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Aura Energy (AEE)
Ura
niu
m: D
evelo
per
AEE.asxSpeculative Buy
Share Price
Valuation $0.12
Price Target (12 month) $0.08
Brief Business Description:
Hartleys Brief Investment Conclusion
Chairman & MD
Top Shareholders
Techincal Investments 11.6%
Australian Special Opportunity Fund 11.5%
Company Address
Suite 3 , Level 1, 19-23 Prospect St
Box Hill, Vic, 3131
Issued Capital 274.5m
- fully diluted
Market Cap
- fully diluted
A$1.3m
A$0.0m
EV
EV/Resource Mlb U3O8
EV/Reserve Mlb U3O8
Prelim. (A$m) FY16e FY17e FY18e
Prod. (mlb U3O8) 0.0 0.0 0.0
Op Cash Flw -1.8 -2.5 -2.2
Norm NPAT -3.2 -4.0 -6.5
EPS (cps) -1.0 -0.7 -0.7
P/E -3.8 -5.4 -4.8
Div. Yield 0.0% 0.0% 0.0%
Mt Grade Mlb
Resources (M) 2416 160 850
Reserves (M) 0.0 nm 0.0
Trent Barnett
Head of Research
Ph: +61 8 9268 3052
313.9m
nm
A$9.9m
A$11.3m
A$8.6m
$0.0101
Hartleys has provided corporate advice within the past
12 months and continues to provide corporate advice
to Aura Energy Limited ("Aura") for which it has
earned fees and continues to earn fees. Hartleys has
a beneficial interest in 12.5 million options in Aura.
Debt (31 Dec 14a)
24 Mar 2015
$0.036
Aura has two uranium projects. Mauritania (Tiris) is
currently a small project that technical appears simple
but has relatively high sovereign risk; Sweden
(Haggan) is technically more complicated, but has
lower sovereign risk and is a globally significant
source of potential uranium supply.
Both projects are low grade, but unconventional
flowsheets suggest the economics of Tiris are
compelling while Haggan offers bluesky potential.
Peter Reeve (Executive Chairman & CEO)
Cash (31 Dec 14a)
AURA ENERGY LTD (AEE)
Mauritania uranium project with a Swedish free option Aura Energy Ltd is an early stage uranium developer. It has two projects for
which it has completed scoping studies and is now progressing to a DFS for
Tiris, while a PFS is the next step for Häggån.
Tiris (Mauritania) is the principle project, and forms the basis of our
valuation and price target. We believe investors should focus on Tiris, and
view the second project (Häggån) as a free option on uranium price. Tiris is
unconventional and low grade, however due to the unique geology, appears
viable based on the early study work (DFS due 2016).
Tiris: Mauritania + beneficiation + low capex = ~0.7-1.0Mlb pa
U3O8 for ~15+ years Tiris has a low grade, predominantly inferred, resource of 66Mt @334 ppm
U3O8. Study work suggests 420ppm uranium ore can be easily beneficiated
through a trommel and screen to a ~2500ppm leach feed. Consequently,
the expected economics are far better than the in-situ grade suggests.
Given the project is at scoping study stage, we allow for working capital and
further studies in our capital estimates. However, we assume a higher
throughput than the scoping study.
We assume start-up capex of ~US$57m (scoping capex US$45m) to
achieve ~0.9Mlb of production at C1 cash costs of ~US$36/lb. We value
Tiris at A$56m (NPV12, pre-tax, unfunded). The deposit is shallow, fast
leaching and likely to grow, which makes it attractive.
Häggån: Sweden + polymetallic + bacterial heap leach = ~8
Mlb pa U3O8 for >25 years Häggån is a very large (2.35Bt) polymetallic (U, Ni, Mo, Zn, V) project
located in Sweden. The Company explains that the size of the resource
places it as one of the largest undeveloped uranium resources in the world
(803Mlb), albeit very low grade (155ppm). We value Häggån today at
A$125m (unrisked NPV12, pre-tax, unfunded) and using assumptions that
are more conservative than the scoping study. However, we attribute little
value in our risked AEE valuation given more work needs to be undertaken,
in our view, and the initial capex estimate is high (US$537m for 30Mtpa).
Initiate with Speculative Buy, 8cps price target We initiate coverage with a Speculative Buy recommendation.
AEE offers early stage uranium exposure with a re-rating probable as the
Tiris project is de-risked by further study work or exploration success. There
is upside to our 12cps valuation if the project can be funded with more debt,
rather than equity dilution, given the long mine life. If uranium prices rise
significantly, then we believe the market will also begin to attribute value to
Häggån, boosting the bull case price target potential for uranium bulls.
Near term catalysts include air-core infill drilling, extensional drilling and
greenfield exploration testing at Tiris. The Tiris DFS is due in CY16,
although we expect updates throughout this year.
Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000
Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys
website www.hartleys.com.au
0.00
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
0.045
0.05
.
.5
1.
1.5
2.
2.5
3.
3.5
4.
4.5
5.
Mar-15Nov-14Aug-14Apr-14
Volume - RHS
AEE Shareprice - LHS
Sector (S&P/ASX SMALL RESOURCES) - LHS
A$ M
Aura Energy
Source: IRESS
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 2 of 23
Aura Energy Share Price
AEE $0.036 Speculative Buy
Key Market Information Directors Company Information
Share Price $0.036 Peter Reeve (Executive Chairman & CEO) Suite 3 , Level 1, 19-23 Prospect St
Market Capitalisation - ordinary A$10m Robert (Bob) Beeson (Non-exec) Box Hill, Vic, 3131
Net Debt (cash) -$1m Brett Fraser (Non-exec) +61 3 9890 1744
Market Capitalisation - fully diluted A$11m Julian Perkins (Non-exec) +61 3 9890 3411
EV A$9m
Issued Capital 274.5m www.auraenergy.com.au
Options 39.5m Top Shareholders % ord
Issued Capital (fully diluted inc. all options) 313.9m Techincal Investments 31.80 11.6%
Issued Capital (fully diluted inc. all options and new capital) 826.0m Australian Special Opportunity Fund 31.50 11.5%
Valuation $0.12 1
12month price target $0.08 2 Reserves & Resources Cutoff Mt ppm Mlb
3 TOTAL RESOURCE 100 2,416 160 850
P&L Unit 30 Jun 18 30 Jun 19 30 Jun 20 30 Jun 21 4 Tiris - Total 100 66 334 49
Net Revenue A$m 0.0 53.0 72.1 58.9 5 Meas. & Ind. 100 2 300 2
Total Costs A$m -3.7 -29.9 -38.7 -37.6 6 Inferred 100 64 335 47
EBITDA A$m -3.7 23.1 33.4 21.4 7 Reserve 100 - nm -
- margin - 44% 46% 36% 8 Haggan - Total 100 2,350 155 801
Depreciation/Amort A$m -4.0 -7.3 -8.4 -8.6 9 Meas. & Ind. 100 - nm -
EBIT A$m -7.6 15.8 25.0 12.8 Inferred 100 2,350 155 801
Net Interest A$m 1.5 0.8 0.9 1.4 10 Reserve 100 - nm -
Pre-Tax Profit A$m -6.2 16.6 25.9 14.2
Tax Expense A$m 0.0 -0.8 -2.6 -2.1 Reguibat Production Summary Unit Jun 18 Jun 19 Jun 20 Jun 21
Normalised NPAT A$m -6.5 15.8 23.3 12.1 Ore to be beneficiated MT 0.0 0.8 1.0 1.0
Abnormal Items A$m 0.3 0.0 0.0 0.0 Beneficiated ore throughput MT 0.0 0.2 0.2 0.2
Reported Profit A$m -6.2 15.8 23.3 12.1 Mined grade ppm 450 450 371
Minority A$m 0.0 0.0 0.0 0.0 Uranium mlb 0.7 0.9 0.7
Profit Attrib A$m -6.2 15.8 23.3 12.1 Uranium Equiv mlb 0.7 0.9 0.7
Balance Sheet Unit 30 Jun 18 30 Jun 19 30 Jun 20 30 Jun 21 Assumed mining inventory Mt 35.8 35.3 34.3 33.3
Cash A$m 28.8 18.5 43.5 65.4 Assumed mining inventory ppm 330 328 325 322
Other Current Assets A$m 0.9 20.5 27.3 23.8 Assumed mining inventory mlb 26.0 25.5 24.5 23.6
Total Current Assets A$m 29.7 38.9 70.8 89.2 Mine Life yr 24.50 24.50 23.50 22.50
Property, Plant & Equip. A$m 57.0 70.0 63.7 57.1 Costs Unit Jun 18 Jun 19 Jun 20 Jun 21
Exploration A$m 14.7 14.7 14.7 14.7 Cost per tonne mined $A/t 39.8 38.7 37.6
Investments/other A$m 0.0 0.0 0.0 0.0 EBITDA / tonne milled ore $A/t 30.8 33.4 21.4
Tot Non-Curr. Assets A$m 71.6 84.7 78.3 71.8 Total cash costs $A/lb 44.6 43.4 51.0
Total Assets A$m 101.4 123.6 149.1 160.9 Total cash costs US$/lb 35.5 34.4 41.3
C1: Operating Cash Cost = (a) $A/lb 34.9 34.8 41.2
Short Term Borrowings A$m - - - - (a) + Royalty = (b) $A/lb 38.9 38.9 45.2
Other A$m 0.9 7.4 9.5 9.3 C2: (a) + depreciation & amortisation = (c) $A/lb 45.8 44.2 52.9
Total Curr. Liabilities A$m 0.9 7.4 9.5 9.3 (a) + actual cash for development = (d) $A/lb 65.3 37.1 44.0
Long Term Borrowings A$m -2.9 -2.9 -2.9 -2.9 C3: (c) + Royalty $A/lb 49.8 48.2 56.9
Other A$m - - - - (d) + Royalty $A/lb 69.3 41.1 48.0
Total Non-Curr. Liabil. A$m -2.9 -2.9 -2.9 -2.9 Price Assumptions Unit Jun 18 Jun 19 Jun 20 Jun 21
Total Liabilities A$m -2.0 4.4 6.6 6.3 AUDEUR 0.69 0.67 0.65 0.65
Net Assets A$m 103.4 119.2 142.5 154.6 AUDUSD 0.79 0.80 0.79 0.81
Net Debt A$m -31.7 -21.4 -46.4 -68.3 Uranium US$/lb 58 62 64 64
nd / nd + e % -44.3% -21.9% -48.3% -79.1% Hedging Jun 18 Jun 19 Jun 20 Jun 21
Cashflow Unit 30 Jun 18 30 Jun 19 30 Jun 20 30 Jun 21 Hedges maturing? No No No No
Operating Cashflow A$m -3.7 10.1 28.7 24.6 Sensitivity Analysis
Income Tax Paid A$m 0.0 -0.8 -2.6 -2.1 Valuation FY19 NPAT
Interest & Other A$m 1.5 0.8 0.9 1.4 Base Case 0.12 15.8
Operating Activities A$m -2.2 10.0 27.0 23.9 Spot Prices -0.03 (-125.3%) -15.4 (-197.7%)
Spot AUD/USD 0.78, Uranium $39/lb.
Property, Plant & Equip. A$m -53.1 -20.4 -2.0 -2.0 Contract prices 0.00 (-100.0%) -4.5 (-128.8%)
Exploration and Devel. A$m 0.0 0.0 0.0 0.0 AUDUSD +/--10% 0.116 / 0.116 (0.0% / 0.0%) 13.8 / 18.3 (-12.6% / 15.6%)
Other A$m 0.0 0.0 0.0 0.0 Uranium +/--10% 0.182 / 0.046 (56.8% / -60.4%) 21.3 / 10.4 (34.7% / -34.0%)
Investment Activities A$m -53.1 -20.4 -2.0 -2.0 Molybdenum +/--10% 0.116 / 0.116 (0.0% / 0.0%) 15.8 / 15.8 (0.0% / 0.0%)
Nickel +/--10% 0.116 / 0.116 (0.0% / 0.0%) 15.8 / 15.8 (0.0% / 0.0%)
Borrowings A$m 0.0 0.0 0.0 0.0 Production +/--10% 0.186 / 0.042 (59.7% / -63.6%) 21.6 / 10.1 (36.5% / -35.7%)
Equity or "tbc capital" A$m 0.0 0.0 0.0 0.0 Operating Costs +/--10% 0.075 / 0.155 (-35.4% / 33.5%) 13.2 / 18.4 (-16.5% / 16.6%)
Dividends Paid A$m 0.0 0.0 0.0 0.0
Financing Activities A$m 0.0 0.0 0.0 0.0 Unpaid Capital
Year Expires No. (m) $m Avg price % ord
Net Cashflow A$m -55.3 -10.3 25.0 21.9 30-Jun-15 1.0 0.2 0.20 0%
30-Jun-16 29.0 2.3 0.08 11%
Shares Unit 30 Jun 18 30 Jun 19 30 Jun 20 30 Jun 21 30-Jun-17 9.4 1.5 0.16 3%
Ordinary Shares - End m 825 825 825 825 30-Jun-18 0.0 0.0 0.00 0%
Ordinary Shares - Weighted m 825 825 825 825 30-Jun-19 0.0 0.0 0.00 0%
Diluted Shares - Weighted m 825 825 825 825 30-Jun-20 0.0 0.0 0.00 0%
TOTAL 39.5 4.0 0.10 14%
Ratio Analysis Unit 30 Jun 18 30 Jun 19 30 Jun 20 30 Jun 21 Share Price Valuation (NAV) Risked Est. A$m A$/share
Cashflow Per Share A$ cps -0.3 1.2 3.3 2.9 100% Tiris (pre-tax NAV at disc. rate of 12%) 125 0.152
Cashflow Multiple x -13.4 3.0 1.1 1.2 100% Haggan (unfunded pre-tax NPV, risked by 100%) 0 0.000
Earnings Per Share A$ cps -0.7 1.9 2.8 1.5 Forwards 0 0.000
Price to Earnings Ratio x -4.8 1.9 1.3 2.5 Corporate Overheads -32 -0.039
Dividends Per Share AUD - - - - Net Cash (Debt) 1 0.002
Dividend Yield % 0.0% 0.0% 0.0% 0.0% Tax (NPV future liability) -9 -0.011
Net Debt / Net Debt + Equity % -44% -22% -48% -79% Options & Other Equity 3 0.004
Interest Cover X 5.2 na na na Total 96 0.12
Return on Equity % na 13% 16% 8%
Analyst: Trent Barnett Last updated:
+61 8 9268 3052
"tbc capital" could be equity or debt. Our valuation is risk-adjusted for how this may be obtained.
Sources: IRESS, Company Information, Hartleys Research
24 Mar 2015
24 March 2015
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 3 of 23
BUSINESS OVERVIEW Aura Energy is an Australian based uranium company that has two scoping study
level projects with large resources close to the surface in Europe and Africa. Aura
holds a total of 860Mlb uranium in inferred resources. Its two main projects are: the
Tiris Project (formerly known as Reguibat) in Mauritania and the Häggån Project
located in Sweden’s Alum Shale Province, one of the largest depositories of uranium
in the world.
Fig. 1: Tiris (Mauritania) Resource
Source: AEE
Fig. 2: Häggån (Sweden) Resource
Source: AEE
Fig. 3: Tiris is located in a flat desert
Source: AEE
U3O8
cutoff Mt ppm Mlbs
Tiris 100 66 334 49
Meas. & Ind. 100 2 300 1.6
Inferred 100 64 335 47
Reserve 100 - nm -
U3O8
cutoff Mt ppm Mlbs % Mlbs % Mlbs % Mlbs % Mlbs
Haggan 100 2,350 155 803 0.0207% 1,072 0.1519% 7,868 0.0316% 1,637 0.0431% 2,232
Meas. & Ind. 100 - nm - nm - nm - nm - nm -
Inferred 100 2,350 155 803 0.0207% 1,072 0.1519% 7,868 0.0316% 1,637 0.0431% 2,232
Reserve 100 0 nm - nm - nm - nm - nm -
Ni ZnU3O8 Mo V
Aura Energy is an
Austral ian based
uranium company that
has completed
scoping studies for
two projects in Europe
and Afr ica
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 4 of 23
TIRIS 50 MLBS – MAURITANIA (100%)
Fig. 4: Tiris Resource
Source: AEE
The Hippolyte deposit at Tiris is a shallow (<4m) uranium project in north east
Mauritania. The project is low grade in-situ but studies suggest it can be upgraded
via a beneficiation (up to 7x) to high-grade leach feed, resulting in low upfront capex
and low operating costs. The Hippolyte resource, currently predominantly inferred,
is 66Mt @334 ppm for 49Mlb U3O8. The Company is confident of further exploration
success (the Company released a non-JORC exploration target for an additional
50Mlbs on 16 July 2014). To account for the considerable potential, we assume a
longer mine life than the scoping study. The Company is currently undertaking a drill
program to increase the M&I proportion (spacing to reduced from 100 x 200m to 50 x
50m) and hopefully increase the resource.
The resource is owned 100% by AEE, but it also has a JV (70/30) on certain
exploration permits with Ghazal Minerals Ltd.
The beneficiation test work suggests a straightforward wash and screen of the ore.
The uranium found at Tiris occurs as carnotite-type calcrete mineralisation within
unconsolidated coarser gravels and sands. The fine grained carnotite easily
separates from the coarse weathered granite. Testing to date suggests a low work
index, and the feed requires a simple trommel and screen (it does not require a
grinding mill). Work to date suggests that that 89% of the mineralisation could be
rejected to waste while retaining 86% of the uranium. Preliminary leach testwork
completed in late 2013 achieved 94% uranium extraction in four hours due to fine
grained nature of the carnotite.
Mining should be straightforward, as the majority of mineralisation occurs as a single
sheet with little cover. Testing to date suggests the material is largely unconsolidated
and can be excavated, with an anticipated low strip ratio of 0.25:1.
The beneficiated ore will go to standard alkaline leaching followed by ion exchange
in a NIMCIX reactor. Uranium will then be stripped from the NIMCIX resin to
generate a pregnant solution for precipitation as ammonium diuranate (ADU). After a
dewatering step in a centrifuge the precipitate will be calcined and dried to uranium
oxide (“yellowcake”) for transport to customers. All of these process steps are
standard and proven in the industry.
The total estimated initial cost for the project is US$45m (our model assumes
higher). The life of mine unit operating cost for Tiris is estimated to be US$30.3/lb of
U3O8.
The Company expects the mine will produce ~1.0Mlbs of U3O8 per year in Years 1
and 2, followed by ~650,000lbs in Years 3-10. Production rates are forecast to
increase in Years 11-15 due to higher grades (Zones I, J or C) to 710,000lbs,
however, cost of production also increases as the cost of ore transportation rises.
Total uranium produced (under these assumptions) is 10.7Mlbs over the 15 year
mine life. In our model we assume an expansion that increases mine life to 25 years
and doubles production in later years. This only has a modest impact on our NPV as
U3O8
cutoff Mt ppm Mlbs
Tiris 100 66 334 49
Meas. & Ind. 100 2 300 1.6
Inferred 100 64 335 47
Reserve 100 - nm -
Fig. 1: Tiris calcrete
deposit
Source: Aura Energy
Ore expected to be
benef ic iated
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 5 of 23
we load up the additional capex and we use a 12% discount rate. However, the long
mine life means that our valuation is more leveraged to high long term uranium price
scenarios. The long mine life also provides investors with a longer dated call option
on a future uranium price spike.
Despite the remote location, the potential for significant mine flexibility (deposit is
shallow so does not require a mine plan that commits to a large pre-strip) suggests
risks are lower than some other developments.
Fig. 5: Estimated initial costs at Tiris (scoping study July 2014)
Cost (US$m)
Mining 1.12
Process Plant 22.07
Infrastructure 9.03
EPCM 3.19
Owner’s cost 1.58
Contingencies 8.05
Total Capital Cost US$45m
Source: Aura Energy
Fig. 6: Estimated summary of costs (scoping study)
US$ per Tonne of Ore Mined % of Total
Mining 2.59 8.9%
Processing 11.77 55.0%
Services 3.00 14.0%
G&A 4.08 19.0%
Total Cost US$21.42/tonne
Source: Aura Energy
Fig. 7: Map of the Tiris Project
Source: Aura Energy
Despite the remote
location, the potentia l
for s ignif icant mine
f lexibi l i ty (deposit is
shal low so does not
require a mine plan
that commits to a
large pre-str ip)
suggests r isks are
lower than some other
developments
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 6 of 23
Fig. 8: Schematic of Geology at the Tiris Project
Source: Aura Energy Limited
Fig. 9: Photomicrograph showing the very fine grain size of the greenish
coloured carnotite grains (note the 50 micron scale)
Source: Aura Energy
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 7 of 23
Fig. 10: Tiris Benefication Flow Sheet
Source: Aura Energy
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 8 of 23
Exploration at Tiris The Company is currently undertaking a 4,000 metre drilling campaign to upgrade
resources to Measured / Indicated status, extend or expand the existing resource
and test several strongly anomalous targets. We understand that regional
prospectivity is high.
Fig. 11: Current drill campaign likely to increase resource
Source: Aura Energy
Fig. 12: Several greenfield targets to be tested
Source: Aura Energy
The Company is
current undertaking a
4,000 metres dr i l l ing
campaign to upgrade
resources to
Measured / Indicated
status, extend
resource and test
several strongly
anomalous targets.
We understand that
regional prospectiv ity
is h igh
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 9 of 23
HÄGGÅN 800MLBS – SWEDEN (100%)
Fig. 13: Häggån Resource
Source: AEE
Häggån is a very large (2.35Bt) polymetalic project located in Sweden. The size of
the Häggån resource positions it as one of the largest undeveloped uranium
resources that are compliant with ASX or TSX requirements (30 September 2014).
The deposit is a near-flat-lying sheet of mineralisation averaging 108 metres in
thickness.
The Häggån Project forms part of a large uranium field where the uranium occurs
with molybdenum, nickel, vanadium and zinc in black shales. The first uranium
operation from the Alum Shale began at Kvarntorp in southern Sweden in 1965.
The nature of the mineralogy (normally require a fine grind) and relatively low grade
make it unviable using traditional acid or alkaline leach (the reagent use is too high).
However, test work has suggested that an acid generating bacterial heap leach will
work well, and improve the economics. Even still, the Häggån project requires
recovery of the by-product metals to be viable, in our view (we use higher operating
costs than the scoping study).
We attribute little value to Häggån in our valuation given it requires more work and
as a large project is unlikely to be attributed much value by the equity market unless
uranium prices have risen.
U3O8
cutoff ppm Mlbs % Mlbs % Mlbs % Mlbs % Mlbs
Haggan 100 155 803 0.0207% 1,072 0.1519% 7,868 0.0316% 1,637 0.0431% 2,232
Msr. & Ind. 100 nm - nm - nm - nm - nm -
Inferred 100 155 803 0.0207% 1,072 0.1519% 7,868 0.0316% 1,637 0.0431% 2,232
Reserve 100 nm - nm - nm - nm - nm -
Ni ZnU3O8 Mo V
Häggån is a very large
(2.35Bt) polymetal ic
project located in
Sweden.
We attr ibute l i t t le
value to Häggån in our
valuation given i t
requires more work
and as a large project
is unlikely to be
attr ibuted much value
by the equity market
unless uranium pr ices
have r isen.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 10 of 23
INDUSTRY EXPOSURE AEE is a uranium developer, and as such is exposed to global energy demand and
specifically the global nuclear power industry. Since the Fukushima disaster, the
uranium industry has been very focussed on the potential restart of the Japanese
nuclear reactors for a near term increase in demand. Medium and long term
forecasts tend to concentrate on the Chinese demand for nuclear power.
Fig. 14: Uranium Prices
Source: Bloomberg, Iress, Cameco
25
35
45
55
65
75
85
95 Spot Uranium (US$) Spot Uranium (US$) 5yr fwd
Long Term Contract Uranium (US$)
US$/lb
Market expectations ofmedium term U3O8 prices (Red)
are improving. Spot prices (Blue) and industry long term contract (Green).
Medium and long term
uranium forecasts
tend to concentrate on
the Chinese demand
for nuclear power.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 11 of 23
GEOGRAPHIC EXPOSURE Tiris is located in North East Mauritania in a military designated exclusion zone.
Access is possible all year round, although supplies are more difficult to source
during Ramadan.
Häggån is located in the Storsjön District of Sweden. Access is possible all year
round, although it is preferable to not plan to begin works in spring due to the thaw.
Mauritania The Islamic Republic of Mauritania is located in the Western part of the African
continent and currently has a stable and democratic elected government that
supports foreign investment. However, historically it is one of the world’s most coup-
prone states (last coup was 2008). The Country ranks among the top in Africa
according to the Fraser Institute Survey of Mining Companies, however,
infrastructure is poor and limited. Glencore, Kinross and First Quantum operate in
the country with significant investment. With mining income contributing to more
than a quarter of GDP, mining is generally viewed as a long term growth strategy for
the Country. The Transparency International Corruption Perceptions Index for 2014
gave Mauritania a score of 30 (perceived levels of corruption in the public sector on
a scale of 0:highly corrupt to 100:least corrupt) and was ranked 124th out of 175
countries.
The Mauritanian Parliament has recently undergone a number of mining reforms,
and the New Model Mining Convention Law provides a standard model based on
current mining codes as well as new provision on training, local recruitment,
technology transfers, environmental compliance, and infrastructure. The Mining
Code Amendment highlights that royalties which were previously fixed are now
floating based on international commodity prices and also specifies taxation regime
for capital gains arising from transfers of exploitation licenses. The reforms are
consistent with the Government of Mauritania intention of encouraging foreign
investment in mining. The country is a large iron ore exporter, although falling prices
have slowed that development recently.
The law exempts mining companies from customs duties for exploration equipment
during the first 5 years of production and permanently on fuel and spare parts.
Corporate income tax is 25% after a tax exemption for the first 3 years of production.
There is an additional 14% withholding tax on repatriated earnings and a 16% VAT.
Mauritania is prospective for oil & gas. The offshore Chinguetti field was discovered
in 2001, production is currently around 8,000bpd. The Banda field is estimated to
contain approximately 1.2 TCF of natural gas and the Tiof deposit is estimated to
contain 120 million barrels of oil with associated gas. Onshore, there is the
Taoudeni basin.
Sweden Sweden recently ranked second in the Fraser Institute Survey of Mining Companies’
most favourable mining countries. Domestic consumption of uranium is high, as
Sweden produces ~50% of its electricity from its 10 nuclear reactors.
Sweden does not impose a royalty on mining and lies within the lowest taxing
quartile with an effective tax rate of 28.6%.
The Transparency International Corruption Perceptions Index for 2014 gave Sweden
a score of 87 (perceived levels of corruption in the public sector on a scale of
0:highly corrupt to 100:least corrupt), and was ranked 4th out of 175 countries.
Glencore, Kinross and
First Quantum operate
in Mauritania with
signif icant investment.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 12 of 23
Fig. 15: Tiris
v
Source: Nationsonline.org
Fig. 16: Häggån
v
Source: mapsoftheworld.com
Project location
(not to scale)
Zouerat
(mining city) Export port
General project
location
(not to scale)
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 13 of 23
PEERS AND COMPETITORS Forte Energy (FTE.asx) as a uranium explorer in Mauritania (A238 prospect and the
Bir En Nar project), is the closest peer. Other operators in Mauritania include First
Quantum (Guelb Moghrein, copper/gold), Kinross (Tasiiast, gold), State of
Mauritania via SNIM (Guleb el Rhein, Kedia d’Idjill, M’Haoudat, iron ore), Xstrata
(Askaf and the Lebthania, iron ore), GRY.asx (gold exploration) and Drake
Resources (gold exploration). Oil & gas operators include Petronas, Tullow, Total,
Charoit and Kosmos.
Fig. 17: ASX listed uranium projects
Source: Hartleys Research
0
500
1000
1500
2000
2500
3000
3500
4000
0 100 200 300 400 500 600 700 800 900 1000
Uranium ProjectsGrade (ppm)
Mlb U3O8
Haggan (AEE)Tiris (AEE)
Bubble size is ore deposit size (Mt)
Etango (BMN)Kvanefjeld (GGG)
Wiluna (TOE)
Langer Heinrich (PDN)
Temrezli (AEK)
Tiris post benefication
Four Mile West (AGS)
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 14 of 23
Fig. 18: Selected Mauritania Resource Operators
Source: Hartleys Research
KEY SUPPLIERS & CUSTOMERS Tiris is remote and hence the site will need to be self-sufficient. Power is expected
to be diesel generated (wind and solar may be eventual options in the future). Plant
construction is expected to be as modular as possible for simpler construction on
site. Road access already exists. Preliminary water studies suggest it can be
sourced locally (it is estimated that the project, as currently defined, will require 0.5-
1.0 gigalitres of water per year). It is anticipated that yellow cake can be trucked to
Zouerat and then trucked or railed to the export port at Nouadhibou (north west
Mauritania).
Häggån has good road access, although it requires two short waterway crossings via
punt ferries. The region is lightly populated, although the potential mine is located in
a commercial forest and hence land access is relatively easy and located far enough
away from the small population centres. It is anticipated that yellow cake can be
trucked/railed to customers in Europe, most likely in France.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 15 of 23
MANAGEMENT, DIRECTORS AND
MAJOR SHAREHOLDERS
Biographies are sourced from the Company website
Mr. Peter Reeve (Executive Chairman & CEO), has been involved in the
Australian resources industry for approximately 25 years and, as a professional
metallurgist, has held positions with Rio Tinto, Shell-Billiton, Newcrest Mining and
Normet Consulting. For seven years Peter worked at JB Were as a Resource
Specialist Fund Manager and a Resource Corporate Finance Director. He has been
a management consultant in South Africa and was involved in an African iron ore
start-up. Peter was Managing Director and Chief Executive Officer of Ivanhoe
Australia, which he co-founded with Robert Friedland, and was a Director of both
EXCO Resources and Emmerson Resources.
Dr. Bob Beeson (Non-Executive Director, former AEE CEO) is a professional
geologist with over 35 years of experience in mineral exploration and development.
He has held senior management positions with Billiton Australia, Acacia Resources,
North Limited and New Hampton Goldfields, and has extensive experience in
leading and managing teams in many regions of the world. we has been Managing
Director of Aura Energy Ltd since its listing in 2006 (resigned in 2014) and is a Non-
Executive Director of Drake Resources Limited (also operating in Mauritania).
Mr. Brett Fraser (Non-Executive Director) is qualified as an accountant and has
more than 25 years’ experience in the finance and securities industry. For many
years he was an analyst working in merchant banking focused on the mining
industry. He is a former owner and director of media group Redwave Media Limited
and has owned and operated businesses across mining, finance, wine, health and
media.
Mr Jules Perkins (Non-Executive Director) was Manager of Mining & Technology
(Australia) for AngloGoldAshanti Ltd, one of the world’s largest gold mining
companies, until 2006. His career includes underground mining engineering in South
Africa and management of metallurgic operations on the Zambian Copperbelt. He
led the mineral processing department of Shell Research in the Netherlands for
three years before moving into corporate management. He moved to Australia with
Shell in 1989, where he was involved in the management of mining and metallurgical
operations and technology. Similar roles followed with Acacia Resources Ltd and
AngloGold Ashanti.
Total
Economic
Exposure
Position millions rank
Directors
Peter Reeve Non-Executive Chairman and CEO 4,333,104 4,537,469 8,870,573 1
Robert Beeson Non-Executive Director 3,035,257 2,291,667 5,326,924 2
Brett Fraser Non-Executive Director 1,526,000 3,569,461 5,095,461 3
Julian Perkins Non-Executive Director 2,642,595 1,831,600 4,474,195 4
Source: AEE
Economic Exposure of Board and key management
Total Options Shares
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 16 of 23
MAJOR SHAREHOLDERS There are two substantial shareholders:
Technical Investments Pty Ltd (11.6%)
Australian Special Opportunity Fund (11.5%)
OPTIONS AND UNPAID CAPITAL Management holds 11m of the options.
Fig. 19: Options
Expiry
Exercise Price Number
Unpaid capital (A$)
May-15 $0.20 1,000,000 200,000
Sep-15 $0.06 26,214,005 1,572,840
Jan-16 $0.20 2,250,000 450,000
Mar-16 $0.45 570,000 256,500
Jul-16 $0.20 6,625,000 1,325,000
Dec-16 $0.20 200,000 40,000
Mar-17 $0.05 2,600,000 125,320
TOTAL $0.11 46,084,005 $4,963,410
Source: AEE
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 17 of 23
FINANCIALS
PRODUCTION We assume Tiris could be in production in late CY18.
We do not incorporate Häggån into our cashflow/earnings model.
CASH FLOW
Capex requirements We assume start-up capex for Tiris of A$72m (US$57m). To cover working capital
and to be conservative, we assume startup capital of A$87m (US$68m). Our startup
capital estimate is important for our dilution assumptions.
Free cash flow We don’t expect AEE to be cash flow positive for several years.
Dividends We don’t expect AEE to pay dividend for the foreseeable future.
EQUITY ISSUANCE We assume substantial equity dilution (~512m new shares) for Tiris to reach first
production.
SENSITIVITIES
FX exposure We model AEE in USD, although as the project progresses it is more likely that
Häggån should be modelled in EUR.
Interest Rate exposure AEE is not directly exposed to interest rates. However, low interest rates are likely
to help facilitate the financing of long mine life projects, in our view.
Commodity price exposure AEE is primarily affected by uranium prices, but it could be argued that it is also
exposed to Ni and Mo prices given the polymetallic Häggån project.
We assume Tir is could
be in product ion in
late CY18.
We do not incorporate
Häggån into our
cashflow/earnings
model
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 18 of 23
VALUATION CONSIDERATIONS
VALUATION We are more conservative than the scoping studies given experience has
demonstrated that, on average, subsequent studies generally exhibit a deterioration
in project economics. It is, of course, our hope that AEE subsequent studies
maintain (or perhaps even improve) on studies released to-date, and should that
occur we will need to increase our valuation.
Our valuation is based on Tiris only. We do not value Haggan in our AEE valuation
given we believe more studies need to be completed and the market should focus on
Tiris. We would change our view if uranium prices increased significantly such that
there was an urgent requirement for new large projects.
Fig. 20: Hartleys valuation assumptions
Source: Hartleys Research Estimates, AEE scoping study
Scoping
(16 July 2014)
Hartleys Difference
Mine Life Years 15 25 66.7%
Mining Inventory Mt 16 36 123.4%
- Grade U3O8 ppm 334 330 -1.1%
- Grade Ni ppm
- Grade MoO3 ppm
Pit Strip Ratio (x) x 0.25 0.25 0.0%
Pit Mill Feed (mt pa) Mt pa 1 1.43 43.0%
Cost/tonne ore US$/t 21.4 23.5 10.0%
Startup Capex US$m 45 57 26.7%
Total Capital US$m n/a 147
Operating Cost U3O8 credit US$/lb 30.3 36.0 18.7%
Recovery U3O8 % 95% 90% -5.3%
Payability U3O8 % 100% 100% 0.0%
U3O8 price US$/lb 65 63.9 -1.6%
Ni price US$/lb
MoO3 price US$/lb
Production U3O8 Mlb pa 0.75 0.9 24.9%
Production Ni Mlb pa
Production MoO3 Mlb pa
NPV10 at decision to mine US$m n/a
NPV12 at decision to mine A$m 75.8
Startup capex (for NPV) A$m 72.0
Startup capex (for NPV) US$m 57.0
Startup capital (for dilution) A$m 86.9
Startup capital (for dilution) US$m 68.7
Tiris
Our valuation is based
on Tir is only. We do
not value Haggan in
our AEE valuat ion
given we believe more
studies need to be
completed and the
market should focus
on Tir is. We would
change our v iew if
uranium pr ices increased signif icantly
such that there was an
urgent requirement for new large projects.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 19 of 23
Fig. 21: Hartleys valuation
Source: Hartleys Research Estimates
Fig. 22: Key assumptions and risks for valuation Assumption Risk of not realising
assumption Downside risk to
valuation if assumption is
incorrect
Comment
Rising uranium prices High High We assume consensus uranium price forecasts, which, by its nature, is not the most conservative
estimate in the market
Tiris first production in late CY18
High Meaningful We believe this is achievable
Tiris expansion in 2033 and mine life extension
High High We believe this is possible, although is greater than assumed in Company scoping studies
Tiris is predominantly equity funded
High Upside We assume substantial equity dilution to fund Tiris. If more debt funding can be acquired, then
the economics improve
Häggån has minimal value High Upside Given we place such a large discount on our Häggån valuation, it is immaterial to our base
case valuation
Conclusion We believe there is substantial risk in our assumptions, which could have a high impact on our valuation, and hence we believe that AEE is high risk
Source: Hartleys
Fig. 23: Commodity price assumptions
Source: Hartleys Estimates, IRESS
Unrisked Risked Risked
Corporate Valuation $m $m $/per shr
100% Tiris (pre-tax NAV at disc. rate of 12%) 125.2 125.2 0.15
100% Haggan (unfunded pre-tax NPV, risked by 100%) 123.7 0.0 0.00
Other Exploration 33.0 8.2 0.01
Forwards 0.0 0.0 0.00
Corporate Overheads -32.4 -32.4 -0.04
Net Cash (Debt) 1.3 1.3 0.00
Tax (NPV future liability) -9.3 -9.3 -0.01
Options & Other Equity 3.1 3.1 0.00
Hedges 0.0 0.0 0.00
Total 244.5 96.1 0.12
Current (today)
0
20
40
60
80
100
120
140
160
180
Hartleys Assumption for Valuations
Spot Uranium (US$)
Long Term Contract Uranium (US$)
US$/lb
0
20
40
60
80
100
120
140
160
180Hartleys Assumption for Valuations
Uranium (A$)
Uranium Long Term Contract (A$)
A$/lb
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 20 of 23
PRICE TARGET Our price is a risk weighted average of potential scenarios.
Fig. 24: Price Target Methodology
Source: Hartleys
Price Target Methodology Weighting Spot 12 mth out
60% $0.12 $0.13
NPV base case at spot U3O8 (US$39/lb) and fx prices 5% $0.00 $0.00
NPV base case at spot forward contract U3O8 prices (US$49.6/lb) 25% $0.00 $0.00
NPV base case upper end estimated incentive prices (US$80/lb) 0.5% $0.30 $0.34
Net cash backing 10% $0.00 $0.00
Risk weighted composite $0.07
12 Months Price Target $0.08
Shareprice - Last $0.036
12 mth total return (% to 12mth target + dividend) 130%
NPV Tiris (base case)
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 21 of 23
RECOMMENDATION & RISKS
INVESTMENT THESIS & RECOMMENDATION We initiate coverage with a Speculative Buy recommendation.
AEE offers early stage uranium exposure with a re-rating probable as the Tiris
project is de-risked with further study work or exploration success. There is upside
to our 12cps valuation if the project can be funded with debt, rather than equity
dilution, given the long mine life. If uranium prices rise significantly, then we believe
the market will also begin to attribute value to Häggån, boosting the bull case price
target potential for uranium bulls.
RISKS The risks for AEE are similar to most developers: attaining capital for development
studies and construction, the outcomes of more detailed studies, management key-
man risk, relevant government approvals, political risk, commodity prices,
commissioning success and the asset performance versus nameplate design.
SIMPLE S.W.O.T. TABLE Strengths Two uranium projects means diversification
Tiris realistic project, Häggån has blue-sky Tiris has a small start-up capital requirement Tiris is relatively short timeframe to development Häggån is a very large deposit
Weaknesses Tiris is located in remote Mauritania Tiris requires beneficiation (albeit simple) Häggån is polymetallic Häggån process is bacterial heap leach Both projects are low-grade
Opportunities More exploration success at Tiris More exploration success at Häggån Potential to divest Häggån to fund Tiris Potential to JV Häggån development studies
Threats Access to the remote Tiris project Securing ongoing financing for development studies Opportunistic takeover to secure Häggån
Source: Hartleys Research
AEE of fers early stage
uranium exposure wi th
a re-rat ing probable
as the Tir is project is
de-r isked with further
study work or
explorat ion success.
Hartleys Limited Aura Energy Ltd (AEE) 24 March 2015
Page 22 of 23
EV/EBITDA BANDS
Fig. 25: Using Hartleys base case commodity forecasts
Source: Hartleys Estimates, IRESS
Fig. 26: Using spot commodity prices
Using spot commodity prices Using current contract commodity prices
Source: Hartleys Estimates, IRESS
.00
.05
.10
.15
.20
.25
.30
.35
.40
AEE Actual
Hartleys Target
8x EV/EBITDA
6x EV/EBITDA
4x EV/EBITDA
2x EV/EBITDA
1x EV/EBITDA
Shareprice
.00
.05
.10
.15
.20
.25
AEE Actual
8x EV/EBITDA
6x EV/EBITDA
4x EV/EBITDA
2x EV/EBITDA
1x EV/EBITDA
Shareprice
.00
.05
.10
.15
.20
.25
AEE Actual
8x EV/EBITDA
6x EV/EBITDA
4x EV/EBITDA
2x EV/EBITDA
1x EV/EBITDA
Shareprice
Page 23 of 23
HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research +61 8 9268 3052
Mike Millikan Resources Analyst +61 8 9268 2805
Scott Williamson Resources Analyst +61 8 9268 3045
Simon Andrew Energy Analyst +61 8 9268 3020
Janine Bell Research Assistant +61 8 9268 2831
Corporate Finance Grey Egerton-
Warburton
Director & Head of
Corp Fin.
+61 8 9268 2851
Richard Simpson Director +61 8 9268 2824
Paul Fryer Director +61 8 9268 2819
Dale Bryan Director +61 8 9268 2829
Ben Wale Associate Director +61 8 9268 3055
Ben Crossing Associate Director +61 8 9268 3047
Stephen Kite Associate Director +61 8 9268 3050
Scott Weir Associate Director +61 8 9268 2821
Registered Office
Level 6, 141 St Georges TcePostal Address:
PerthWA 6000 GPO Box 2777
Australia Perth WA 6001
PH:+61 8 9268 2888 FX: +61 8 9268 2800
www.hartleys.com.au [email protected]
Note: personal email addresses of company employees are
structured in the following
manner:[email protected]
Hartleys Recommendation Categories
Buy Share price appreciation anticipated.
Accumulate Share price appreciation anticipated but the risk/reward is
not as attractive as a “Buy”. Alternatively, for the share
price to rise it may be contingent on the outcome of an
uncertain or distant event. Analyst will often indicate a
price level at which it may become a “Buy”.
Neutral Take no action. Upside & downside risk/reward is evenly
balanced.
Reduce /
Take profits
It is anticipated to be unlikely that there will be gains over
the investment time horizon but there is a possibility of
some price weakness over that period.
Sell Significant price depreciation anticipated.
No Rating No recommendation.
Speculative
Buy
Share price could be volatile. While it is anticipated that,
on a risk/reward basis, an investment is attractive, there
is at least one identifiable risk that has a meaningful
possibility of occurring, which, if it did occur, could lead to
significant share price reduction. Consequently, the
investment is considered high risk.
Institutional Sales Carrick Ryan +61 8 9268 2864
Justin Stewart +61 8 9268 3062
Simon van den Berg +61 8 9268 2867
Chris Chong +61 8 9268 2817
Digby Gilmour +61 8 9268 2814
Veronika Tkacova +61 8 9268 3053
Wealth Management Nicola Bond +61 8 9268 2840
Bradley Booth +61 8 9268 2873
Adrian Brant +61 8 9268 3065
Nathan Bray +61 8 9268 2874
Sven Burrell +61 8 9268 2847
Simon Casey +61 8 9268 2875
Tony Chien +61 8 9268 2850
Tim Cottee +61 8 9268 3064
David Cross +61 8 9268 2860
Nicholas Draper +61 8 9268 2883
John Featherby +61 8 9268 2811
Ben Fleay +61 8 9268 2844
James Gatti +61 8 9268 3025
John Goodlad +61 8 9268 2890
Andrew Gribble +61 8 9268 2842
David Hainsworth +61 8 9268 3040
Neil Inglis +61 8 9268 2894
Murray Jacob +61 8 9268 2892
Gavin Lehmann +61 8 9268 2895
Shane Lehmann +61 8 9268 2897
Steven Loxley +61 8 9268 2857
Andrew Macnaughtan +61 8 9268 2898
Scott Metcalf +61 8 9268 2807
David Michael +61 8 9268 2835
Jamie Moullin +61 8 9268 2856
Chris Munro +61 8 9268 2858
Michael Munro +61 8 9268 2820
Ian Parker +61 8 9268 2810
Charlie Ransom
(CEO)
+61 8 9268 2868
Brenton Reynolds +61 8 9268 2866
Conlie Salvemini +61 8 9268 2833
David Smyth +61 8 9268 2839
Greg Soudure +61 8 9268 2834
Sonya Soudure +61 8 9268 2865
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Samuel Williams +61 8 9268 3041
Disclaimer/Disclosure
The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold
shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those
securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising
from any advice mentioned in publications to clients.
Hartleys has provided corporate advice within the past 12 months and continues to provide corporate advice to Aura Energy Limited ("Aura") for
which it has earned fees and continues to earn fees. Hartleys has a beneficial interest in 12.5 million options in Aura.
Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting
your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.
Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued.
Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in
negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law.
