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Date : 09/02/2022

Vimy Resources

ASX :

VMY

Market Cap : $184.12 Million

Buy

52 Week Range : $0.090 - $0.310

Share Price : $0.185

Vimy is now the only Western Australian uranium company with permission to continue operations. We recommend a "Buy"

Company Analysis

Vimy Resources (ASX: VMY) is a Perth based uranium miner and exploration company. There were just 4 uranium mines with state and federal level approval in Western Australia. These approvals were granted in 2017 with a clause that required these companies to show significant plans to develop and operate the mine. Along with Vimy, there was a mine owned by Toro Energy and another two by Cameco, the world’s largest listed Uranium company.

With Cameco and Toro failing to show any developments, they now find their contracts expired. Communal pressure for ‘anti uranium’ in Western Australia has been mounting, and it looks like no political party is willing to change its ‘no uranium’ stance in the state. This leaves Vimy Resources as the only uranium company with a mine and all the necessary approvals to develop it in Western Australia.

Vimy is exploring large, high-grade uranium unconformity deposits identical to those found in the Athabasca Basin in Canada. Vimy’s flagship project is the Mulga Rock Project, one of Australia’s largest undeveloped uranium resources, located 290 kilometres by road ENE of Kalgoorlie in the Great Victoria Desert of Western Australia. This is the largest granted uranium exploration package in the world-class Alligator River uranium district, located in the Northern Territory.

Source: VMY

FY21 has seen significant milestones for Vimy and remarkable change in many areas

Vimy Resources has a very clear vision of the future. The company believes that substantial changes are imminent and that the world will wake up to nuclear power as the ultimate clean energy. We share the same sentiment. We have long iterated the importance of uranium powered nuclear energy as the world goes all-in on renewable energy. The West’s liberalisation around nuclear energy has made investing in the industry more widespread.

Furthermore, we believe that the bullish uranium pricing allows the construction of new uranium mines, and as a result, investor enthusiasm is returning to the sector. Those changes have been slower than anticipated, but the shift transpired last year.

The timing of these changes has corresponded with some significant milestones for the company. Last October, Vimy announced that the Western Australian Department of Mines, Industry Regulation and Safety or DMIRS had approved the Mulga Rock Mining Proposal and associated Mine Closure Plan. The earlier approval of the Project Management Plan and Conditional Environmental Management Plans allowed the company to implement the Early Works program at Mulga Rock, including vegetation clearing, stockpiling of topsoil and excavation of subsoil. The approvals and Early Works program have further de-risked the project, and Vimy continues firmly on the path to becoming Western Australia’s first and only uranium mine and entering production by 2025.

The Mulga Rock camp has re-opened, a maiden test flight has successfully landed on the refurbished Officer Basin landing area, water infrastructure has been re-established, and associated infrastructure has been recommissioned. A FIFO workforce is now undertaking pre-production mining operations on site.

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Nuclear energy is rapidly gaining favour with worldwide policymakers’ keen to reach targets for carbon reduction, and every day is bringing further positive news on this front. At the same time, demand fundamentals for uranium continue to improve, with global demand growth. Whilst demand grows, supply is shrinking. In fact, global mine production is expected to lag global consumption by more than 63 million pounds onwards 2022.

Investor enthusiasm for uranium has recently reached levels not seen for many years. A key factor behind the resurgent uranium spot price and renewed investor interest has been the Sprott Physical Uranium Trust, established in July 2021 to buy and hold physical uranium ore. This fund, the world’s largest physical uranium fund, has provided a catalyst for the significant rise in share prices of ASX-listed uranium miners, including Vimy, since last year. During FY21, we were also pleased to see that Vimy has been included in a few Exchange Traded Funds (ETF):

  • The Global X Uranium ETF (AMEX: URA)
  • The North Shore Global Uranium Mining ETF (AMEX: URNM)
  • The Horizons Global Uranium Index ETF (TSX: HURA)

The influx of funds into uranium ETFs offers an avenue to allocate portfolio exposure to the market and indicates the improvement in investor sentiment in the sector. Moreover, since last year, the company has also begun trading on the US-based OTCQB Venture Market, a well-established trading platform that provides live-market trading in developing companies that hold primary listings in other markets. This listing has enhanced Vimy’s visibility and accessibility to shareholders and media partners in North America.

FY21 has also seen significant change to the management team at Vimy. At the end of August 2021, Managing Director and CEO Mike Young decided to step down from his role after seven years at Vimy. Chief Sustainability Officer Julian Tapp also stepped down at this time. During their tenure, Mr Young and Mr Tapp led the company towards remarkable progress in moving the Mulga Rock Project to the cusp of development through the Public Environmental Review and DFS stages and bringing the project’s potential to the attention of the global nuclear industry and investment market.

A refreshed and experienced management team

Appointed Managing Director: During the last quarter of CY21, Vimy’s Interim Chief Executive Officer, Mr Steven Michael, joined the Board. Subsequently, Vimy announced that Mr Michael has been appointed as the Managing Director and Chief Executive Officer from the 1st of March 2022. Mr Michael has over 25 years of experience in the global resources sector, specialising in corporate finance and equity capital markets. He was a Managing Director at FTI Consulting, an independent global business advisory firm, where he specialised in business transformation for mining companies. Before joining FTI Consulting, Mr Michael spent nine years as Managing Director of an ASX-listed exploration company with a portfolio of assets in Australia and Africa. He has previously worked in the natural resources divisions of Macquarie Bank, Rothschild & Co, and Royal Bank of Canada, in global mining equities research and sales, corporate finance and investment banking. Mr Michael is a Member of the Institute of Chartered Accountants and is a member of the Australian Institute of Company Directors.

Appointment of Non-executive Director: Mr Wayne Bramwell joined the Board of Vimy as Non-executive Director in October 2021. Mr Bramwell is an experienced mining executive and company director with over 30 years of international and Australian project evaluation, development and operations expertise across the base metals, precious metals and bulk commodity sectors. Furthermore, Mr Bramwell is currently an Executive Director of the ASX-listed gold producer Westgold Resources and was previously Group Business Manager at the Creasy Group.

Appointment of Chief Operating Officer: At the end of last year, Vimy also announced the appointment of Dr Tony Chamberlain as Chief Operating Officer. Dr Chamberlain first joined Vimy as an executive in 2014, where he successfully took the Mulga Rock Project from concept to a Definitive Feasibility Study in under four years. During this time, Dr Chamberlain led the overall management of environmental approvals for the Mulga Rock Project and was instrumental in acquiring the Alligator River Project in March 2018. Dr Chamberlain joined the Vimy Board as a Non-Executive Director in February 2019. Dr Chamberlain holds a PhD in Metallurgy and has over a decade of uranium experience; and brings a wealth of project experience in guiding the Mulga Rock Project into operation.

New Chief Financial Officer: Vimy has recently advised that Mr Matthew Owen of Qlarity Corporate Services had been engaged to provide CFO services to the company following the resignation of the previous CFO, Mr Marcel Hilmer. Mr Owen brings extensive experience across diverse industry sectors, including renewable energy, resources, treasury, governance and audit, and manufacturing. Mr Owen is a member of the Institute of Chartered Accountants and a member of the Governance Institute of Australia.

Vimy holds interests in two promising projects

Mulga Rock Project: Vimy’s Mulga Rock Project is one of Australia’s largest undeveloped uranium resources and will produce 3.5 million pounds of uranium annually. It lies in the Great Victoria Desert in Western Australia, 290 kilometres by road ENE of Kalgoorlie. The project comprises four mining areas: Ambassador and Princess, which form the Mulga Rock East Mining Centre, and Shogun and Emperor, which comprise the Mulga Rock West Mining Centre, approximately 20 kilometres away. The Mulga Rock Project is now the only uranium project in Western Australia to have all the approvals in place for further development. Vimy released the Mulga Rock Definitive Feasibility Study in 2018, which confirmed robust financials and a simple, low-cost uranium mining and recovery process. The 2018 DFS positioned Vimy as Australia’s largest near-term uranium producer. In FY21, Vimy announced the updated Definitive Feasibility Study on the Mulga Rock Project, demonstrating that the project will generate even stronger financial returns than previously forecast.

Alligator River Project: Vimy’s 100%-owned Alligator River Project is the largest granted uranium exploration package in the world-class Alligator River uranium district in the Northern Territory. The Alligator River Project is an important part of Vimy’s long-term strategy as it will provide the certainty of long-term supply that offtake customers require. The potential of the Alligator River Project is demonstrated by the proven track record of the nearby Jabiluka and Ranger deposits providing over 750Mlbs of U3O8 in a mineral endowment which is the current mined resource. Mulga Rock has an economic life of fifteen years with the potential for adding another five. Moreover, Alligator River has the potential for another ten years. Since August last year, Vimy has held 100% of the Alligator River Project by settling the acquisition of Rio Tinto’s 20.89% interest in the Wellington Range and King River Joint Venture. Vimy owns the project through its wholly-owned subsidiary Viva Resources Pty Ltd.

Company Updates

FY22 onward outlook: Substantial Commencement confirmed and approvals received for Mining Proposal

FY21 was a decisive period for Vimy and its flagship Mulga Rock Uranium Project. Following several key project approvals, development of the Ambassador North pit commenced with surface clearing and excavation of the pit ramp. In the last month of CY21, Vimy received confirmation from the Department of Water and Environmental Regulation that substantial commencement had been achieved per the conditions of Ministerial Statement 1046. Mulga Rock is the only uranium project in Western Australia to have met this condition.

Mulga Rock Uranium: During the Quarter, Vimy received approval from the Western Australian Department of Mines, Industry Regulation and Safety (DMIRS) for the Mulga Rock Mining Proposal, Mine Closure Plan and the Mulga Rock Project Operational Radiation Management Plan. These approvals, along with the earlier approvals of the Mulga Rock Project Management Plan and Conditional Environmental Management Plans, allowed Vimy to continue the Early Works Program and undertake activities including:

  • Clearing of vegetation, topsoil and subsoil at the Ambassador North and Princess pits;
  • Excavation of the Ambassador North pit ramp; and
  • Construction of the water pipeline to the Kakarook North bore field.

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Source: VMY

Kakarook North Bore Field HDPE Pipe Extrusion: Polyline Pipe Solutions (PPS) mobilised its unique mobile HDPE pipe extruding system to Mulga Rock. PPS will initially produce and lay ~8.5 kilometres of black DN400 PN10 HDPE pipe in 500m lengths, representing stage-one of a total pipeline length of 32.5 kilometres from the future processing plant site to the Kakarook North bore field. PPS’s technology removes the need to haul large quantities of pipe to the site and instead manufactures directly from its mobile MPX630 pipe extruding system, minimising welding requirements, associated loss of efficiency and potential failure points. Furthermore, PPS’s MPX technology can deliver a more sustainable solution and lower environmental footprint by recycling water and heat, reducing trucks on the road, and double handling pipe sections.

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Source: VMY

Sandhill Dunnart Conservation Plan: Vimy is implementing a Sandhill Dunnart Conservation Plan (SDCP) designed to reduce the threat posed by feral animals to the Sandhill Dunnart, a small marsupial inhabiting isolated sandy arid and semi-arid areas. Vimy’s approval process under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 (EPBC) has engaged GHD Group to prepare the required SDCP. The Sandhill Dunnart monitoring program comprises a network of fifty motion-triggered cameras. These cameras are deployed within the SDCP area to monitor the presence of sandhill dunnarts and similar mammals and feral animals – it represents an extension of the extensive camera trapping programs and associated trapping protocol for small mammals for which Vimy was short-listed for a Golden Gecko environmental award. Remote motion-triggered cameras are a cost-effective, fauna friendly and efficient means of collecting presence and absence data over an extended timeframe. Data gained from this monitoring program will be used with the SDCP to manage predators or threats to the Sandhill Dunnart within the defined area. Vimy expects the SDCP to be submitted to the Commonwealth for approval in March 2022.

Process Optimisation – Ion Exchange (IX) Testwork: As part of the company’s commitment to process optimisation, the IX test work underway at ANSTO Minerals facilities has delivered results above expectations regarding loading stripping uranium on the Strong Base Anion resin being tested. A bulk loading test completed in the current test program compares favourably with previously reported batch tests. A separate set of elution tests using ANSTO Minerals elution technology has shown further improvements with 99.7% elution of uranium achieved in 10 Bed Volumes and residual resin loading of circa 0.2 g/Lwsr, under base conditions. Test conditions of 0.5 Bed Volumes per hour flow rate and 50°C delivered an average eluate concentration of 16 g/L U3O8, an approximate eight-fold improvement on the 2018 DFS process design criteria. These results will inform the elution plant design, and a pilot plant program is currently in progress at ANSTO Minerals facility in New South Wales.

Industry Analysis

The uranium spot market continues to exhibit signs of price and volume volatility. Uranium price per pound indicators fluctuated between a low of just over $39 to a high of mid-$47 before settling at around $46. As for volume, transacted totals for the quarter remained robust until levelling off in the latter half of December. Market participants primarily included a mix of traders, financial entities, and hedge funds, although some utilities sought to fill relatively small, short term supply gaps with opportunistic purchases.

Last year, the spot market established a new all-time record approaching 100 million pounds, surpassing the previous high set in 2020. Overall, much of the increased activity remains attributable to the ongoing rise of equity investments available to financial entities and hedge funds, including Sprott Physical Uranium Trust and Yellow Cake, amongst others. This trend will likely carry forward onwards CY22 and perhaps even increase with the anticipated addition of a new Kazak based fund.

As for the long-term market, the average monthly reported price remained mostly static throughout the quarter. However, the strengthening spot price combined with various global events such as anticipated supply deficiencies, ongoing COVID impacts, and increased geopolitical risks may result in utility action to re-evaluate long-term contract coverage and re-assess supply and supplier diversity within their portfolios. Globally, longer-term contract requirements remain largely open, and the gap between contracted uranium and forecasted annual requirements continues to widen out in time.

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Source: Market Insider. 5Y uranium price

Investment Thesis

Vimy Resources, a highly leveraged play on the rebound of uranium markets

During early FY21, Vimy announced the updated Definitive Feasibility Study results on the Mulga Rock Project, which reinforced the global importance of the Mulga Rock Project and moved it into the middle of the uranium producer AISC cost curve. We have listed below a few points that show Vimy’s DFS substantial improvements:

Strong project economics:

  • NPV8 pre-tax US$393 million, a 14% increase
  • IRR 31%, a 23% increase
  • A capital cost of US$255 million, a 20% reduction
  • Payback period of 2.4 years, which is reduced by 8 months
  • Free cash flow of US$61 million per annum, a 22% increase

Strong operating cost results:

  • Cash operating cost of US$23.33 of U3O8 over the first five years, an 8% decrease
  • Cash operating cost of US$26.02 over the Life Of Mine, a 7% decrease
  • AISC of US$28.09 over the first five years and US$31.22 over the Life Of Mine, both an 8% decrease

We are pleased to see that the updated DFS demonstrated that the Mulga Rock Project has a low economic sensitivity to operating and capital costs risks. Furthermore, this was reinforced by the fact that the project has a long mine life of fifteen years with an annual production of 3.5Mlbs of U3O8, which forms a key part of finalising project funding and strategic partnerships. We expect the uranium production at Mulga Rock to generate significant opportunities.

Furthermore, we believe there may be further improvements in project economics with minor process modifications and the inclusion of base metal concentrate credits of US$4- 4.5/lb U3O8 credit. This may create more options for funding.

We are also confident in Vimy’s projects as we think that the outlook for the uranium markets is quite positive. We believe there will be an upcycle in uranium prices, an incentive price environment of about US$80/lb, which could enable new mine supply to come online. FY22 may be the inflection point.

Besides the Mulga Rock deposit, Vimy also operates the largest granted uranium exploration package in the Alligator River Uranium Field in the Northern Territory. This hosts the Ranger and Jabiluka deposits. The company is now exploring large high-grade uranium deposits identical to those found in the Athabasca Basin in Canada. The maiden Inferred Mineral Resource for Angularli was announced in early 2018 with 26Mlbs @ 1.3% (13,000ppm) U3O8 at a cut-off of 1,500ppm. Vimy released a Scoping Study in December 2018. The company carries $25 million for Alligator River as an exploration asset.

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Source: VMY

Technical Analysis

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Although volume has declined since the last 20-day period, we have seen last Friday (4th of Feb) significant volumes of 15 million shares changing hands. This volume inflow is well above VMY average volume of ~6 million shares exchanged a day. The sudden volume increases coincide with VMY’s consolidation in the price range of 16.5 cents – 18.5 cents. In our view, once a clear breakout at the key resistance level of 18.5 cents (Fib 61.8%) occurs, VMY share price could retest its next resistance level at 21 cents. The 21 cents level offers a solid foundation for a massive breakout and rally back to VMY’s recent high above 30 cents per share.

Recommendation

Last year was a crucial period for Vimy, particularly for its flagship Mulga Rock Uranium Project. The company received several key project approvals. The development of the Ambassador North pit commenced with surface clearing and excavation of the pit ramp. Vimy’s Mulga Rock is the only uranium project in Western Australia to have all the necessary approvals required for mine development. Once operational, Vimy will be the only uranium producer in Western Australia.

We are issuing a “Buy” for VMY. Vimy has the potential for significant upside, which could be driven by two key catalysts. The first one is the rising uranium price due to producers buying physical volumes to cover production outages or US Utilities re-entering the term market. The second one is the production at the Mulga Rock deposit expected onward FY25.

 

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