What's the Future for Fission Uranium?

Nick Hodge  |

There has been lots of news out of the Fission Uranium ($FCU:CA) ($FCUUF) camp lately.

In the heat of a 90-hole winter drill program that has a 100 percent hit rate... a robust news flow is to be expected.

Here's what the chart looks like since December, as the company hit off-scale hole after off-scale hole:



In early March, Fission released two additional sets of preliminary drill results.

Until that time, the company had reported results for 32 of the scheduled 90-hole program. All of those holes hit uranium, and 60 percent of them showed “off-scale” mineralization.

The first set of results I'll discuss came on March 7th, with the release of four additional holes. Again, all holes hit uranium mineralization— over 175 meters of it in total, 18 meters of which were “off-scale.”

The first week of March, we learned that two of Fission's seven mineralized zones – R780E and R945E – were connected. These new holes show that two additional zones – R390E and R585E – are a mere 60 meters apart, and additional drilling will likely show they are connected as well.

Both Raymond James and Cantor Fitzgerald were out with research updates about this news release.

Here's what they had to say:

Cantor Fitzgerald

These latest four holes extend the winter drilling program’s 100% hit rate for mineralization. Of particular note was hole PLS14-160 which intersected 16.18m of total composite “off-scale” in 85.5m of total composite mineralization. Moreover, this hole has narrowed the gap between zone R390E and R585E to 60m, which is another step towards confirming the theory that PLS may indeed be one large zone instead of several discrete ones. Fission Uranium continues to be one of our top exploration picks in the hot uranium sector.

Based on drill results to date, we believe 100M lbs of U3O8 is an attainable resource size for PLS with significantly more mineralization a reasonable possibility. Please see the table below for a range of per share valuations based on possible resource size scenarios (note: the past few relevant transactions in the Athabasca Basin were done at a $9/lb multiple).

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Raymond James

We urge investors to continue to build positions in Fission. The results further corroborate the strength and potential scope of the mineralizing system at PLS, underlining significant exploration upside that is not being reflected at current share price levels, in our view. Given the project’s exceptional scarcity value and world-class grades at open-pittable depths, we view takeout potential as high.

Boosting Metal Target. In light of the demonstration of excellent growth potential as highlighted above, we are increasing our target for contained metal to 100 Mlbs (from 80 Mlbs), but we seepotential for ~150 Mlbs in the longer-term. We are raising our target to C$2.40, which is based on an US$8/lb multiple (a discount to recent Athabasca Basin takeout analogues) applied to a resource target of 100 Mlbs, which we believe will be defined over the next 6-12 months.

It's not hard to see the future here. At $8 per pound with 100 million pounds... this is an $800 million company.

It currently trades as a $528 million company... implying 50 percent from today's prices. Of course, this is conservative.

At 150 million pounds... you're looking at a $1.2 billion company, which would make it a $3.64 stock — some 120 percent higher than it trades today.

On March 10th, more news came out showing that 150 million pounds is definitely in the cards.

That release included early results from four more holes. Again, they all hit uranium. One of the holes, PLS14-164, is now Fission's second-best hole to date. It returned 136 meters of uranium mineralization with 30 meters off-scale.

Here's a map that will help give you a clearer picture of what's going on up there:


Raymond James and Dundee Capital were both quick to comment:

Raymond James

Contained Metal Rising. Our resource model is based on assay data and sits at 46 Mlbs (majority carried by a high-grade core >5% U3O8). However, we estimate that the first 40 reported holes from the on-going 90-hole winter program – of which only one has assays released – have pushed this figure to nearly 70 Mlbs.

Meanwhile, current share price levels imply nil exploration upside (C$1.59/sh and US$8/lb implies only 56 Mlbs), which is to us unreasonable, given immense lateral prospectivity at the six existing zones (all are open), further upside along trend to the E and W, to depth, and on the project’s numerous other conductors.

They're saying the stock is unreasonably undervalued and will grow to be much bigger pending additional assays and drilling.

Dundee was more blunt:

We continue to recommend Fission Uranium as a BUY with no target. We have long suggested that PLS hosted potential for 80-100 MM lbs - and with the latest scintillometer results from what appears to be another spectacular drill hole, our confidence that this range could ultimately be surpassed continues to increase.

Only 40 holes have been announced, so another 45 are to be released. Therefore we expect to continue upgrading our mineral inventory estimate as assays arrive. The likelihood of reaching our estimated potential of 80-100 MM lbs U3O8 is greatly increasing - and for us to start suggesting potential of 120-150 MM lbs isn’t that far off. Assuming a take-out price of $800 MM based on 80 MM lbs at $10/lb is reasonable, then the stock has another 53% lift to these levels.

Furthermore, that would ignore upside. Basement deposits tend to occur in clusters as demonstrated through Eagle Point mine, Roughrider, Shea Creek and others. Therein lays the added potential to find further mineralization either along strike or along other parallel conductors. FCU has plans to drill elsewhere at PLS this winter.

If the likelihood of reaching 150 million pounds isn't that far off... what do you think another summer drill campaign would add to the total? What would another winter program, which is only nine months away, add?

These are the questions that major uranium miners and processors like Cameco, Areva, and Asian conglomerates are asking themselves right now.

They all know this deposit needs to be bought. It's too large and too shallow to be ignored.

But do they make an offer now, before an official resource estimate is out, and try to get a discount to actual pounds in the ground? That could set off a bidding war.

Do they wait until more pounds are proven? That would mean paying more.

To fan the flames, CEO Dev Randhawa made an interesting move...

Late on March 10th, trading on the stock was halted, which we later learned was the result of a $25 million “bought deal” financing for 15.625 million shares at $1.60.

Here's Investopedia's definition of “bought deal”:

In investment banking, a securities offering where an investment bank commits to buy the entire offering from the client company. A bought deal eliminates the financing risk for the company, which is able to ensure that it raises the intended amount of funds from the securities offering; however, the client firm will likely get a lower price by taking this approach.

The underwriters included Cantor Fitzgerald, Raymond James, and Clarus Securities — the same firms that have been releasing weekly bullish reports.

What does this financing mean?

First off, it solidifies the cheerleading section, as these investment houses now certainly want the stock to move higher.

Second, it leaves Fission flush with cash to turn Patterson Lake South into Swiss cheese with additional drill campaigns, thereby increasing the resource size.

This puts immense pressure on potential buyers. Do they really want to sit around and watch the total grow before they make a buyout offer?

The move is basically daring the majors to come buy them out.

The dilution is negligible, equivalent to just $0.07 of the closing price of $1.67, or the exact price of the offering.

I'll gladly trade $0.07 for the guaranteed ability to conduct two more drill campaigns, potentially adding another 100 million pounds to this monster.

Fission wants to prove as many pounds as fast as it can, which will raise any ultimate buyout offer. It now has plenty of cash to make that happen.

And remember, all the news to date has come from a single identified trend. Right now, four drills are operating on that trend, with another rig following up on radon surveys in another area. If that rig hits, things will get interesting very quickly.

My suspicion is that Fission is using that fifth rig to follow up on the radon surveys conducted in Forest Lake. With the campaign slated to come to an end over the next month or so, it shouldn't be too long before we know if any of those holes hit or not.

With a story like this, sometimes companies choose to hold back news for strategic purposes. They could've already hit there and are waiting for the right moment to release the news. Either way, the company is on schedule... they're drilling almost a hole per day. I don't know if they'll find success there or not, but I wouldn't take the lack of news as an indication that there are no promising results.

With a $1.60 floor now in because of the financing... and no indication that the news flow will slow... I'm confident buying Fission Uranium at market prices.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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