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Date : 25/05/2021

Toro Energy

ASX :

TOE

Market Cap : $73.84 Million

Buy

52 Week Range : $0.008 - $0.032

Share Price : $0.025

Significant uranium deposits have been boosted with vanadium, nickel, and gold. Following a capital raise, Toro is now debt free as well. A "Speculative Buy" from us.

Company Analysis

Perth based Toro Energy (ASX: TOE) engages in the exploration, evaluation, and development of uranium properties in Australia. Its flagship project is the Wiluna uranium project located in the north-eastern goldfields region of Western Australia.

Toro is currently working towards advancing the development of the Wiluna Uranium Project, to enable it to be financed and brought into production with the lowest cost possible, to initiate the Yandal Gold Project within the Company’s Lake Maitland tenement package (including conducting ground geophysics surveys, target generation and a first phase exploration drilling program during the period) and to explore its tenement holdings and seek other new opportunities in uranium and energy-related commodities. The management has been focusing on environmental permitting, technical studies and research and development and the reduction in non-core activities, holdings, and corporate overheads.

Wiluna Uranium Project

The Wiluna Uranium Project consists of six uranium deposits in the Wiluna region of Western Australia totalling 84 million pounds of uranium in Mineral Resources. The primary focus of the Company has been the development of the Centipede, Millipede, Lake Maitland, and Lake Way deposits totalling 63 million pounds of uranium.

As recently as the previous quarter, Engineering modelling study completed, shows that vanadium can be produced as a by-product of processing uranium from the Lake Maitland deposit with only a marginal increase to the capital and operational cost of the proposed processing plant. Therefore, a scoping level engineering study has been initiated for the mining and processing of the Lake Maitland Uranium Deposit, including vanadium by-product. The operating cost of the modelled processing plant increases by only 1.8% from that of the scoping study completed previously without considering vanadium as a potential by-product, which equates to an approximate increase in operating cost of processing plant of AU$0.51 for every pound of vanadium produced. The capital cost of a modelled processing plant increases by only 6.5% or AU$5.7m from the AU$87.9m in the scoping study completed previously without considering vanadium as a potential by-product.

A screenshot of a computer Description automatically generated with medium confidence
Source: Toro Energy

Toro has obtained all the environmental permits from the state and federal governments that are required to progress with the development of the Wiluna Uranium Project. Wiluna has access to an established mining centre with water, power, and other services.

While Wiluna is in its early stage, the characteristics of the project are:

  • 84 million pounds of uranium in total Mineral Resource
  • Initial activities support 62 million pounds in Mineral Resource
  • Early estimates suggest Life of Mine is a long 10-20 years
  • The processing rate is approximately 1.2 million tonnes per annum
  • Mineralisation from surface to 15 meters deep
  • Has vanadium by-product potential at a low cost

Yandal Gold Project

The Yandal Gold and Base Metal Project is located only 20km NE of the world class Bronzewing Gold Mine and the Mt McClure, Bronzewing and Sundowner group gold deposits. The Yandal Gold Project represents a unique gold and base metal exploration opportunity – comprising some 243 square kilometres of the mature world class gold district, the Yandal Greenstone Belt – yet it remains relatively untested due to most of the ground being held by uranium companies since the discovery of the Lake Maitland Uranium Deposit in 1972.

In the main Yandal Gold Project area, most of the rocks are under a thick transported cover, making exploration difficult but further ensuring the basement greenstones remained under-explored. A detailed airborne magnetic survey combined with an extensive ground gravity survey and passive seismic survey have highlighted well over 70 target zones based on structural relationships with physical properties alone. First pass air core drilling with very limited reverse circulation drilling has confirmed prospective greenstone geology and favourable geochemical signatures for gold and base metal exploration. The results of that drilling campaign were released by Toro earlier this year, and it confirmed the prospect of the Golden Ways Target Area for gold, with significant gold intercepts.

Data being assessed from Golden Ways drill results along with further results recently received detailing rock chip geo chemistry from an extension of the mapping program in the immediate area. This assessment will include future drilling positions and targets.

The latest developments in the Yandal Gold Project are:

  • 22.4g/t surface sample collected 1.3km SSE of the southernmost drill hole drilled by Toro at Golden Ways, significantly expanding the area for gold mineralisation.
  • Planning for next phase of exploration at Golden Ways underway.

Dusty Nickel Project

Dusty Nickel Project is located in the northern goldfields region of Western Australia, some 50km east of the world class Mt Keith Nickel Deposit and lying within the tenements that comprise the Company’s Wiluna Uranium Project.

In 2020, Toro Energy announced that its first diamond hole drilled at the Dusty Nickel-Project, TED03, had intersected 15cm of massive nickel sulphides from 177.5m downhole with indications from hand held portable XRF (pXRF) analysis of grades between 2-4% nickel. Days later, Toro Energy added that the second diamond drill hole drilled at the Dusty prospect, TED04 had intersected 2.6m of massive nickel sulphides from 184.5m downhole, which geochemical analysis later confirmed to be grading at 3.45% nickel, 0.15% cobalt, 0.18% copper and 0.388 g/t PGE (platinum and palladium).

A Follow-up diamond drilling programme of 7 holes for 2,029.7 metres has been carried out, focussed on testing for extension of the massive nickel sulphides already intersected at the Dusty Nickel Discovery. Geochemical assay results confirmed intersection of massive nickel sulphides within a 9m thick (downhole) zone of sulphides starting at 250.9m downhole in TED07, including 4 intersections of massive nickel sulphides with a cumulative thickness of 4.5m. The evidence to date suggests that the Dusty Nickel Discovery is one of komatiite hosted massive nickel mineralisation similar to most of the massive nickel sulphide deposits exploited in the Yilgarn of Western Australia.

In March 2021, the Company commenced its 2021 diamond drilling campaign on the Dusty Nickel Project, planned to consist of at least 2,600m of diamond drilling, with mud rotary collars where needed, to penetrate through the paleochannel that lies above the Dusty Nickel Discovery. Approximately 600m of the overall programme will consist of drilling to complete the 2020 drill plan at Dusty. It is expected that the overall drill plan should result in a maximum of 12 mud rotary/diamond or diamond only drill holes.

Company Updates

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Source: Tradingview.com

With Preparations underway for the next phase drilling programme at Dusty, a combination of mud-rotary and diamond techniques focused on the magnetic trend associated with the massive nickel sulphides intersected in the 2020 campaign. To r o aims to complete the 600m remaining from the 2020 drilling campaign and then move on to the initial phase of the 2021 programme, which will include at least 2,000 metres of mud rotary/diamond drilling. In addition to this:

  • Data being assessed from Golden Ways drill results along with further results recently received detailing rock chip geochemistry from an extension of the mapping program in the immediate area. This assessment will include future drilling positions and targets.
  • Results from drilling at November Rain and Christmas, 700-1,500 metres to the east and southeast of Dusty are being assessed for future drilling positions.

Just last week, Toro announced that they will be raising capital via an institutional placement. Toro is looking to raise $15 million at a share price of $0.023. In addition to the Placement, the Company has entered into an agreement to repay approximately A$15.6 million owing to its largest shareholder, Sentient by way of converting approximately $6.7 million of the Debt via the issue of approximately 291.3 million new Shares at the Offer Price and to repay the balance of approximately $8.9 million in cash from the proceeds of the Placement. The Debt Conversion will be subject to shareholder approval at an extraordinary general meeting to be held in approximately mid-July 2021. The other substantial shareholders of Toro Energy are – OZ Minerals and Mega Uranium.

The proceeds of the Placement will be used to fund the following:

  • Advance the Wiluna Uranium Project
  • Cash Repayment Component of the Sentient Debt
  • Exploration activities at the Dusty Nickel Project
  • Exploration activities at the Yandal Gold and Base Metal Projects
  • General working capital

Industry Analysis

The uranium market dynamics have improved considerably in recent months with nuclear energy poised to play a key role in providing green baseload power required to support the new electric economy. Unlike traditional sources of baseload power such as coal, nuclear energy delivers emission-free energy.

The long-term demand for uranium is growing, primarily from new nuclear power plants in emerging markets. 2020 was a year with a record uranium deficit, which will help to speed along the recovery in price. In 2019, output from all countries was 64,566 tonnes, or 142.3 million pounds, accounting for 81 percent of all global demand. A 13 million pound decline into 2021 will likely continue to support a higher price. Uranium was one of the best-performing commodities in 2020.

Nuclear fuel demand remains strong. The COVID-19 crisis had not affected the global nuclear power output. Hence, total power demand was substantially impacted during the period in several markets and nuclear power contributed disproportionately to meeting demand as a preferred source for its resilience. Nuclear power had proven to be a reliable source of power, particularly during the pandemic because nuclear energy production is not subject to the same supply chain which involves labour risks that pressured other baseload power alternatives. In FY2021, reactor construction continues in key markets such as China, India, and Russia. In addition to China’s affinity towards uranium for nuclear energy, the industry’s prospects in the USA have also lifted considerably with the Biden administration demonstrably supporting nuclear power as an essential part of the US clean energy mix.

Accounting for the considerable increase in demand coming the way of the uranium industry, and the supply shortages due to Covid19 disruption and with full scale current production levels not matching up to the demands, the global uranium sector is currently running a structural supply deficit of approximately 11%. The World Nuclear Association estimates suggest that the supply deficit could double to 22%, and that the deficit in global production could maintain the supply pressure over the next 20 years.

Investment Thesis

Toro Energy has a prime land position in the heart of the Yandal Greenstone Belt, alongside Bronzewing which is owned by Northern Star Resources. The uranium deposit at Wiluna is of significant value given the Mineral Resource available. The discovery of vanadium as a by-product increases the potential of their flagship project further. Other than uranium, there is significant upside potential from the exploration projects that Toro Energy have undertaken. The entire region is underexplored for all metals apart from uranium. Initial drilling shows tenure highly prospective for gold, base metals, and nickel.

Over the last 30 months Toro has completed project scale geophysical surveys followed by first pass air core and RC drilling with follow-up diamond leading to the Dusty Nickel Sulphide Discovery and the identification of a number of prospective target areas for gold, base metals, and nickel.

Early discovery of massive nickel sulphides at Dusty Nickel Discovery. The Dusty Nickel Discovery intersected in the 1st diamond hole targeting nickel. Best results include:

  • TED07 cumulative massive Ni sulphide intersection of 4.5m @ 3.91% from 250.9m (Total 9m sulphide averaging 2.07% Ni) 70m down-dip east of TED04.
  • TED04 massive Ni sulphide intersection of 2.6m @ 3.45% Ni from 184.5m.

The Gold Results are very encouraging from the limited drilling activities that have been conducted so far. These results have warranted a follow up at Golden Ways.

  • 5m at 4.4 g/t from 22m (TERC24) including 2m at 9.93 g/t from 22m.
  • 4m at 3.3 g/t from 28m (TERC25) including 1m at 10.9 g/t from 28m.

Perhaps the biggest boost right now to Toro is the discovery of vanadium as a by-product at its flagship Wiluna Uranium Project. Re-engineered processing plant produces 499 tonnes of Ammonium metavanadate as a by-product with 2.09 million pounds of uranium per annum. This equates to 0.41 pounds of vanadium produced for every pound of uranium annually. The operating cost of the modelled processing plant increases by only 1.8% from that of the scoping study completed previously without considering vanadium as a potential by-product. This equates to an approximate increase in operating cost of processing plant of AU$0.51 (US$0.32) for every pound of vanadium produced. The Capital cost of modelled processing plant increases by only 6.5% or AU$5.7m from the AU$87.9m in the scoping study completed previously without considering vanadium as a potential by-product. The majority of this cost is from additions to the ion exchange circuit. The table below shows the estimation of increased capital expenditure that will be incurred by processing by-product vanadium.

Table Description automatically generated
Source: Toro Energy

Engineering studies from Toro Energy shows that changing the processing plant proposed in the scoping study to include the production of vanadium as a by-product would be economic even at the lower end of historical vanadium prices.

Toro Energy continues to actively explore in the Yandal in 2021 with its Diamond Drilling Programme. This will have the potential to discover new metals in the largely unexplored region.

The capital raising represents a pivotal moment for Toro as it transforms their capital structure. Toro emerges debt free and well-funded at a time when the uranium market is entering a new phase of growth. Toro’s balance sheet will be strengthened and de-risks the investment for investors. The Wiluna Uranium Project is one of the three Western Australia’s advanced uranium projects with environmental approval from the state and federal governments. The capital raising allows the company to continue its development of the Wiluna Project and continue exploration activities at Dusty Nickel and Yandal Gold Projects.

Technical Analysis

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Trend

TOE has been in a continuous decline ironically before the global market sell-off in March 2020 due to the COVID-19 pandemic first outbreak. TOE since April 2007 was trapped in a bear market losing more than 99% of its value from A$ 1.35 down to 0.3 cents per share. However, the scenario changed during the rebound post-COVID sell-off and TOE exhibited an impressive upside momentum, up 969% hence, the share appreciated by almost ten-fold from it’s all-time low. On its way up, TOE drew a perfect 45 degrees angle trend line confirming its long-term price reversal which is a very positive sign. TOE has found its price equilibrium around 2.5 cents per share which suggest that TOE may trade inside the 2.1 and 2.8 cents range in the near term before a breakout of the recent high occurs at A$ 3.2 cents per share.

Key price levels

TOE is currently trading inside a relatively large range of 1 cent per share, between the 38.2% Fibonacci retracement and the recent high, A$ 2.1 cents and 3.2 cents, respectively. The near-term key level is the 23.6% Fibonacci level at A$ 2.5 cents which may offer relatively good support as it represents TOE’s price equilibrium. A breakdown of the 2.1 cents level may trigger a sell-off from market participants which entered the position earlier at 1.8 cents per share and temporarily send TOE shares down to 1.4 cents. On the upside, a clear breakout of the recent high at A$ 3.2 cents will open the door to a rally above 4 cents and eventually reach the 5 cents price target.

Volume and momentum

Volume slightly increases since the last 200-day with the 20-day volume average up by +8%. The price action remains bullish in the near term, evolving in a range between A$ 2.1 cents and 3.2 cents per share.

Trade consideration

  • Market participants might be interested to enter at a key support level: A$ 2.5 cents and A$ 2.1 cents.
  • Primary target price above $A 4 cents per share
  • Secondary target price at $A 5 cents per share
  • Consider reducing exposure below A$ 1.8 cents
  • It is recommended exiting the trade below A$ 1.4 cents

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Recommendation

Toro Energy is now a debt free company with enough capital to proceed with its development of its flagship Wiluna Project, one of WA’s only environmentally approved projects with uranium and vanadium deposits. The firm is also continuing to explore the region for other metals to add to the nickel and gold deposits already found. Toro Energy is in its very early stage, albeit with an estimated production capacity of 84 million pounds of uranium from Wiluna, we issue a “Speculative Buy” recommendation.

 

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