Description

Global Atomic Corporation (TSX: GLO, OTCQX: GLATF, FRA: G12) Investment Thesis

Introduction: A Dual-Focused Growth Story in Uranium and Zinc

Global Atomic Corporation offers a unique investment opportunity, operating in two distinct but complementary industries—uranium mining and zinc recycling. Its flagship project is the high-grade Dasa uranium mine in Niger, one of the most promising uranium projects globally and the only greenfield uranium mine in the world. In addition, the company operates a profitable zinc recycling business through its joint venture with Befesa in Türkiye.

I believe GLO is a 5 bagger at current uranium prices, and that may well be an understatement, especially if the price of uranium goes higher as I expect it will.

Uranium Supply-Demand Dynamics

Currently, the World Nuclear Association shows 439 operable reactors (396GW), 64 units under construction (71GW), 88 more ordered or in advanced planning (85GW) and another 344 reactors (365GW) proposed. The WNA estimates that operating reactors will consume 67,517tU (176 Million lbs U3O8) this year. Nuclear fuel consultants push that figure up to over 200 Million lbs when taking initial reactor coreloads (3X annual), inventory restocking and secondary demand from physical funds and other financial players into account. The most recent Uranium production figures available are for 2022 in which 49,355tU (128M lbs) were produced, meeting only 74% of basic consumption requirements.

(taken from a recent twit by John Quakes – full twit here: https://x.com/quakes99/status/1832782275001651229)

Global Atomic’s Opportunity: The Dasa project is set to take advantage of this supply-demand imbalance. With uranium prices expected to rise, Global Atomic’s low-cost production will likely generate significant free cash flow, making it one of the most attractive uranium investment opportunities on the market today.

Dasa Uranium Mine: A Game-Changing Asset

Located in Niger's Tim Mersoï Basin, the Dasa project is Africa's highest-grade uranium deposit. It stands out not only because of its grade but also due to its long mine life and cost efficiency. The mine is expected to produce 68.1 million pounds of uranium over 23 years, offering a steady and long-term revenue stream.

Key Features:

• Production Timeline: Mine construction began in 2023, with full production expected to start in late 2025. The company has signed offtake agreements with four utilities, ensuring a stable revenue stream from the moment the mine starts producing.
• Cost Structure: Global Atomic is positioned to be one of the lowest-cost producers in the uranium space, with an estimated life-of-mine average cash cost of $25.62 per pound of uranium and an all-in sustaining cost (AISC) of $35.70/lb. Given the current uranium spot prices, the company is set to enjoy strong profit margins from the outset.

Niger Risk: Manageable

While Niger’s political situation has raised concerns, the risks appear to be overblown. Global Atomic has demonstrated strong community and government relations, which have been reinforced by the Nigerien Mines Minister’s visit to the Dasa project in May 2024. Moreover, Niger’s uranium industry is a critical part of the country’s economy, and disruptions to operations are unlikely given the importance of the sector.

Niger also supplies uranium to several European utilities, making it an important player in the global uranium market. Global Atomic’s continued progress in reaching key milestones, including starting ramp construction and advancing plant construction, highlights the project’s resilience despite the political backdrop.

Further, during August the company received a letter from the Niger government stating the government willingness to support the company in the development of the mine, further derisking this opportunity.

Zinc Recycling Operations: A Valuable Asset

Zinc Recycling

While the focus of Global Atomic is on uranium, its zinc recycling operations provide additional revenue streams and cash flow diversification. The company owns a 49% stake in a joint venture with Befesa in Türkiye, where they recycle electric arc furnace dust (EAFD) into high-grade zinc oxide concentrate. This venture plays an essential role in the region’s steel industry by removing toxic elements and recycling zinc.

Key Metrics:

• Production: In the first half of 2024, the joint venture processed over 19,000 tonnes of EAFD, a marked increase over the previous year, which had been impacted by local steel mill disruptions due to earthquakes. With operations returning to normal, the zinc plant is expected to deliver profitable results in 2024.
• Valuation: The zinc recycling operation is likely worth $70-$100 million, based on its historical cash flow generation and the improving zinc price environment. Given its consistent performance, particularly after its 2019 modernization, and its potential to generate significant EBITDA in a favorable zinc pricing environment, this business adds a valuable complementary asset to Global Atomic’s portfolio.

Valuation: Substantial Upside Potential

Global Atomic's current market capitalization is approximately C$270 million (around USD $200 million), which looks severely undervalued compared to the company’s future cash flow potential. The Dasa uranium project alone is expected to generate roughly $200 million in free cash flow (FCF) annually once it reaches full production. This means the company is trading at just 1x its estimated future FCF from uranium operations alone, providing a massive upside opportunity.

FCF and Multiple:

• If we apply a conservative 5x FCF multiple to the expected $200 million in annual free cash flow, Global Atomic’s uranium business alone would be valued at $1 billion. This represents a 5x return on the company’s current market cap, ignoring the zinc operation's value entirely.
• With the zinc operation likely worth an additional $100 million, the combined value of the company’s uranium and zinc businesses suggests a potential market capitalization of $1.1 billion, making it a compelling investment with strong upside potential.

High Torque Uranium Play: Leverage to Rising Uranium Prices

While the current uranium price environment is already favourable, if one believes that uranium prices could rise significantly higher, potentially reaching $200/lb or more in the coming years. This price scenario offers enormous upside potential for Global Atomic, which is highly leveraged to uranium prices.

Cash Costs and Leverage:

• The Dasa project’s life-of-mine cash cost is approximately $35/lb. With 68.1 million pounds of uranium planned for production over the mine’s life, the project is expected to generate substantial profit at current prices, but the upside becomes even more striking as uranium prices rise.
• If uranium prices were to reach $200/lb, the profit margin per pound of uranium sold would soar to $165/lb ($200 price minus $35 cash cost).
• With 68.1 million pounds of uranium in the project, this would imply total potential profit of approximately $11.23 billion over the life of the mine. In comparison, at uranium prices of $100/lb, the project would generate a total profit of $4.43 billion ($100 price minus $35 cost, multiplied by 68.1 million pounds).

Valuation at $200/lb Uranium:

• If uranium prices reach $200/lb, the annual free cash flow from the mine could increase dramatically. At a production level of 3 million pounds per year, the Dasa project would generate approximately $495 million in free cash flow annually ($495 million FCF = 3 million pounds × $165 profit per pound).
• Applying a more reasonable cash flow multiple of 10x (Kazatomprom trades at 10x EBITDA) to this figure would result in a market capitalization of $5 billion from the uranium business alone, representing a 25x return from the company’s current market capitalization of approximately $200 million (whereas if you own the physical it would only be a <3x).

This demonstrates the significant leverage Global Atomic has to rising uranium prices. With each incremental increase in uranium prices, the company’s valuation could rise exponentially due to its low-cost production and high-grade resource.

Risks

Geopolitical Risk in Niger: One of the key concerns for investors is the political stability of Niger, where the Dasa mine is located. Niger experienced a military coup in 2023, raising concerns about its ability to maintain stable operations. However, Global Atomic has managed to secure strong support from the Nigerien government, which sees the Dasa project as vital for the country’s economy. Niger has a long history of uranium production, and the Dasa project continues to progress as planned, with full government backing.

Financing Risk: While Global Atomic is in the process of securing financing for the Dasa mine, any delays in financing could impact project timelines. That said, the company has already invested $90 million as of mid-2024, and debt financing is expected to be approved during Q4 2024. Given the favorable uranium market outlook and existing offtake agreements, the financing risk appears manageable, but this is the largest risk here.

Commodity Price Volatility: Uranium and zinc prices are both subject to global market fluctuations. A decline in uranium prices could impact cash flow projections. However, with uranium prices currently on an upward trend and expected to surpass $115/lb in the near future, the downside risk appears limited. Similarly, zinc prices have rebounded, and the zinc recycling operations are expected to be profitable in 2024 and beyond.

Catalyst

Financing would be the most imminenet catalyst.