Forsys Metals Corp: Waiting For The Market To Turn

Well positioned
Forsys. (FSY.TO) has recently updated its compliant resource estimate by increasing the resources and grades at its 100%-owned Norasa uranium project in Namibia. With the Valencia and Namibplaas deposits now consolidated, Forsys has a total resource of 125Mlbs grading 197ppm U3O8. In addition to the increased resource estimates, completed engineering and metallurgical studies further improve the overall economics of the Norasa project. Given that the Valencia property is fully permitted, and assuming a positive outcome from a planned DFS in Q414, Forsys could be well positioned to capitalise on the anticipated upturn in the uranium market.

Improving economics
While near-term uncertainty remains in the uranium market, Forsys continues to improve the economics of its Norasa project through the consolidation of the Valencia and Namibplaas deposits, as well as the recently discovered high-grade zone (Satellite Pit). An engineering study optimising the processing plant and a completed metallurgical test program increasing recoveries have also improved the overall economics. The updated mineral resource estimate has increased the measured and indicated categories by 10% to 103Mlbs, and the grade by 13% to 197ppm, assuming a cut-off of 100ppm at Valencia and 160ppm at Namibplaas. The company is currently updating the Norasa reserves, expected to be completed in Q114. Assuming a positive outcome from the DFS, which the company expects to be completed in Q414, and successful funding of the estimated total capex of c US$420m, Forsys could see commercial production in H216.

Waiting for the market to turn
Given that the Valencia property is fully permitted and has a 25-year mining licence within a safe and mining-friendly jurisdiction, Forsys should be able to capitalise on any upswing in the uranium market. We see several catalysts that could mark a turning point for the sector, such as the end of the megatons-to-megawatts agreement between Russia and the US, which is set to expire at the end of 2013, the restarting of reactors in Japan, and the continued ambitious reactor rebuilds in China and India. Overall, we expect these catalysts to widen the fundamental supply/demand gap and ultimately push uranium prices higher.

Valuation: Discount to peers on EV/resource basis
Forsys Metals currently has at an EV/resource multiple of 0.36x compared with an uranium explorers average of 0.65x. At a current share price of C$0.35, Forsys trades at a 55% discount to a valuation based on its U3O8 resource.


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