Global Atomic Corporation
- TSX: GLO
- Shares Outstanding: 145.44M
- Share price CA$0.48 (12.02.2020)
- Market Cap: CA$69.81M
A few weeks ago, we wrote an article about the three crucial elements required for any successful uranium mining company. The article received some great feedback, so we felt it would be valuable to explore the uranium conundrum. Today we will be inspecting Global Atomic Corporation’s ability to weather the forces at work. A TSX-listed company, (TSX: GLO) owns the largest ‘high-grade’ uranium sandstone deposit outside the Athabasca Basin.
A Company Overview
GLO is a junior uranium mining company with cash flow from its JV in an aluminium slag and steel dust recycling business in Turkey.
It provides ‘a unique combination of uranium development and cash flowing zinc concentrate production.’ GLO’s Chairman, President and CEO is Stephen Roman, who was recently interviewed by Crux Investor at the WNA Symposium. Roman is the Former senior officer and Director of Denison Mines, formerly one of the “biggest producers in the world.” He has notable accomplishments such as the 2016 PDAC ‘Bill Dennis Award’ Prospector of the Year winner, and the discovery of Gold Eagle, sold to Goldcorp for $1.5Bn.
It’s worth noting that when Roman first mooted the idea of merging the Turkish asset with the uranium business, the market reaction was negative. In today’s depressed Uranium market, investors are thankful he did, as it has de-risked this investment considerably. Intelligent foresight or luck? Like all successes in mining, probably a bit of both. Roman is quick to give credit to his team though. We think it gives Global Atomic an advantage over most of its true peers in the Uranium category. We will get into some numbers later in this article.
So, let’s talk about some of the variables first:
GLO has the basis of a solid foundation of revenue from the fourth most consumed metal in the world.
Zinc prices are down at the moment, but even at these prices the JV has paid for the build of a large plant that doubles output. They produce zinc concentrate. The positive cashflow, once the debt is paid down, starts to flow to Global Atomic in 2021. Zinc production is predominantly used for construction: the frames of buildings, bridges, roofing, stairs, and piping. It is also used to coat iron/steel to prevent rust. A secondary use of zinc is in bronze and brass alloys, with a variety of applications ranging from batteries to fertilisers.
The price of zinc currently stands at c.$2,540/ton, an oddly low price for a material with remarkably low stockpiles on the London Metals Exchange, down from 1.2 million tonnes in 2015 to just 60,000 tonnes now (2008 market crash levels). Zinc is currently in a 134,000-tonne deficit according to the International Lead and Zinc Study Group (IZLSG).
Considering the current uranium market, GLO is performing admirably.
With a market cap of CAD$70M, the share price has risen steadily this year, from CAD$0.35 to a peak of CAD$0.55, before settling in around the CAD$0.50 This is close to a five-year high: an intriguing and surprising achievement. Many of its peers have seen falls of 30-40% as the macro story takes longer than expected to manifest itself in contract purchasing. These healthy finances are likely aided by the forecasted zinc recycling cash flow. If they were a pure uranium play, they would be in much deeper waters right now. In addition, GLO is the only Uranium junior with positive cash flow and net income: CAD$4,679,268 for the nine months ending September 30th 2019 and CAD$5,648,589 for the same period last year.
Energy Fuels have employed a similar strategy with their vanadium. It is clear that companies with a diverse portfolio are usually more investable than those with a single asset, or indeed a single jurisdiction.
An Experienced Management Team
CEO, Stephen Roman, has extensive uranium mining experience and a strong track record in business.
He sold a large gold company (Gold Eagle) to Goldcorp in 2008 for US$1.5B. Roman’s general mining experience is assuring, but his uranium experience as the former senior officer and director of Denison Mines Limited is crucial. As mentioned in a previous article, uranium is a commodity that requires a unique set of skills and poses an enigmatic set of challenges. Roman’s large ownership figure of >8% is certainly an encouraging indicator. Roman has been actively purchasing additional shares from the open market.
The remainder of the management team, especially the in-country team, is equally experienced with uranium. There is sufficient presence of uranium specialists alongside mining experts to render GLO’s management team a force to be reckoned with.
A Good Asset
GLO’s base metal division owns 49% of Befesa Silvermet Turkey (BST), which owns a zinc recycling plant in Turkey called Iskenderun. The other 51% is owned by Spanish company, Befesa, which has extensive experience in this field. In 2019, the plant experienced a within-budget and on-time upgrade and was re-opened in early November 2019 with a capacity of 110kt (c. 60Mlbs Zinc pa.).
BST has been a profitable operation for approximately 10 years. It provides excellent cash flow to GLO and has a low break-even. BST is a streamlined, efficient operation with high margins and a low overhead. Despite zinc prices being erratic and low at present, BST remains a strong asset.
However, while BST is cash flowing, it is not cash-positive at present. The JV still needs to pay-off the new plant, which it will do in 2020. The CAPEX for BST’s upgrade was CAD$26M. It was financed via 2018 cash flow, and debt (CAD$2M from Turkish bank and CAD$20M from Befasa (Libor +4%)). Investors should be aware GLO needs to utilise BST’s cash flow to pay off the debt: c. CAD$6M in both 2020 and 2021.
GLO also owns the largest high-grade uranium sandstone deposit globally, the Dajy Area Surface Anomaly (DASA Deposit) in Niger.
Niger is a good mining constituency with a fast-permitting schedule of just 6 months. In terms of DASA, GLO has 100% ownership. DASA is a large and high-grade deposit, open to multiple directions and GLO have claimed that with more drilling they can demonstrate it is a >300Mlbs uranium resource.
Besides the flagship DASA deposit, GLO owns:
- Tin Negouran Deposit, 10Mlbs U3O8
- Dajy Deposit, 17Mlbs U3O8
- Isakanan Deposit, 34Mlbs U3O8.
A feasibility study is due to begin on DASA imminently, but just how imminently remains to be seen. The current stagnancy of uranium prices may be somewhat demotivating, but like Energy Fuels, albeit for different reasons, GLO has no urgent need for uranium prices to rise. They can bide their time and play the long game because of the zinc cashflow.
The key aspect of the DASA asset to be aware of is its grade. GLO released further assay results in April:
DASA’s grade and size is unique and gives GLO a definitive edge over its rivals. While Energy Fuels’ mill was a possible gamechanger for the American uranium producer, the economic availability of DASA, the amicability of Niger as a uranium mining constituency, and the MOU signed with Orano related to ore sales and strategic development means GLO isn’t significantly hampered by lacking ownership of its own mill.
GLO is currently sitting on c. CAD$5M in cash and cash equivalents, down from CAD$7.7M in December 2018. The company’s finances are in reasonable order.
This is hands down one of the better uranium projects (if we can call it that) that we have looked at. The zinc in Turkey delivers free cashflow in spades. The debt for the new plant is going to be paid off this year, but still delivers c. CAD$1-$2M of cash to Global Atomic, and, thereafter, free cash of potentially between CAD$12M-$14M per year, like an annuity stream for the foreseeable future, depending on zinc price and internal charging structures. That is a lot of cash. Mr. Roman must be feeling pretty good about his decision right now.
What is more exciting is what this cash does for the company. It allows the company to potentially deliver a large-scale Uranium project without dilution to shareholders. Clearly, this depends on the decisions made by the management team as to how they develop DASA. Cash from the zinc would allow them to develop the higher-grade flank zone, and start producing and selling uranium into market by 2024. This assumes the truck and toll initially and do not have a large capital outlay to build their own plant, without diluting shareholders on the CAPEX. So, a few assumptions made by us, but eminently possible.
In our opinion, what GLO should do before then is a small injection of cash of CAD$6M-$12M (depending on their plans), to do the FS on the flank zone, to do the engineering and cover 24mths of G&A (the zinc revenues will be paid annually in arrears). As a shareholder, we’d accept this as it would release the value of DASA quicker and possibly time the Uranium market beautifully. This scenario is obviously idealistic, but, based on the data available, very, very deliverable.
Roman has previously stated that they could produce in the high-USD$20 range. Even if we load this up and get to USD$40, Global Atomic is going to be much more attractive than most of its peers when it comes to discussions on financing CAPEX. Clearly, going to market and raising a large CAPEX budget will be doable, and would probably deliver a slightly better IRR than our potential model, but will take longer to get to revenue. So, of course, we like our model best.
What do you want the company to do? What do you think?
Company Page: https://www.globalatomiccorp.com/
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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