DYLLF: The Final Investment Decision (FID) for the Tumas Project will now be made in March 2025. An upgraded Ore Reserve Estimate on the Tumas Project, which now supports a LOM of 30 years, requires additional work to make a prudent FID.
Deep Yellow (OTCQX:DYLLF) (ASX:DYL) is on the threshold of entering the mine construction phase as management awaits the receipt of costings and quotes for both equipment and construction as well as the results of additional optimization studies. The Final Investment Decision (FID) for the Tumas Project has been deferred until early March 2025. The Board is also taking a very disciplined approach and believes that the start-up of a greenfield uranium project at the current uranium price in the low $70 range would not in the best interest of shareholders since that price level does not reflect the looming critical supply shortage.
The significant equity financing in May 2024 provided the necessary capital to continue moving forward with the Tumas Project. Furthermore, management is progressing toward securing debt financing in order to ensure funding will be available for construction costs when once the FID is made to proceed. Potential lenders have indicated a keen interest in supporting the project.
Management continues to move forward in readying Tumas for the mine construction phase.
In mid-August 2024, three RC rigs commenced a 12.5m x 12.5m spacing grade-control drilling program at Tumas 3 for the purpose of creating a detailed mining plan. By early December 2024, approximately 60% of the program had been completed, specifically 1,667 holes (23,921m) that targeted the planned small open pit areas near the proposed plant site. The program also includes preparation work on tailings sites and is expected to be completed in late-March.
Offers for volume and price for both water and power have been received (from NamWater and NamPower, respectively). The company has accepted both offers and the contracts being finalized for execution.
The company remains well funded with a cash balance of AUD$238.4 million as of December 31, 2024.
Deep Yellow Ltd remains on track to become a low-cost, Tier I uranium producer, which management defines as a multi-project producer of uranium with the capacity to deliver 5-10 million lbs. of uranium annually.
RECENT EVENTS
Ore Reserve Estimate (ORE) for the Tumas Project Increases 18%
On December 18, 2024, Deep Yellow announced an 18% increase of Ore Reserve Estimate (ORE) for the Tumas Project on ML237. The updated ORE Increased from 67.3 Mlb U3O8 at 345 ppm (150 ppm cut-off) to 79.3 Mlb U308 at 298 ppm (100 ppm cut-off). Management continues to work towards a Final Investment Decision (FID).
When the upgrade in Ore Reserves is incorporated into an updated DFS, it is expected that the NPV and the IRR of the Tumas Project will increase and also the LOM will exceed 30 years.
The updated ORE also will impact the project’s schedules for pit production and process feed. Currently, mining is expected to commence at Tumas 3, and then after 12 years, transition to Tumas 2, 1 and 1 East. The production rate is expected to ramp up during the first year and then continue with average production of roughly 2.46 Mlb pa U308 for 30 years. Prior to the ORE upgrade, average production was expected to average of 3 Mlb pa U308 for 22.5 years.
Today, the TOTAL Measured and Indicated Mineral Resource Estimate is 102.1 Mlb eU308 grading 264 at ppm eU308 at a 100 ppm cut-off.
Final Investment Decision (FID) deferred until early March 2025
On December 18, 2024, Deep Yellow announced that the Tumas FID (Final Investment Decision) has been deferred until early March 2025. The receipt of some certain critical information to make a fully informed decision has been delayed, particularly cost estimates (and/or bids) for major equipment as well as other construction and operating infrastructure. In addition, optimization work is still in the process of being completed. With the recent 18% increase of the Ore Reserve Estimate, the overall project schedule is being revised, which includes reviewing the mining schedule, the process design and revisiting the cost analysis as well as prompting additional optimization efforts. The optimized detailed engineering report is expected to be completed in late- February 2025.
On the other hand, Deep Yellow did announce that offers for volume and price for both water and power have been received from NamWater and NamPower, respectively. The company has accepted both offers and the contracts being finalized for execution.
The Board of Directors believes that this 3-month delay will not have a material impact on the Tumas Project’s overall timeline, including the commencement of production in late 2026. However, the Board did state that the execution of the full-scale construction phase remains dependent on an adequate price of uranium coupled with the belief that the price will be maintained for the economical start-up of this Tumas greenfield project.
Institutional Ownership Continues to Increase
Due to the significant AUD$250 million equity financing (private placement) in May 2024 AND Deep Yellow’s inclusion in the S&P/ASX 200 index in June 2024, the company has garnered a significant amount of institutional ownership, now over 50%. Several entities were required to file that their ownership of Deep Yellow exceeded 5% of the company’s outstanding shares, namely the Vanguard Group (August 30th), Macquarie Group Limited (March 13th), State Street Corporation (March 15th), MM Asset Management of Toronto (April 29th) and Citigroup Global Markets Australia Pty Limited (January 4th and March 25th). Other notable owners are the MacMillan Super Fund (1.8%) and the Commonwealth Super Fund (1.6%).
ANTICIPATED MILESTONES
Tumas Project
Final Investment Decision (FID) is expected to be made in March 2025.
If management’s plans continue as expected, production is anticipated to commence during the second half of calendar 2026
The detailed engineering phase was able to begin after Ausenco Services Pty Ltd was selected as the preferred EPCM. The Tumas Project is being further optimized.
Additional resource drilling is planned for an area to the west of Tumas 3 during FY2025 with the goal of identifying an additional 30 Mlb U308 in order to achieve a 35+ year LOM.
Mulga Rock Project
Resin pilot work in a metallurgical mini-pilot work program is expected to commence in the March quarter of FY2025. Bulk samples (3.6 t) have already been collected through a diamond core drilling program. The resin pilot work includes RIL (Resin In Leach) for uranium and RIP (Resin In Pulp) for base metals and rare earth elements (REE).
A revised ORE is expected to be completed in the fourth quarter of FY2025. The revised ORE will be based on the updated MRE (which includes multi-commodity processing) and the results from the metallurgical mini-pilot program.
A revised DFS for the Mulga Rock Project, including base metals and rare earth elements (REE) in addition to uranium, commenced in the first quarter of FY2025. The engineering, capital cost estimate and marketing parameters are expected to be completed after the completion of the revised ORE.
OTHER PRIOR SIGNIFICANT EVENTS DURING CALENDAR 2024
Major Equity Capital Raise Completed
Between March and early-May 2024, Deep Yellow raised AUD$250 million in capital through a 2-tranch private placement consisting of the issuance of a total of 179,591,836 shares at an issue price of AUD$1.225 per share. Additionally, 24,489,795 shares were issued to existing shareholders through a Share Purchase Plan, also at an issue price of AUD$1.225 per share.
The net proceeds are being used to support the Tumas Project as well as to bolster working capital for exploration and technical studies. Many new institutional investors participated in the private placement.
Preferred EPCM Contractor for Tumas Project Selected
In June, Ausenco Services Pty Ltd was selected as the preferred EPCM (Detailed Engineering and the Engineering, Procurement and Construction Management) contractor for the Tumas Project.
Lead Arranger and Bookrunner for Tumas Project Appointed
In July, Nedbank Limited was appointed the Mandated Lead Arranger and Sole Bookrunner for coordinating the financing for the Tumas Project.
Head of Project Delivery for Tumas Project Appointed
In late-September, Jim Morgan was appointed as Head of Project Delivery, another former Paladin executive that had a critical role in construction of Langer Heinrich and Kayelekera uranium mines.
Updated Mineral Resource Estimate of Tumas Project Released
On September 11, 2024, Deep Yellow announced that the Tumas resource in-fill drilling campaign completed in late-June resulted in upgrading the TOTAL Measured and Indicated Mineral Resource to 102.1 Mlb eU308 at 268ppm, which achieved management’s goal of a potential LOM of over 30 years.
Deep Yellow Limited Added to S&P/ASX 200 Index
On June 11, 2024, Deep Yellow was included into the S&P/ASX 200 index. The many mutual funds benchmark to this index. Consequently, the shareholder base of Deep Yellow should broaden, and the stock should experience greater liquidity. In addition, the inclusion of the company’s stock into the S&P/ASX 200 index should also expand awareness of Deep yellow among investors, both retail and institutional.
UPDATE ON THE URANIUM INDUSTRY
The momentum for uranium is being fueled by a greater acceptance of electricity generated from nuclear power plants as nations around the world grapple with the challenges in the efforts to reduce the use of fossil fuels. Political ambition has been translating into political action.
The driving force has been the recognition of the tightening supply/demand structure of uranium market with the projected demand by nuclear power plants increasing and also by the sequestration of uranium by physical funds (such as the Sprott Physical Uranium Trust and Yellow Cake Plc). During the last four months of 2023, the sentiment of utility buyers of long-term contracted uranium changed resulting in the amount of contracted volume increasing to the highest level in over a decade.
Between November 30 to December 12, 2023, around 85,000 participants gathered the COP28 (the 28th Conference of the Parties of the United Nations Framework Convention on Climate Change) aka UNFCCC) in Dubai. At the Conference, 22 countries pledged to triple the nuclear capacity by 2050. Within COP28, the 2-day Net Zero Nuclear Summit was convened.
More than 120 nuclear energy and technology companies have signed an Industry Pledge to at least triple global nuclear energy capacity by 2050 and 25 countries have signed a pledge to triple nuclear energy capacity by 2050.
During 2023, the spot price of uranium increased 90.9% to $91.00 per lb.
In March 2024, world leaders met in Brussels at the first Nuclear Energy Summit in order to emphasize the role of nuclear energy in reducing the use of fossil fuels and improve energy security.
Attendance increased at the annual World Nuclear Symposium, which was held in early September 2024 in London. This year, the event was one of the best attended in its history. With the addition of incremental institutional investor interest (specifically generalists), the venue’s maximum 800-person capacity was reached. However, the uncertainty concerning production challenges facing Kazatomprom and the waiver process concerning the ban on Russian uranium, along with other issues, caused U.S. utilities to step back from procurement process in contrast to the buying frenzy that followed last year’s WMA conference. Transaction volumes on the contract side during 2024 contracted to the 40-50 Mlb range versus approximately 160 Mlb in 2023.
In mid-November 2024 at COP29 in Baku, Azerbaijan, six additional countries (El Salvador, Kazakhstan, Kenya, Kosovo, Nigeria and Turkey) pledged to tripling global nuclear capacity by 2050. Now, there are 31 nations that have endorsed the goal.
During 2024, the spot price of uranium declined 11.5% to 80.50 per lb. as there was a reduced buying interest by for short-term supply and liquidation of inventories by some holders of physical uranium. However, contract prices of uranium fared differently with the beginning price of $68.00 rising to $81.50 in September, only to decline to $72.63 by the end of December, thereby posting an overall increase of 6.8% for the year. It appears that generally purchasers of uranium shifted focus to securing long-term supply through contract negotiations.
Leading market research firms on the nuclear industry continue to forecast that the deficit between primary supply (from mines) and the demand by nuclear reactors will continue to expand through 2040. In its biennial reference scenario, the World Nuclear Association calculates that the annual primary supply deficit for uranium will exceed 140 million pounds by 2030, representing a 18% increase. Furthermore, in its Base case, UxC estimates that between 2023 and 2040, the needs of operating nuclear reactors will increase by 35%. Both scenarios indicate that new primary production will be needed with the price of uranium being the key determent that will incentivize the development of new mines.
Looking forward, uranium prices should strengthen again due to a renewed global interest in nuclear energy with some countries reevaluating the role of nuclear-based electricity generation in their energy mix.
The demand for electricity continues to increase due to population growth, the modernization of emerging & developing nations, the adoption of EVs and the growing desire to attain Net-Zero Carbon Emissions targets. According to the latest International Energy Agency (IEA) report, global electricity demand continues to grow with electricity generated from fossil fuels expected to decline and electricity generated from renewables anticipated to expand.
Countries such as China, India, Turkey, Egypt, Spain, Finland, Sweden and the U.S. have and continue to embrace nuclear power through new power plant builds and/or life extensions. Elsewhere, there are countries in which governments are updating power policies to encompass or emphasize nuclear electrical power under the mantra of clean, renewable energy, particularly Japan and the U.K. Globally, there are 440 nuclear reactors in operation and 65 under construction with China accounting for 29 reactors under construction.
Furthermore, the advent of Small Modular Reactors (SMRs) and the birth and expansion of hyperscalers have significant implications for significant incremental and increasing demand for uranium. These new growing industries are and will be demanding large amounts of clean, reliable, stable supplies of electrical power. Power generation by traditional large-scale nuclear utility reactors and SMRs appear to be solution for consistent, low-carbon electrical energy sources.
SMRs are a next-generation form of nuclear power, which are smaller than traditional large nuclear reactors and will be utilized to provide steady, reliable power at remote, isolated areas as well as at large facilities in the mining, oil & gas, defense and heavy manufacturing industries. As these reactors are developed and deployed, the demand for uranium will further increase.
Hyperscalers are large companies that provide cloud computing, networking and data storage services like Amazon, Microsoft and Google. These companies operate large AI-related data centers, which require immense amounts of electrical energy. All three companies (Amazon, Microsoft and Google) have announced deals to secure power from tradition nuclear power plants or SMRs in the second half of 2024.
The use of AI technologies is still in its nascent stage and is expected to grow exponentially. Currently, the electricity is being sourced from the grid and the energy demand for AI-related data centers is only expected to increase. According to the U.S. Department of Energy (DOE) in its 2024 United States Data Center Energy Usage Report release in December 2024, data centers consumed about 4.4% of total domestic electric power (or 176 TWh) in 2023 and projected to consume between 6.7% to 12.0% (or 325-to-580 TWh) of total U.S. electricity by 2028.
INSTITUTIONAL OWNERSHIP
Institutional investors own 52.3% of the fully paid ordinary shares outstanding of Deep Yellow Limited as of the end of the latest reporting period (September 30, 2024), an increase from 44.2% (June 30, 2024). The largest institutional holder is State Street Global Advisors (8.3% of the company’s outstanding shares). Many mutual are also holders, including the Vanguard Group (several funds including VGTSX, VTMGX and VFSNX), Global X Uranium ETF (URA), Sprott Funds Trust (several funds), iShares Core MSCI EAFE ETF IEFA), iShares MSCI EAFE Small-Cap ETF (SCZ) and VanEck Vectors Uranium + Nuclear Energy ETF (NLR).
VALUATION
Broadly speaking, the public uranium companies can be grouped into three segments: producers, development companies and exploration companies. Producers are actively mining and generating revenues. Exploration companies are prospecting and/or drilling to establish mineral resources. In between these two segments are the development companies that already have established resources and are advancing through the process to bring a mine in operation, generally from the point of initiating a Pre-Feasibility Study to the actual construction of a mine. The comparable companies to Deep Yellow fall into this category.
Further, the comparable companies have been narrowed through quantitative factors, particularly those with a market capitalization over $500 million and trading above $0.50 per share. This process captures a range of well-funded junior uranium development companies, which are listed in the table above. Currently, the P/B valuation range of these comparable companies is between 3.39 and 5.18. With the expectation that Deep Yellow’s stock will attain a first quartile P/B ratio of 5.2, our comparable analysis valuation price target is US$2.00.
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