EnCore Energy Corp. (EU:TSX.V; ENCUF:OTCQX) just became part of Red Cloud Securities' coverage of energy stocks given it is "set to become a leading, U.S.-based in situ recovery (ISR) uranium developer," according to analyst David Talbot in a Nov. 17 research note. Red Cloud initiated coverage on enCore with a Buy rating and a CA$2.75 per share target price. In comparison, the mining company's share price today is around CA$1.88.
"With uranium prices on the move and anticipated to rise further in the near term and with an extensive pipeline of ISR projects to develop, we believe investors should be keeping a close eye on this company," Talbot wrote.
The analyst further explained the reasons enCore Energy is compelling. For one, the British Columbia-headquartered company is well on its way to reaching its goal of becoming the leading American uranium producer. It has potential near-term production, which could come from the company's Rosita (production is expected to commence there in Q3/22) and Kingsville, two of the States' processing plants.
Mid-term production could come from its two new, advanced projects, Dewey Burdock in South Dakota (production is expected to start in H2/24) and Gas Hills in Wyoming, gained via the acquisition of Azarga Uranium. (Red Cloud expects the transaction to close and to do so soon, Talbot indicated).
"We consider Dewey Burdock, with its low $32 million ($32M) capex, to be one of the best U.S. ISR projects," wrote Talbot.
Longer term production could come from the other assets in enCore's portfolio, such as Marquez-Juan Tafoya in New Mexico. Production start there is penciled in for 2025.
Also, the new company, enCore plus Azarga, has sales contracts for 50% of its expected production over the first three years. Red Cloud projects the firm will reach uranium production of 3.4 Mlb by 2027.
"The combined company now owns over 15 uranium projects in the U.S. with close to about 100,000,000 pounds of uranium (100 Mlb of U3O8) in resources plus about 78 Mlb of historical uranium resources," noted Talbot.
Also, Talbot added, enCore has a strong balance sheet and no debt. It has CA$23M in cash, 0.1 Mlb of physical uranium and equity positions in Elephant Capital (Evolving Gold Corp.) and Group 11 Technologies.
Talbot pointed out that the fundaments for uranium are "strong and point to a new uranium
bull market," ideal for enCore. Uranium demand is rising whereas supply is decreasing, spot prices are going up (it is now at $47.25 per pound) and uranium equities generally outperform during periods of high inflation in the U.S., like we are in now.
Finally, enCore Energy trades at a discount to its peers, wrote Talbot, but the difference is expected to shrink as uranium prices improve, Rosita production comes online and the company advances projects.
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