Uranium Co. Acquires Rio Tinto's Wyoming Assets
Research Report

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Disclosures for Roth MKM, Uranium Energy Corp., September 25, 2024

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Roth MKM analyst Joe Reagor, in a research report published on September 25, 2024, reiterated a Buy rating on Uranium Energy Corp. (UEC:NYSE AMERICAN) while raising the price target from US$9.00 to US$9.50. The report follows UEC's announcement of its agreement to acquire Rio Tinto Plc.'s (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) Wyoming uranium assets for US$175 million in cash.

Reagor highlighted the significance of the acquisition, stating, "We view this acquisition as an ideal bolt-on for UEC and as such, we are increasing our price target from US$9.00 to US$9.50." The analyst noted that the acquired assets include the Red Desert project, the Green Mountain project, and the Sweetwater uranium plant, with historical resources of 175 million pounds of uranium.

The analyst emphasized the potential value creation from these assets, explaining, "Given the current resource base is historical, there is potential for UEC to generate shareholder value by converting these resources to a SK-1300 compliant resource, in our view." Reagor also pointed out the potential for new discoveries and the significance of the Sweetwater plant, stating, "Ultimately, we believe the licensed capacity could be converted to ISR resin stripping and thereby provide UEC with significant production growth potential."

Regarding UEC's strategic plans, Reagor noted that the company intends to fund the transaction from its existing liquidity. He added, "We believe UEC's purchase price for Rio's Wyoming uranium assets reflects the historical nature of the resources and a lack of recent work on the projects. However, if UEC is able to update the resources to be SK-1300 compliant, they would be worth significantly more, in our opinion."

Roth MKM's valuation methodology for UEC is based on a sum-of-the-parts analysis. Reagor explained, "We assign a value of US$974.5 million to UEC's ISR projects (US$8.5 per pound of resource including the historical resources from Uranium One), US$156 million for the potential to add 52 million additional pounds of ISR resources in Wyoming (US$3.00 per pound), US$246.4 million for its hard rock assets (US$6.00 per pound of resource), and US$69.3 million for the company's exploration project Oviedo (US$3.00 per pound of the low end of the exploration target)."

The analyst added values for various facilities, assets, and investments, including "US$250 million to the company's Hobson Facility, US$250 million for the Irigaray facility, US$1.2 billion for the former UEX assets, US$255 million for Roughrider, US$325 million for the Rio Wyoming assets (less US$175 million acquisition cost), and US$38.3 million for its titanium asset."

In conclusion, Reagor's sum-of-the-parts analysis led to a total valuation of US$3.9 billion, or US$9.45 per fully diluted share, rounded up to a price target of US$9.50. This represents a potential return of approximately 47% from the current price of US$6.45.

The report also outlined several risk factors, including political risk, commodity price risk, operational and technical risk, pre-revenue risk, and market risk, which could impact UEC's ability to reach the price target.