On October 6, Fission Uranium (TSX: FCU)(OTC: FCUUF) released assays from 29 holes drilled as part of the summer campaign with every single one of them returning strong to moderate uranium mineralization at shallow depth.
But the market didn't seem to care.
The best of those holes, PLS14-248, returned 35.13% uranium over 16.5 meters inside a larger trend of 13.23% over 47.5 meters.
That's better than a world-class hole. In fact, it's arguably the best hole Fission has put in the ground to date. And Fission has also drilled the best hole ever drilled in the entire Athabasca Basin outside of McArthur River.
Grades like that will certainly add to pounds in the ground. An official resource estimate is due out by the end of this year. Analysts are still stuck in the 50-120 million pound range. Investors are no doubt looking for at least 50 million pounds.
One historical note: Hathor Exploration's initial resource estimate for its Roughrider deposit was 28.7 million pounds. It was taken out less than year later at 58 million pounds for $654 million dollars by Rio Tinto. That's $11.28 per pound.
Fission's Patterson Lake South deposit is bigger and better. And the Roughrider deal is the one that's always looked to for comparison.
Assuming a conservative 80 million pounds at $11.28 per pound gives us a sale price of $902 million.
Fission currently trades at a $341 million valuation.
Even at the historic Athabascan sale price of $9.36 per pound, you get an estimated sale price of $748.8 million — still 2.2 times higher than the stock currently trades.
And there is almost certainly 120 million pounds there, likely more, though that is unexpected to be reflected in the initial estimate.
Don't just take it from me. Here's the takeaway from Dundee Capital's report on Fission this week:
Valuation suggests buying opportunity. FCU has sold off relative to the sector, down 27% MoM while peers are off 12%. At $0.89, the stock hasn’t been at this level since August 2013, and we see no fundamental reason for the weakness… other than the typical junior exploration market and uranium sector malaise (despite a 30% jump in uranium prices over the past two months). We might also argue that investors question the materiality of individual drill holes from companies with over $300 MM market caps. Its true many are likely waiting for the resource estimate, but exploration results shouldn’t completely be ignored. Fission has more than doubled its potential mineral inventory by our estimates, started contemplating mining scenarios, and significantly de-risked the project since a year ago August.
We expect this upcoming resource estimate to be one of the best initial resource estimates at year end, and while we can't read investors' minds as to how large they expect PLS to come in, we can say that the market currently undervalues the stock. It trades at an EV/lb U3O8 of US$3.40 (based on our 80 MM lbs mineral inventory estimate), below the average take-over level for uranium projects of about US$3.80, and trades no-where near the average Athabasca average take-over price of US$9.36. Given its upside potential, is near surface, high grade, growing significance of the western Athabasca Basin and early stage, this stock should be trading at a premium.
We continue to rate Fission Uranium as a Top Pick in the uranium sector with a BUY with a C$2.10 target.
Fission Uranium (TSX: FCU)(OTC: FCUUF) currently trades at C$0.94. That implies 123% upside. And I think that's conservative.
You can read that full update here.
And here's what Ross McElroy had to say about those 29 assays:
“We couldn't ask for a better start to our summer assays as we head towards our 43-101 Maiden Resource at the end of this year. Every assay result will have a direct impact on our resource size and with 29 strongly mineralized holes, we are delighted with progress so far."
Additionally, on October 8, Fission's shares were approved to list on the Toronto Stock Exchange (TSX) instead of the TSX Venture Exchange (TSX-V). That's another move in the right direction.
A Bright Future for Uranium?
The next news came on October 27th with assay results for 13 holes drilled in R780E Zone.
All thirteen holes returned strong mineralization at shallow depth, with eleven holes returning high-grade intervals. The best hole was PLS14-271, with 24.87% U308 over 7.5 meters inside 24 meters grading 8.53%.
These holes extended the zone by 93 meters to the north and 38 meters to the south.
We now have assays from 42 summer holes with 18 delineation holes and 22 exploratory holes pending.
This will directly add to the pounds of the upcoming 43-101 Maiden Resource expected by the end of the year.
Those new holes are outlined in red on the map below:
Uranium prices are up as much as 31% since July, rising from $28/lb to nearly $37 as Japan approved the restart of two of its idled nuclear reactors. And the prospects for uranium and nuclear investmentsin 2015 are looking pretty good.
As such, the entire uranium space has gotten a much-needed boost.
Fission, for its part, has surged from C$0.65 on October 15th to C$0.95 as of this writing — a 46% bump in less than a month.
Buying ahead of the anticipated resource estimate is no doubt also a contributing factor.
It could trade much higher from these levels if the resource estimate surprises to the upside.
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