— numerco (@numerco) October 12, 2021
The recapitalised Paladin, which owns the mothballed Langer-Heinrich uranium mine in Namibia, is now a ~$2 billion company.
That is a far cry from its lowly status at the start of 2021, with the stock up a mere 250% year to date.
Uranium stocks have been seemingly impervious to bad news during 2021’s recovery run.
Case in point Rio Tinto-backed Energy Resources of Australia (ASX:ERA), which stopped processing uranium from its Ranger mine in the Northern Territory in January.
It is up 9% today and 33%YTD, as it sells down stocks of the nuclear fuel, with around 1.37Mlbs to be delivered into contracts this year.
The company recently withdrew guidance of closure and rehabilitation costs at the project, saying they would be materially higher than initially forecast, not the sort of positivity being expounded by explorers and hopeful future producers at the moment.
Boss Energy (ASX:BOE) one of the leading candidates among the mid-caps to get into production in the next few years at its Honeymoon mine in South Australia was up 16.3% to a market cap of $636 million.
But BHP (ASX:BHP) was resilient with a slight gain to help the Materials index stay relatively flat this morning.
Westgold Resources is set to lodge a bidder’s statement soon in its bid to take over Gascoyne Resources but already it has hit a roadblock, with Gascoyne’s largest shareholder saying it will not accept the 1 for 4 share offer.
The Peter Cook-chaired Westgold views Gascoyne’s high cost (but strategically located) Dalgaranga gold project as its golden ticket to a position as one of the Australia’s biggest gold miners, with a line of sight to 500,000ozpa over the coming years.
Dalgaranga contains a 2.5Mtpa mill that would bolster Westgold’s capacity in the Murchison gold district it currently dominates and provide extra processing capacity for its mill-constrained Cue gold assets.
Gascoyne is itself looking to become the bigger brother in a merger with junior explorer Firefly Resources (ASX:FFR), which would see it add the 196,000oz Melville deposit gold project and a strategic landholding across the Mid West gold fields into its portfolio.
Gascoyne today recommended shareholders reject the impending Westgold offer, which is contingent on a minimum acceptance of 50.1% and the cancellation of the Firefly deal, also releasing a statement from its top shareholder, 22.1% owner Deutsche Balaton that it would not accept the Westgold offer unless a better deal is put on the table.
Gascoyne says the Westgold offer would leave its shareholders with just 13% of the combined entity and undervalues the rebounding gold miner compared to its peers, and says an independent expert’s valuation of the fair value of Gascoyne’s shares, relied on by Westgold, underestimated the value of its shares.
Dalgaranga produced around 16,744oz of gold at AISC of $1976/oz and all in costs of $2258/oz against a realised gold price of $2529/oz in the September Quarter, supported by a beneficial hedge position.
Alongside its rejection of the Westgold bid, Gascoyne’s board has updated its mine plan to defer a stage 3 cutback, saving around $60 million on stripping costs this financial year.
Gascoyne says production guidance for FY22 will remain unchanged at 70,000-80,000oz, while AISC will slide from $1900-2000/oz (all in costs of $2050-2150/oz) to $1,600-1,700/oz, with cutbacks deferred for a better gold price and “less inflationary cost environment”.
“Gascoyne’s decision to defer the Stage 3 eastern and western wall cut-back of the Gilbey’s pit will greatly increase cash generation from Dalgaranga and Melville over the next three years and protect the business against avoidable financial risk in the current environment,” Gascoyne managing director Richard Hay said.
“We have been able to take this pathway by capitalising on the operational flexibility emerging from the proposed merger with Firefly and exploration success within our Dalgaranga tenements.
“Under the new optimised Stage 2 plan for the Gilbey’s pit, baseload ore feed will be produced for the next two years which will be further supported by satellite feed and stockpiles from FY2023.
“Importantly, production guidance in FY2022 remains unchanged and the deferral of up to $60 million in waste stripping will reduce the All-in Cost of production, thereby significantly increasing cashflow generation this year. Furthermore, the decision preserves the future optionality of the cut-back when the operating cost and gold price environment improves.”
Gascoyne shares were up more than 25% since Westgold announced its off-market takeover plans, but slid more than 8% today on the news the bid would be rejected, while Westgold was up 1.3%.