The definitive guide to ASX uranium stocks, Part 5: Deep Yellow

This is Part 5 of my mini-series on ASX uranium companies. Make sure to check out Part 4 on Paladin Energy and my in-depth look at the demand and supply dynamics of the uranium market.

Potential deep in the ground

Deep Yellow (ASX: DYL) is far earlier along the road to production than the first four we've looked at so far in this series - including BHP (ASX: BHP), NexGen Energy (ASX: NXG), Boss Energy (ASX: BOE) and Paladin Energy (ASX: PDN), but it does have what I could classify as two late-stage development projects.

The Tumas project is located in Namibia and is the closest of Deep Yellow's projects to achieving production. In February, Deep Yellow tabled the Tumas's DFS which reported an ore Reserve of 67 Mlb U3O8 at an average grade of 345 ppm, as part of an Indicated and Inferred Resource of 114 Mlb U3O8 at an average grade of 263 ppm.

The goal at Tumas is to operate a 3.6 Mlb p.a. capacity mine with a life of 22 years at a life of mine AISC of US$38.72. Deep Yellow expects conversion of existing Resources could increase life of mine to 30 years, and exploration activities at Tumas to identify new resources continue.

It's also worth noting that Tumas contains a vanadium deposit, which will be mined simultaneously with its uranium for annual production of 1.15 Mlb V2O5. Order of magnitude, this will add about 4% to the Tumas bottom line.

Tumas Project Financials showing Base Uranium Price with Price Comparatives, 3 February 2023. Source: Deep Yellow

Tumas's NPV is US$341 million (A$524 million) assuming a uranium price of US$65/lb, US$614 million (A$944 million) assuming a uranium price of US$77/lb, and US$754 million (A$1,160 million) assuming a uranium price of US$80/lb. Each calculation assumes a discount rate of 8% and conversions at $0.65 AUD/USD. These NPV scenarios compare with Deep Yellow's market capitalisation of $920 million.

The initial capex to get Tumas to production is US$372 million. Deep Yellow had $27 million cash in the bank as at September 30 and is burning around $15 million annually. This is important, because unlike NexGen, Boss Energy, and Paladin, Deep Yellow is not fully funded to production. At the current run rate, I suspect Deep Yellow will need to raise equity capital some time in late 2024 or very early 2025.

Along with FEED activities which are progressing, funding is the next box for Deep Yellow to tick. I'd expect to see an announcement on this in the next few months. It will likely be debt, but given cash burn to cash in the bank, and against the recent rally in Deep Yellow's stock price, there's a good chance of an equity capital raise in 2024. This could dilute current shareholders and possibly dip Deep Yellow’s stock price in the event a steep discount is applied to the new stock.

In terms of timing for financing and/or an equity capital raise, I suggest this might coincide with the Tumas FID which is slated for the first half of 2024. Looking further out, Deep Yellow has indicated production at Tumas could commence in 2026.

Deep Yellow's other major project is the Mulga Rock Project which is located 290 km by road from Kalgoorlie in Western Australia. This project is progressing toward a revised DFS which should commence in early 2024 and be completed by mid-2025. Current DFS estimates suggest Indicated and Inferred Resources of 90.1 Mlbs U308 at an average grade of 574 ppm. Deep Yellow envisages a 3.5 Mlb p.a. operation for a 15-year mine life. Exploration at Mulga Rocks is ongoing.

Deep Yellow also has another promising Namibian Uranium Province project called Omahola. It's relatively early stage compared to Tumas and Mulga Rocks, but historical exploration has identified a Measured, Indicated and Inferred Resource base of 125.3 Mlb U308 at 190 ppm. Exploration at Omahola is ongoing.

Deep Yellow ore reserves as per 30 Sep 2023 Quarterly Activities Report. Source: Deep Yellow

Possibly the key to understanding the value/lack thereof in Deep Yellow is what I call "pounds in the ground". The company claims to have 409 Mlbs of Measured, Indicated and Inferred uranium in the ground across its project, which according to Deep Yellow, is the "Largest uranium resource base of any ASX-listed company".

As long as I've been following Deep Yellow, it has promoted its pounds in the ground advantage over its rivals. This is usually done with a series of diagrams in their company presentations which compare their resources with other ASX-listed uranium plays.

My view is this data is kind of useless because pounds in the ground don't tell you anything about whether a company has any chance of extracting those pounds any time soon, or at anything that resembles favourable economics. I'll show you one of those cheeky diagrams here if only as a road map of where we're headed!

Attributable resources of ASX-listed uranium companies. Source: Deep Yellow (Note, Deep Yellow has since upgraded its resource inventory to 409 Mlbs)

Next time…

That's it for now. So far, I've knocked off the Top 5 ASX Uranium Companies by market capitalisation, but also by production potential in the near term. Next time I'll commence a deep dive on the mid-and-smaller end of the ASX-listed U-Stocks spectrum, so 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, Part 3: Boss Energy, and Part 4: Paladin Energy, 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.