Vimy Resources (VMY) - Refreshed DFS. Excitement Muted. Why?

Uranium is an extremely opaque space. The macro story remains as compelling as ever. What sort of exposure to a potential uranium resurrection can Vimy Resources offer to investors?

Company Fundamentals

Vimy Resources is one of the many up-and-coming uranium developers that is hoping to leverage the accretive uranium price created by the seemingly imminent uranium bull market. We've spoken to Young several times previously, and he has always come across as a down to earth CEO. However, at times he has portrayed a quite frustrated, somewhat downtrodden figure, and one could hardly blame him given the trajectory of the uranium market in recent years. Investors have been feeling his pain in equal measure. With whispers of price discovery behind the scenes, and numerous potential catalyst moments on the horizon, what has Vimy Resources been up to in the meantime to position itself strongly ahead of the next cycle?

The Mulga Rock August 2020 DFS Refresh

The answer is an optimised DFS for its flagship uranium project. Vimy Resources is based in Perth Australia, and its Mulga Rock Project is located 290km northeast of Kalgoorlie. This is a resource of substantial scale and is Australia's largest advanced uranium project.

The original DFS, released in January 2018, featured some encouraging numbers. However, in this bear-induced interim, uranium players have had plenty of time on their hands to polish the value proposition that they are offering investors. Has the route that Vimy has opted for, a polished DFS, worked?

On the face of things, the optimised highlights paint a positive picture. Cash operating costs over the life-of-mine (LoM) have been reduced by 7% to US$23.33/lbs U3O8: a meaningful improvement that will free up some capital for Vimy to deploy in other areas. There has also been a 20% reduction in capital cost, which now stands at $225M; this is still a substantial figure for a $30M market cap company. Vimy has also been able to drive the LoM AISC down to $31.22/lbs of U3O8, an 8% decrease. This is well short of being world-class, but this is a perfectly reasonable figure and should allow the company to remain economical with relative comfort.

The payback period has fallen by 8-months to 2.4-years, and the project could generate free cash flow of $61M pa, a 22% rise. Vimy Resources is quick to remind us that Mulga Rock will bring socio-economic benefits to the region and provide indigenous and enterprise opportunities.

Mulga Rock could be an asset that utility companies look at for potential supply contracts. It has the economic credentials that stand up, even if the CAPEX is considerable, and it also appears to have the scale to appeal to strategic partners: potential production is earmarked at 3.5Mlbs of uranium per annum for 15-years. As an already advanced project, this DFS is viewed by the company as the final step to cement the value proposition of Mulga Rock before finalising project funding and strategic partnerships.

Vimy is aiming to get into production quickly, which is crucial in this uranium environment. Once the c. $55/lbs contracts start being negotiated, uranium players need to be in a position where they are ready to deliver pounds and not waiting for permitting, licencing or financing. With a 15-year LoM and close to production, Vimyounding the table to be noticed. In Scott Hyman they have an experienced individual in sales and procurement having previously worked at Cameco for 13-years, including as VP Marketing Americas. He now needs to earn his keep and deliver term-contracts. To do that Vimy needs to get financed to production. Catch-22? Young explains why not.

Why hasn't Vimy gained any traction in the market yet? Vimy trading volumes are low and the share price has been hovering around A$0.04 for a while, with this latest DFS failing to generate any meaningful attention. If one looks at tactics taken by a uranium peer, such as the optimised Dasa Project PEA by Global Atomic earlier this year, one will recognise that such moves have resulted in a significant, positive market reaction.

Young seemed re-energised compared to when Crux Investor last spoke to him. He seems much happier with the direction of the company and perhaps feels more bullish about the uranium market. Mulga Rock looks attractive and there is also some potential exploration excitement on the backburner. The company's March 2018 acquisition from Cameco Australia, the Alligator River Project in Arnhem Land of the Northern Territory, comprises three separate tenement packages covering a total area of 3,865km2 including 1,600km2 of granted exploration licences. Vimy Resources operates the project in a 79%/21% JV with Rio Tinto. It regards this jurisdiction as 'one of the top 3 uranium districts in the world.'

Young and his team at Vimy Resources appear buoyed and confident, but are uranium investors?