Marenica Energy (MEY): A uranium ten bagger or a takeover target?

It has been several years now since we first heard about the renaissance of the uranium bull market. Finally, the evidence suggests it is now upon us.

The uranium market is moving:

1. The long-discussed uranium demand /supply imbalance will increasingly be realised via forward contracts in late 2021 and early 2022 with supply shortfalls expected to accentuate thereafter(refer figure one below).
2. The United States has acknowledged the importance of Uranium and has moved to create the US strategic reserve.
3. It has been reported that the EU is likely to indicate that nuclear power qualifies for ‘sustainable investment’label.
4. Uranium companies such as Peninsular Energy (PEN) and Boss Energy (BOE) are purchasing U3O8 on spot markets (25% of market) in order to sell on term markets at a premium.
5. Cameco is signalling to the market that opaque term contracts are now sufficiently high enough to enable the re-opening of Cigar Lake in Canada.

Figure One: Uraniumsupply shortfall

Source: World Nuclear Association: https://www.world-nuclear.org/gallery/the-world-nuclear-fuel-report-expanded-summary/upper-scenario-supply.aspx

As the bull commences it’s charge, there is no better placed ASXuranium explorer than Marenica Energy (MEY) to capitalise on the expected exponential bull run.

The Company

Marenica Energy has uranium exploration projects in Australia and Namibia which is a highly supportive jurisdiction for uranium projects and has a long history of uranium mining.

According to the latest company presentation dated 17/03/21, on a company ownership basis Marenica Energy already holds a uranium resource of 96.4Mlb across it's tenements as shown in Figure Two below.

Figure Two: MEY tenements in Namibia and Australia

Source: MEY Investor presentation 17/03/21

For an explorer, the existing resource is already very large,however it is only likely to get bigger…. Much bigger...

Marenica is currently undertaking an extensive airborne electromagnetic survey in it’s Namib area in Namibia. This area of tenements contains the massive 36km long Hirabeb palaeochannel (ancient river bed) where uranium has likely been deposited from adjacent uranium rich highlands.

Neighbouring tenements and mines with resources ‘down-channel’from Marenica’s palaeochannels are the focus for other ASX listed uranium companies including Bannerman (BMN), Deep Yellow (DYL) and Paladin’s (PDN)Langer Heinrich mine. The target is to discover similar grades of 300-350 ppm U3O8 as per neighbouring discoveries with the potential for those discoveries to be at significant scale. Specific drilling at the Hirabeb tenement is also forthcoming.

Despite it’s potential, Marenica has traditionally been overlooked as an ASX uranium play with it’s Namibian neighbours receiving significantly more attention. The market however, is now waking up and will continue to do so as the relative value of Marenica Energy compared to it’s peers is realised.

Although the share price has performed exceptionally over thelast two weeks, the investment case for Marenica remains robust. Following an extensive analysis of 18 ASX stocks with uranium exposure, on an attributable resource to EV basis (Figure Three below), Marenica is still the best value uranium ASX listed stock by a wide margin.

Figure Three: ASX Uranium stocks EV/Attributable resource (A$m/Mlb)

Source: Compiled by the author

NB: AEE's London stock price (converted to AUD) has been utilised for comparisonpurposes.

No comparison will perfect. Comparisons will always becomplicated by companies being at different stages of procurement and havingmultiple assets in their portfolio.

Sometimes however, the juxtaposition of fundamentals reveals underlying value which is self-evident and the relative undervaluation of Marenica Energy’s current uranium resource is a clear example. With a path forthe uranium resource to grow significantly further, the market mis-pricing is both obvious as well as a huge opportunity.

U-pgrade

Additionally, Marenica is the owner of a patented U-pgrade uranium benefication process which has been developed in collaboration with the CSIRO.

The process rejects >95% of mass prior to leach and has been demonstrated to increase grade from 93ppm to ~5,000ppm U3O8. Whilst many companies have benefication processes, the U-pgrade appears to be the ‘best-in-class’ and has the potential to reduce Capex and Opex by ~50%.

The processal so provides optionality and flexibility for project development via, for example, the utilisation of adjacent company plant facilities or the development of projects which others companies find infeasible.

In short, U-pgrade has value.

U-pgrade has intrinsic value for the efficient, cost-effective development of Marenica’s own resources, but U-pgrade would also be perceivedas valuable to a wide range of uranium competitors searching for efficiency inorder to improve the investment case for their own projects.

Takeover target

When reviewing the feasibility studies of ASX listed uranium developers, some developers have relatively high assumed uranium prices embedded in their costings. For example, Marenica’s Australian neighbours in Namibia; Deep Yellow and Bannerman, both have assumed U3O8 prices of US$65/lb -over double the current spot rate. In addition to the sizeable resource which Marenica currently holds ‘up-channel’ from these neighbours, access to the efficiency of the U-pgrade grade process would be very attractive to competitors in the region

Furthermore, Chinese producers also hold significant tenements in Namibia and the China National Nuclear Corp (CNNC) currently owns 25% of Paladin’s Langer Heinrich mine. Whilst current geo-politics might prevent any immediate proposals, a burgeoning resource in Namibia uncovered by Marenica would be perceived as highly desirable from a country which is likely to generate significant future U3O8 demand for at least the remainder of the 21^st century.

Catalysts

In addition to the above rationale, a number of upcoming catalysts are likely to drive the Marenica share price in the near term. These include:

1. The 1,500m2 airborne electromagnetic survey of the Namib area had commenced on the 7^th April and at that time,the survey and data analysis were expected to be completed within three months.
2. Continued investigations/testwork of U-pgrade process on the Angela, Minerva and Oobagooma deposits in Australia.
3. Very likely admission into the URNM ETF at the next rebalancing expected in June/July. At that point URNM AUM will be over $300m and MEY weighting will be around 0.4%, at 30c per share. The required buying would likely be 5mil shares. Front-running prior to inclusion is expected.

Conclusion

From a fundamental perspective, the investment case for Marenica Energy is compelling. The strength of Marenica’s assets (including it’sIP), makes Marenica a takeover target, however should a takeover transpire itwould be somewhat disappointing given the potential for the many, many multiples of shareholder returns expected over the mid to longer term.

In any event, with the market waking up to the potential of Marenica Energy combined with the numerous upcoming catalysts,it is expected that the recent share price out-performance of Marenica Energy isvery likely to continue.

Disclaimer: ***High Risk***

The above analysis andin-production valuations are not intended as financial advice

Analysis is based onvarious assumptions and opinions

You are encouraged to doyour own research (DYOR) on the company and their

strategy/progress and make your ownfinancial decisions