Global Atomic (GLO) - Zinc Component Enhances Uranium Fundamentals

Global Atomic’s appears to be one of the few uranium juniors that has a chance to get financed and get into production. The company’s flagship Dasa Uranium Project is based in Niger, Africa, and a recent optimised PEA documented its potential. If these numbers are correct, Global Atomic could become a meaningful second-tier uranium producer.

The optimisations to the PEA were created by focussing on mining a higher-grade flank zone in Phase 1 of production. At a price of just US$35/lbs U3O8, Dasa delivers a world-class AISC of US$18.39/lbs and cash cost of US$16.72lbs, a CAPEX of US$203M, an after-tax NPV(8%) of US$211M and an after-tax IRR of 26.6%. These numbers are likely to have uranium investors sniffing around the company, but investors may also want to consider the economics at a more favourable uranium price of US$50/lbs. After all, this is the price that uranium powerhouses like Cameco are demanding.
At US$50/lbs uranium, Dasa’s potential is crystallised further. Investors might be looking at an NPV(8%) of US$485M and a 46.3% IRR.

So, on the uranium front, Global Atomic is an investment proposition that is taking shape. However, the fascination of some investors in this story has been derived from a different facet of the company: cash-generative zinc processing.

Global Atomic has a JV with Turkish metals specialist, Befesa Silvermet SAU. Some investors believe this reinforces the uranium side of the business because it provides a source of cash flow to help organic growth, minimise dilution and provide an element of diversification to allow the company to better cope with market volatility.

The JV gives Global Atomic a 49% stake in the Iskenderun zinc concentrate production facility in Turkey. The facility was recently expanded, with its processing capacity doubling to 110,000t of electric arc furnace dust.

Global Atomic's JV with Turkish metals specialist, Befesa Silvermet SAU, has allowed the company to create a unique combination of uranium development and cash flowing zinc concentrate production. Global Atomic has a 49% stake in the Iskenderun zinc concentrate production facility. The facility saw its processing capacity doubled last Summer through an upgrade, modernisation and expansion from 65,000t to 110,000t of electric arc furnace dust. It was completed on time and on budget. It was commissioned during 2019.

This is not just a 40-to-50-year annuity stream of $5M to $10M pa for Global Atomic, it also diversifies the company’s jurisdiction and commodity risk. This article will explore the value that Iskenderun could eventually add to Global’s bottom line.

Zinc – The Elephant in the Room

Investors might already be aware that zinc hasn’t had the easiest year, but it has now rebounded well from the drop off to low/mid $0.80/lbs in the first half of 2020. For the last few months, zinc has been regularly trading at well above $1/lbs (around $1.10/lbs today). Its anti-corrosive properties have given it a solid base of industrial demand, and with large stimulus strategies like the Chinese reflation package driving up demand, it is clear that base metals like zinc have benefited. However, unlike some base metals, zinc isn’t limited in its application. Zinc is playing a larger role in a shift away from fossil fuels to green, renewable energy. There is a growing focus on battery development as humanity aims to enhance its utilisation of intermittent power sources such as wind and solar. A recent Forbes article documented current proceedings, arguing that ‘California Sees Zinc As Likely Successor To Lithium-Ion In Energy Storage.’ It went on to expand, claiming that Californian officials expect zinc energy-storage technologies to help the state attain 100% clean energy by 2045, proving cheaper and safer than lithium-ion while holding a charge longer.

Discussions about energy storage solution are both regular and passionate, from vanadium redox flow batteries (VRFBs), to the specific chemical composition of batteries, it is an issue of keen debate. In recent years, pressure from environmentalists and humanitarians has created an increased amount of scrutiny directed towards battery supply chains. This is perhaps most clearly exemplified by the Tesla/Panasonic-endorsed Responsible Cobalt Initiative, formulated as a solution for ethical concerns regarding child labour in the Democratic Republic of the Congo and other African countries. Musk himself has claimed that Tesla will use no cobalt in some of its next generation of batteries, ‘We use less than 3% cobalt in our batteries & will use none in next Gen.’ Could zinc help plug the gap?  

Now we have taken a look at the zinc macro picture, let’s bring our attention back to Global Atomic and Iskenderun. In light of zinc’s recent resurgence, there have been active conversations regarding Iskenderun’s repayment model. With more cash flowing from zinc concentrate production at Iskenderun, Global Atomic expects to repay its debt incurred by the expansion of the plant faster than it expected earlier this year. The expectation appears to be that the annual dividend for 2020 and most of that dividend for 2021 will be allocated to repayment courtesy of the company’s agreement with Befesa.

If zinc prices remain as their current level, and production of the waste EAFD at the steel mills remains at current levels, it seems that Global Atomic would expect a small dividend in Q1/22. The company would then receive its full dividend in 2023, and this would simply repeat throughout the life of the new, enhanced Iskenderun. Importantly, as part of the JV, Global Atomic ensured that it would be continue to collect management fees and sales commissions on a monthly basis to offset corporate overhead costs, and it will continue to receive these payments. It appears that zinc concentrate sales may drive value into Global Atomic’s bottom line sooner rather than later. Investors will need to keep their eyes on this one.

Lastly, another topic featuring prominently in the uranium investment community is the company’s mining permit application that was submitted at the end of September. Global Atomic is unlikely to expect any official declaration of acceptance until the permit is granted. This is another matter that is likely to evolve quickly over the coming weeks. The government of Niger is said to be interested in the promise of Dasa, being particularly encouraged by Global Atomic’s optimised PEA and commercial strategy. With this in mind, the administration may accelerate the permit’s journey through the approval process. As far as we understand, Global Atomic is expecting the permit to be granted in Q1/21, which could strengthen the company’s position ahead of the next uranium cycle. The company would expect to hear back from the ministry this Autumn if any additional information or clarification is required.

Buckle up, things could be about to get interesting…

https://www.globalatomiccorp.com