The definitive guide to ASX uranium stocks, Part 3: Boss Energy

This is Part 3 of my mini-series on ASX uranium companies. Make sure to check out Part 2 on NexGen Energy and my in-depth look at the demand and supply dynamics of the uranium market.

Voted most likely to succeed

Boss Energy (ASX: BOE) is far closer to production than NexGen. In fact, mining operations have already started and first production is happening right about now. I am, of course, referring to Boss's Honeymoon mine in South Australia, located roughly 400 km south-east of BHP's Olympic Dam.

Honeymoon is a re-development / restart project, which means it was a producing mine in the past, but was closed due to low uranium prices in the wake of the Fukushima nuclear power plant disaster. Boss acquired the mine in 2015, and this quarter's production is the culmination of substantial investments of time and money by the company.

This is possibly the most attractive thing about Boss. We've seen how the last big thing, lithium, has followed the typical bust-boom-bust cycle in terms of commodity prices. Around the end of the last decade, underinvestment in lithium production, along with a boom in demand, caused a massive spike in lithium prices.

But, the oldest saying in markets is: Nothing fixes higher prices better than higher prices. When a commodity's price spikes, it tends to stimulate production of that commodity, plugging the demand-supply gap, and bringing prices back into check. Lithium mineral prices appear to have followed this very theme.

By coming into production as you read this, Boss sits alongside other major global producers like Kazatomprom, Cameco, and BHP as being in the box seat to take advantage of a high current uranium spot price.

Boss aims to produce around 2.5 Mlbs U3O8 each year within the first three years of production for an 11-year mine life. AISC is expected to be around US$25.60/lb which is comparable to BHP's Olympic Dam production costs of around US$27/lb. These numbers suggest Honeymoon's production is a relative minnow compared to NexGen's 29 Mlbs p.a., but a not-too-modest one-third of BHP's 7.5 Mlbs p.a.

Honeymoon’s Mineral Resource (lower cut-off of 250 ppm U3O8), 25 October 2023. Source: Boss Energy

Comparing resources, Honeymoon is considerably smaller and lower grade than Rook I, hosting 33.1 Mlb U3O8 (Measured and Indicated) at an average grade of 738 parts per million (“ppm”) versus Rook I's 257 Mlb U3O8 at an average grade of 3100 ppm. If we add in Inferred Resources, Honeymoon’s got 38.5 Mlbs at 620 ppm U3O8 compared to Rook I’s 80.7 Mlbs at 0.83% U3O8.

Key DFS outcomes, 2 August 2022. Source: Boss Energy

DFS project economics data suggests Honeymoon has a NPV of $412 million at a uranium price of US$60/lb and $729 million at $80/lb, both assuming an 8% discount rate. Boss's current market capitalisation is $1.5 billion, and given like NexGen, Boss is also largely a one-project company, one could argue it is potentially more than fully valued. Either that, or investors are seeing extra value from somewhere else in the Boss Energy equation.

Clues to where this extra value might lie include Boss's 1.25 million pound uranium stockpile which the company purchased in February 2021 at US$30/lb. This was a strategic decision to help manage off-take flexibility in Honeymoon's early stages of production, but also in response to what management considered an undervalued spot price at the time. At the current spot price, Boss's stash is worth around $150 million.

Honeymoon Uranium Project’s 100% held tenements. Source: Boss Energy

It's also worth considering Boss has substantial scope to upgrade its resources at Honeymoon. Infill drilling is underway on two major satellite deposits within the Honeymoon project area (Gould's Dam and Jason's) to grow mine life and production rate. Boss believes Gould's Dam and Jason's could eventually increase production to over 3 Mlb p.a., or extend the mine life if the original production estimate is maintained.

Boss has an excellent track record of increasing the JORC Resource at Honeymoon, having expanded it over fourfold from 16.6 Mlbs to 71.7 Mlbs since the project was acquired. So perhaps some of the current market cap-to-Honeymoon-NPV-differential suggests further progress will be made here.

Boss also has cash and cash equivalents of $63 million and a fully cash-backed environmental bond of $8.9 million.

Next time…

Next time, I’ll continue my investigation of ASX uranium pure plays with a company that I feel has somehow always been destined to be one step behind Boss, Paladin Energy (ASX: PDN). Paladin will be in production soon, though, and given it has substantially greater resources compared to Boss, it’s certainly one you can’t ignore. Stay tuned!

Missed any of the previous articles in this series?

Check out my articles on the other Top 5 ASX Uranium Companies: Part 1: BHP Group, Part 2: NexGen Energy, Part4: Paladin Energy, and Part 5: Deep Yellow, and my article on Demand and supply dynamics of the uranium market.

Don't forget to read…

To get a better understanding of the jargon used in the analysis of mining companies, I suggest you read these articles on how to interpret mining company resources, reserves, and drilling results and the stages of mining company development.