Uranium Royalty CorpUranium Royalty Corp. (NASDAQ: UROY) is a truly pure-play on uranium, which is 20% owned by Uranium Energy Corp!
Mr. Amir Adnani is the Chairman of Uranium Royalty Corp, whose other major shareholders include Altius Resources Inc., Mega Uranium Ltd., Marin Katusa, the KCR Fund, Extract Capital, Rick Rule, Sprott Global, and Commodity Capital.
Eric Sprott, Rick Rule, and Marin Katusa are among the world’s most renowned commodity investors and experts.
Courtesy: BNN Bloomberg
Another connection between Uranium Royalty Corp. (NASDAQ: UROY) and Uranium Energy Corp. is the presence of Mr. Scott Melbye, whohas been the Chief Executive Officer and President of the company since October 2019.
With over 35 years of experience in the nuclear energy industry and leadership positions in various uranium mining companies and industry organizations, Mr. Melbye is responsible for uranium marketing and sales, as well as strategic growth objectives in his various roles with Uranium Royalty (NASDAQ: UROY), which only has a market cap of $161M.
Along with Mr. Adnani, other company directors include:
- David Neuburger, who has over 30 years of experience in operations leadership roles, corporate strategic planning, projects, and mine engineering. Neuburger has served as the VP of International Mining and VP of Mining (Saskatchewan) for Cameco Corp., as well as the VP, GM of Kupol Operations for Kinross.
- Vina Patel, who has 18 years of experience raising capital from U.K. and European institutional investors in mining and exploration equities, including uranium companies. Ms. Patel was previously the Head of London Institutional Sales for Haywood Securities.
- Neil Gregson, a highly qualified mining engineer with over 30 years of experience in asset management within the resources sector. Gregson was formerly a portfolio manager of the JPMorgan Asset Management Global Equities Team based in London and the Head of Emerging Markets of Credit Suisse Asset Management.
Uranium Royalty Corp. (NASDAQ: UROY) is actually the first and only company to apply the successful royalty and streaming business model exclusively to the uranium sector. Therefore, it’s important to understand what makes the royalty and streaming business model so advantageous!
The company is focused on gaining exposure to uranium prices by making strategic investments in uranium interests.
Here’s how this business model works, in general:
Metal royalty and streaming companies provide funds for mines in exchange for future payoffs. The royalty entitles the holder to a fixed percentage of the revenues less certain expenses (called royalties), generated by the mines, and a stream entitled the holder to a portion of physical metals produced by the mines (streaming).
Uranium Royalty Corp (NASDAQ: UROY) takes advantage of this business framework by making strategic investments in uranium, including royalties, streams, debt, and equity in uranium companies, as well as through potential physical uranium transactions.
The company’s strategy recognizes the inherent cyclicality of valuations, based on uranium prices, including the availability of capital in different pricing environments.
Uranium Royalty Corp.’s portfolio includes interests in development and advanced, permitted, and past-producing uranium projects in multiple jurisdictions.
In addition, the company has a strategic investment in Yellow Cake, a company that has a long-term supply agreement with Kazatomprom, the world’s largest uranium producer. This supply agreement enables Yellow Cake to purchase up to $1.07 billion (including existing purchases) of uranium from Kazatomprom over a 10-year period.
Yellow Cake has already completed its initial purchase of uranium, acquiring a significant amount of 8.1M lbs. of U3O8 for a cost of $170 million. Plus, since the initial investment, Yellow Cake has purchased an additional 0.35 million lbs. of U3O8 from Kazatomprom for $8.2 million and 1.175 million lbs. for $30.4 million.
Uranium Royalty Corp. currently has an approximate 9.6% [ntd: see above] stake in Yellow Cake. This is direct exposure to the rising uranium price and a nice addition to the company’s royalty and streaming revenues.
Uranium Royalty Corp. also has the option to acquire up to $31.25 million ($2.5 million to $10 million per year) worth of uranium between January 2019 and January 2028. On top of it all, URC has an option to participate in any and all future uranium royalty and stream transactions Yellow Cake pursues on a 50:50 basis.
Not only have that, but UROY and Yellow Cake agreed to collaborate on future opportunities involving physical uranium.
Uranium Royalty utilizes a disciplined approach to manage its fiscal profile.
Its royalty portfolio can only be described as world-class. Part of this portfolio is the Cigar Lake mine (located in Saskatchewan, Canada), whose joint venture partners are currently Cameco (50.025%), Orano Canada Inc. (37.1%), Idemitsu Canada Resources Ltd. (7.875%), and TEPCO Resources Inc. (5%)!
Cigar Lake is licensed to produce 18 million pounds of uranium per year. Historical production of 93 million pounds of uranium has been recorded since Cigar Lake went into production in 2014. In our opinion, this is one of the best uranium projects in the world today, based upon numerous valuation metrics.
The McArthur River mine is also an essential component of Uranium Royalty Corp.’s royalty portfolio. This mine is currently owned by a joint venture between Cameco (69.805%) and Orano (30.195%).
Along with the Key Lake Mill, McArthur River is licensed to produce 25 million pounds of uranium per year. In 2018, Cameco disclosed that it was put on care and maintenance. McArthur River is expected to be the first of Cameco’s operations to restart after Cigar Lake, based on market conditions.
Uranium Royalty has a healthy balance sheet, which positions it to capitalize on accretive uranium royalty and streaming acquisition opportunities. The company has $38M in cash and listed securities.
The company just recently entered into a definitive agreement to acquire the existing royalty interests on the McArthur River and Cigar Lake mines.
This acquisition represents a transformational transaction for Uranium Royalty Corp. because it provides potential near- to long-term cash-flow opportunities from existing long-life mines operated by Cameco in partnership with Orano Canada Inc., two of the world’s most prominent uranium and nuclear fuel companies!
It’s a transaction that will only enhance Uranium Royalty Corp.’s already world-class production profile. The McArthur River and Cigar Lake mines rank as the two largest high-grade uranium mines in the world, with ore grade 100x the world averages as disclosed by Cameco!
Based on disclosed production capacities, the McArthur River and Cigar Lake mines have a combined capacity equal to 21% of global forecasted uranium demand for 2021. Moreover, both operations are believed to be among the lowest operating costs globally, with expected life of mine cash costs of between C$15 to C$16 per pound as disclosed by Cameco.
This is as big as it gets, in our view.
McArthur River and Cigar Lake have a combined total of 557.5 million lbs. of proven and probable mineral reserves as of December 31, 2020!
Altogether, this represents approximately 29% of the Global Reasonably Assured Recoverable Resources as stated by the International Atomic Energy Agency for the lowest-cost category!
As we see it, the deal is structured as one of the best business transactions we’ve ever seen:
- Purchase price of USD$11.5 million, payable via USD$10 million cash and USD$1.5 million in common shares of URC, representing approximately 1% dilution.
- McArthur River Project: 1% gross overriding royalty on an approximate 9% share of uranium production derived from Orano’s ownership interest (~30%). Included in the royalty is the option to take physical uranium “in kind” by giving a 45-day notice.
- Cigar Lake/Waterbury Project: 20% net profits interest on a 3.75% share of overall uranium production derived from Orano’s ownership interest (37.1%). The royalty rate adjusts to 10% in the future upon production of 200 million pounds from the royalty lands (93 million pounds have been produced to date).
Mr. Adnani provided greater detail on Uranium Royalty Corp. in light of this transaction: “Our launch strategy for URC has been to build the first and only uranium focused royalty company to capitalize on a global resurgence in the commodity. This accretive acquisition capitalizes on our first mover advantage to become a royalty holder on two of the most significant mines in the sector.”
Canada’s Athabasca Basin of Northern Saskatchewan is the premier region for high-grade conventional mining. Uranium Royalty Corp.’s growing royalty portfolio in this district, which includes a 1.97% net smelter royalty on Rio Tinto’s nearby Roughrider project, provides URC with exposure to long-life assets with existing infrastructure and exploration upside covering approximately 270,000 hectares of ground.
With major producers as operators, the company has the benefit of counterparties with proven operating track records and best in class environmental, social and corporate governance (ESG) practices.
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