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Deep Yellow DYLLF DYL continues to achieve a series of highly significant milestones over the last two months towards management's goal of becoming a Tier I multi-jurisdictional uranium producer during the current uranium up-cycle.
1) 3,213-meter drilling campaign at the Barking Gecko Project completed
a. Two highly prospective zones identified
i. Barking Gecko North: 2 km by 1 km (open to the east, southeast and at depth)
ii. Barking Gecko South: 4 km by 0.5 km (open to the northwest and southeast)
2) In February 2021, a positive Pre-Feasibility Study (PFS) was completed on the Tumas Project, aka the Reptile Project, including a Maiden Reserve for the Project
3) Work on the Definitive Feasibility Study (DFS) commenced in February 2021 with expected completion by the end of calendar 2022
a. 15,000-meter RC infill drilling program at Tumas 3 and Tumas 1 East is in process
i. 6,987-meter RC drilling program at Tumas 3 East was completed in April and an intermediate, updated Mineral Resource Estimate for Tumas 3 East is expected to be announced late May
ii. Currently, RC drilling is occurring at Tumas 3 Central, after which the drilling teams will moved to Tumas West and Tumas 1 East
4) Successful completion of financings to fund management's dual-pillar growth strategy, namely advancing the Tumas Project to production and becoming a multi-jurisdictional producer
a. The completion of a AUD$ 40.8 million private placement (62,768,803 ordinary shares at AUD$0.65 per share) in February 2021
b. An oversubscribed Share Purchase Plan was completed in late March 2021. Gross proceeds were approximately AUD$2.00 million
c. In June 2022, options exercisable at $0.50 will expire. The exercise of these options would provide the company with about AUD$30 million
d. The net proceeds plus cash on hand will be utilized
i. to fund drilling programs to upgrade and expand the Resources at Tumas
ii. to complete the DFS on the Tumas Project
iii. to pursue acquisitions/ mergers
The management team of Deep Yellow created a producing uranium mining operation (Paladin Energy) during the last uranium cycle, and now has a singular focus to do so again. As important, management is executing on a clear objective of becoming a Tier I uranium producer, defined as a multi-project producer of uranium with the capacity to deliver 5-10 million lbs. of uranium annually. In other words, we expect management to remain focused on pursuing only one or two acquisitions in order to achieve the company's stated objective and to execute the development of the projects on a rigorous timetable.
The Langer Heinrich uranium mine is situated 30km northeast of the Tumas Project. Deep Yellow's executive team acquired, defined, funded, developed, optimized and operated Langer Heinrich from 2002 to 2017. The geology and type of deposit mineralization in these palaeo-channel systems at Langer Heinrich and Tumas are quite similar, and the mining jurisdiction is one in the same. Management is well-prepared to fast-track Tumas to production during this uranium up-cycle.
Pursuit of Definitive Feasibility Study (DFS) on Tumas Project
Management is pursuing activities that will support the completion of a DFS, including an objective of achieving a +20-year LOM operation, up from the 11 ½ years in the PFS.
Key undertakings are a 15,000-meter infill drilling program (in order to upgrade the existing Inferred Resource to the Indicated category) and optimization workstreams on the development plan. Optimization studies will be conducted on several recommendations detailed in the PFS, including a pit optimization process and metallurgical optimization test work. The metallurgical optimization test work will utilize 1,680 kg of samples that have been received at Perth. Deep Yellow has already expanded its in-house technical team to support these activities. Results of these trade-off and optimization studies are expected to be announced throughout 2021.
If the development process advances smoothly, management anticipates that the Tumas Project will enter production phase in two or three years, which dovetails with the beginning of the expected uranium shortage to become ominous with a blatant supply/demand imbalance in the 2023/24 timeframe with price of uranium increasing the US$60-to-US$70 per lb. range.
DFS-related 15,000-meter Drilling Program
In early February 2021, a 4-month, 15,000-meter infill drilling program commenced to support the DFS. The infill drilling program is expected to better define and, in all probability, upgrade the current Inferred Mineral Resource, which was delineated by former wider-spaced drilling. All drill holes will be surveyed with down-hole radiometric gamma logging.
A key objective of the drilling program is to upgrade the existing Inferred Mineral Resources at Tumas 3 (East & West) and Tumas 1 East to a higher category with a goal of converting 95% of the currently defined Inferred Resource (51.2 million pounds at 249ppm U308) to Indicated status, similar to the 2020 infill drilling in 2020 at Tumas 3 that upgraded 95% of the then existing Inferred Mineral Resource to the Indicated category. The upgraded Resource is expected to significantly increase the Maiden Reserve under the PFS, thereby expanding the LOM to over 20 years under the DFS.
The host rock, type and grade of mineralization, along with the palaeo-channel shape are quite consistent at Tumas. Furthermore, on 100-meter/kilometer scale, the calcrete-type mineralization is relatively persistent both along the channel and laterally, though over shorter distances (meters), the mineralization can vary considerably. Therefore, management reasonably assumes that 95% benchmark for upgrading Inferred Resources to the Indicated category can be achieved through infill drilling.
15,000-meter Infill Drilling Program Schedule
Feb. 16 – April 28 Tumas 3 East 445 holes (totaling 6,987 meters) - completed
May Tumas 3 Central & West 250 to 300 holes (totaling 4,500 to 6,000 meters)
May - June Tumas 1 East 400 to 500 holes (4,500 to 6,500 meters)
The initial focus was on Tumas 3 East, and then it moved to Tumas 3 Central & West and will conclude at Tumas 1 East. The infill drilling program targets the lateral extensions of the Tumas 3 deposit and the shallow tributaries of Tumas 1 East.
The Phase 1 infill drilling program at Tumas 3 East was completed on April 28, 2021. 445 holes (6,987 meters) were drilled at 100-meter hole spacings which are sufficient to enable a resource conversion from an Inferred to an Indicated Resource category. 48% of the 445 holes returned uranium mineralization greater than 100ppm over 1 meter, and 25% displayed uranium mineralization greater than 200ppm over 1 meter. GT intervals (grade x thickness) confirm grade continuity across the part drilled within the Tumas 3 deposit area.
The best hole was T2I459 which displayed the highest grade (8 meters grading 892 ppm eU3O8 from 4m-to-12m), followed by T3I758 (6 meters grading 688 ppm eU3O8 from 17m-to-23m).
The Phase 2 infill drilling program at Tumas 3 Central and Tumas 3 West commenced in early May, while the Phase 3 infill drill program will focus on Tumas 1 East.
A Mineral Resource Estimate will be produced after the completion of the entire 15,000-meter drill program, though an intermediate Mineral Resource Estimate for Tumas 3 East is expected to be announced in late May.
Follow-up RC drilling Campaign at Barking Gecko (EPL3669) Completed
On March 30, 2021, drilling program comprised of 13 holes totaling 3,213 meters was at the Barking Gecko prospect within the Nova JV. The program of 200-meter spaced holes identified two highly prospective zones: Barking Gecko North and Barking Gecko South. Currently, the dimensions of Barking Gecko South is estimated to be 4 km by 0.5 km (open to the northwest and southeast) while Barking Gecko North is estimated to be 2 km by 1 km (open to the east, southeast and at depth). Management plans to initiate further drilling in the second half of 2021.
The best hole was TN253RC, both in terms of thick uranium mineralization (45 meters grading 222 ppm eU3O8 from 120m-to 165m) as well as highest grade (14 meters grading 404 ppm eU3O8 from 81m-to-95m).
Management's Objectives
Management's goal is to advance a Namibian uranium project into production with no less than a 20-year LOM and IRR of at least 20% with annual uranium oxide production in the 2-to-3 million pound range with operating costs in the area of US$30 per pound. In order to extend the LOM from 11 ½ to 20+ years, management is focusing on enhancing and further optimizing the PFS's Tumas development plan by increasing the available ore reserves through a 15,000-meter RC infill drilling program designed to upgrade already existing Inferred Resources. In addition, certain facets of the mine plan will undergo an optimization process, including mine scheduling and the ore treatment process. These enhancements will be incorporated into the DFS.
Environmental Impact Assessment
Work on the Environmental Impact Assessment (EIA) continues. Baseline studies have commenced on groundwater, radiological, air quality, flora and fauna conditions. 14 water bores have been completed to support the baseline studies. The submission (and approval) of an EIA is required before the Environmental Commissioner can issue an Environmental Clearance Certificate (ECC), which is a requirement for a Mining License.
Mining License
Management anticipates submitting an application for a Mining Lease for the Tumas Project area in the quarter ending June 30th. The application may cover as much as 60 kilometers of Tumas palaeo-channel system.
Project and M&A Funding
In late March 2021, Deep Yellow completed an oversubscribed Share Purchase Plan. The company received valid applications for 11,420,000 ordinary shares for the 3,076,923-share offering at AUD$0.65 per share. A pro-rata scale-back was conducted resulting in valid applications receiving only 26.9457% of the amount of shares requested. Gross proceeds were AUD$1,999,968.
Announced on February 18, 2021, an AUD$40.8 million private placement was completed on February 24, 2021. The private placement consisted of the issuance of 62,768,803 ordinary shares at AUD$0.65 per share.
The net proceeds and cash are targeted to fund management's strategic initiatives, namely
1) the completion of a DFS, including the ongoing drilling programs to expand and upgrade the resource at the Reptile Project,
2) the advancement of the Nova JV's exploration campaigns and
3) the pursuit of the strategic goal of establishing a multi-jurisdictional uranium company through a selective acquisition and/or merger while the uranium industry is still in a generally low uranium price environment.
Management continues assess and evaluate advanced M&A opportunities.
Valuation
Broadly speaking, the public uranium companies can be grouped into three segments: producers, development companies and exploration companies. Producers are actively mining and generating revenues. Exploration companies are prospecting and/or drilling to establish mineral resources. In between these two segments are the development companies that already have established resources and are advancing through the process to bring a mine in operation, generally from the point of initiating a Pre-Feasibility Study to the actual construction of a mine. The comparable companies to Deep Yellow fall into this category.
Further, the comparable companies have been narrowed through quantitative factors, particularly those with a market capitalization over $70 million and trading above $0.40 per share. This process captures a range of well-funded junior uranium development companies. Currently, the P/B valuation range of these comparable companies is between 1.1 and 9.5. With the expectation that DYLLF will attain an industry average P/B ratio of 5.43, our comparable analysis valuation price target is US$1.23.
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