RHJ
Overview
IsoEnergy (OTCQX:ISENF) is a Canadian uranium development company, which was originally spun out of NexGen Energy (NXE). NexGen did up until recently hold a majority stake in IsoEnergy, but owns 33.9% following IsoEnergy’s merger with Consolidated Uranium late last year. Energy Fuels (UUUU) and Sachem Cove are a couple of other high-profile owners of IsoEnergy.
The flagship asset of IsoEnergy is the Hurricane deposit, which is part of the Larocque East project, located in the eastern part of the Athabasca Basin, Saskatchewan, Canada. This is the world’s highest grade indicated uranium mineral resource and the primary reason I own the stock.
Figure 1 – Source: IsoEnergy Corporate Presentation 
Following the above-mentioned merger, IsoEnergy now owns assets in several prospective regions of the world. The U.S. assets and Tony M specifically are interesting due to the near-term production capabilities.
Figure 2 – Source: IsoEnergy Corporate Presentation
The other development projects are in my view of more marginal importance. There might be long-term potential in those assets, but I do think it is fair to assume that most of the capital and resources will in the next few years be spent on the Larocque East project and the U.S. assets.
IsoEnergy has, due to a relatively strong uranium market, taken the opportunity to raise substantial amounts of capital. The company raised C$37M late last year at C$4.50 per share and did earlier this year raise C$23M via bought deal, at a share price of C$6.25 for flow-through shares. Flow-through shares are typically made at a premium, but both capital raises were in my view very well executed.
The cash position should now be around C$50M, which provides the company with a lot of liquidity that might be needed during a ramp-up of the U.S. assets. The company did at the end of 2023 have convertibles worth C$37M, but otherwise a clean balance sheet.
Figure 3 – Source: IsoEnergy Q4-23 FS
U.S. Assets
The U.S. assets in Utah are past-producing mines within trucking distance of the White Mesa mill, which is owned by Energy Fuels. IsoEnergy has a toll milling agreement at White Mesa, where the uranium circuit is presently going through a restart.
Figure 4 – Source: IsoEnergy Corporate Presentation
IsoEnergy is planning a restart of Tony M at the end of 2024 or early 2025 to coincide with the mill restart. It has been a while since Tony M was operating and the size of the resource is relatively small, so it remains to be seen what production volume and operating costs can be achieved. The remaining U.S. assets have the potential to restart within a year after Tony M if the ramp-up of Tony M goes well and the uranium market conditions continue to be favorable.
At least I think it is very likely to be generating positive cash flows in the current uranium price environment, with a spot price of $89/lb and a long-term contract price approaching $80/lb.
Larocque East & Potential Value
IsoEnergy did in July 2022 release a resource update on Larocque East, which had 48.6Mlbs of indicated uranium resources at a spectacular grade of 34.5%. The company has not yet released an economic study, as different mining approaches are being considered. That is partly because the deposit has almost 50Mlbs of uranium in a very compact area. Without an economic study, there is more uncertainty about the value of this project.
Figure 5 – Source: IsoEnergy Corporate Presentation
In the chart below, I have compared the size and grade of Larocque East with a few other high-grade uranium assets in the Athabasca Basin, where we can see how the grade stands out compared to the other impressive assets, even if the size is at the lower end in comparison.
Figure 6 – Source: Multiple Sources
Denison’s (DNN) Gryphon project has only slightly more uranium resources compared to Larocque East, that asset has its net present value estimated to be around $1B using a uranium price of $90/lb. So, I don’t think it is overly aggressive to assume Larocque East being valued somewhere around $1B as well, given that the grade is substantially higher.
Conclusion
The latest share price of IsoEnergy (TSXV:ISO:CA) was C$4.16, and we get a fully diluted market cap of $582M if we include all the options, warrants, and assume the max conversion rate of the convertibles. The enterprise value is then close to $500M.
I consequently consider IsoEnergy a compelling buy here based on the valuation, with an enterprise value of around $500M, Larocque East valued somewhere around $1B, and the U.S. assets conservatively valued at around $100-200M. We are by my estimates looking at an EV to combined asset value around 0.45, which is well below most other high-margin uranium developers today.
Now, the path to production for Larocque East is probably relatively long, but IsoEnergy can on the other hand be a producer with its U.S. assets in less than a year from now. The company also has growth potential, where we are presently waiting for results from the latest 2024 winter drill campaign.
Figure 7 – Source: IsoEnergy Corporate Presentation
IsoEnergy is a low-liquidity, high-beta stock. So, it can be relatively volatile, both to the upside and the downside. If we see a period of lower liquidity, there is always a risk that the stock underperforms the Sprott Uranium Miners ETF (URNM).
Figure 8 – Source: Koyfin
However, that volatility works to the upside as well. So, for anyone who thinks upside volatility is quite likely to materialize in the uranium market, IsoEnergy is an interesting higher quality uranium stock for the portfolio. I added the stock to my portfolio in the summer of 2023 and I have been adding on weakness.
Figure 9 – Source: Office & My Trades in IsoEnergy
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Credit: Source link
