Deep Yellow (DYL) - $80 Won't be Enough for Most Juniors
Deep Yellow Limited is an Australian uranium exploration business with a focus on Namibia. They are advancing a dual-pillar growth strategy to establish a multi-mine, 5-10 Mlb per annum, low-cost, tier-one uranium producer. The company's flagship project is based in Namibia and they are simultaneously focusing on achieving both inorganic and organic growth.
We met with John Borshoff, CEO and Managing Director, Deep Yellow. John is an experienced mining executive and geologist with experience spanning over 4 decades in the uranium industry. He founded Paladin Energy Ltd. in 1993 and built the company from a junior explorer to a multi-mine uranium producer with a peak valuation of over $5Bn. He is a recognized global uranium industry expert with a vast network across the uranium and nuclear industries.
John's educational credentials include a Bachelor of Science degree in Geology from the University of Western Australia. He is a Fellow at the Australian Institute of Company Directors and the Australasian Institute of Mining and Metallurgy. John also serves as a member of the Uranium Forum at the Minerals Council of Australia and the Council of the Namibian Chamber of Mines.
Deep Yellow is a uranium exploration and development company based out of Australia. The company was founded in 2006 and is headquartered in Australia. They are listed on the Australian Stock Exchange (ASX: DYL) and the OTC Markets (OTCQX: DYLLF). Inca Mining Pty Ltd., Reptile Uranium Namibia Pty Ltd., Trs Mining Namibia Pty Ltd, Deep Yellow Namibia Pty Ltd, Nova Energy Namibia Pty Ltd, Omahola Uranium Pty Ltd., Superior Uranium Pty Ltd., Shiyela Iron Pty Ltd., and Reptile Mineral Resources and Exploration Pty Ltd. are the company's subsidiaries.
Deep Yellow's Namibia project features the development of two mines, making it the only non-major company to develop 2 mines post the Chernobyl period. The company has retained its Paladin team for this project. The team has extensive hands-on experience working on uranium projects. Deep Yellow currently has 20 projects in their portfolio that collectively generate a 3Mlbs uranium supply. These deposits vary widely in terms of age, exploration, and resource potential.
Uranium's Market Challenges
Unlike gold and other precious metals, uranium's pricing is greatly influenced by the market movement. As the global uranium supply continues to shrink, there are projections that the shortage will directly impact the market pricing. Following the recent announcements made by the Sprott Uranium Trust group for purchasing uranium supply from the market, there are speculations that the spot price for uranium has the potential to reach the $50 threshold by mid-2022.
The development of a uranium project is an expensive affair and the majority of the moving parts work under the radar, this leads to limited interest from the market until results and studies are published. Even then, there's a high chance that the ongoing uranium trends in the market will lead to unfavorable pricing, despite the growing demand from multiple industries.
Deep Yellow is open to the possibility of M&A in the future, although this is largely dependent on the material pricing in the utility market combined with the outcomes of the company's exploration and development pursuits. The company looks at M&A opportunities as a way to combine resources and technical know-how to significantly ramp up the overall supply. Additionally, an M&A also enables companies to gain better market exposure, leading to new customers and potential contracts.
The Reptile Project
The Reptile Project is a wholly-owned asset that features uranium resources from both palaeochannel/calcrete and basement/alaskite targets. The company has been working simultaneously on both types of targets since 2017.
At the Tumas deposit within the Reptile Project, the company completed a PFS (Pre-Feasibility Study) and is currently working towards a DFS (Detailed Feasibility Study). This deposit has a current mine life of 12 years.
The palaeochannel, Langer Heinrich style target is based out of an ancient river system. This target is under 40m below the surface and is present within soft rock. Early discoveries showed that the palaeochannel system featured highly fertile uranium deposits knitted together within a 120km area. The first resource base out of this deposit was 20Mlbs. The second resource base was indicated at 45Mlbs, featuring similar trends as the Husab and Rossing sites, featuring very high-grade 420ppm uranium in hard rock.
Through consistent drilling operations, Deep Yellow focused on growing its resources from both organic and inorganic strategies. This led to a 4-fold increase in their supply from 20-25Mlbs to 100Mlbs. It is important to note that this supply only accounts for 60% of the overall 125km asset.
Deep Yellow has established its base and within the next week, they are looking for an ore base, which would increase the mine life from the original 12 years to 20 years. As the operations continue, the company speculates that the mine life can further be extended up to 30 years. The DFS is currently in the interim optimizing stage and is scheduled to conclude by Q1 2022.
Following the PFS, the company has strong numbers to back its drilling and exploration strategy. They have innovated processes in uranium extraction which give them an advantage against the competition. They are applying the innovative techniques developed from past work on the Tumas deposit. Deep Yellow has successfully produced and delivered 40Mlbs-50Mlbs supply so far. They have the credibility and the credentials that will facilitate future growth.
Targets 2021 and Beyond
Deep Yellow is expecting to sign utility contracts once the DFS concludes, in mid-2022. This will enable the company to generate significant shareholder value. The company is in talks with various entities and is looking to cover both the supply and enrichment of uranium.
The company isn't looking to enter contracts at market prices as the floor prices are significantly lower, leading to a significant under-evaluation of the supply. Instead, they are looking to sign contracts that are backed by fixed pricing. This will also enable Deep Yellow to gain better debt financing for a capital raise.
Deep Yellow is looking to unload its supply when there's a pull from the utility market. They are looking to utility buyers who are aware of the challenges faced by the uranium industry, leading to mutually agreeable terms and fair pricing.