Deep Yellow Limited (ASX: DYL): Achieved a significant milestone with an 18% increase in Ore Reserve Estimate for Tumas to 79.3 Mlb U3O8 at 298 ppm
Deep Yellow Limited (ASX: DYL): Achieved a significant milestone with an 18% increase in Ore Reserve Estimate for Tumas to 79.3 Mlb U3O8 at 298 ppm
By ACE Investors / 17 March 2025

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By Team Ace Investors

Company Overview

Deep Yellow Limited (Deep Yellow) is a differentiated, advanced uranium exploration company, in the pre-development phase. Deep Yellow is focused on becoming a Tier-1 uranium producer by establishing a multi-project, globally diversified uranium portfolio. DYL now has two uranium projects at the feasibility stage located in Namibia and Australia, with the potential to start production in the mid-2020s. The company’s Namibian project portfolio comprises: Tumas and Omahola Projects (100%), Nova JV (39.5%), and Yellow Dune JV (85%) respectively.  DYL’s Australian project portfolio comprises the Mulga Rock Project (100% DYL) and the Alligator River Project (100% DYL). In addition, with its exploration portfolio, an opportunity also exists for a substantial increase in its uranium resource base aimed at building a global, geographically diversified project pipeline. The company adopted a dual pillar strategy to grow shareholder wealth, (i) developing the existing uranium resources across its uranium projects in Namibia; and (ii) pursuing accretive, counter-cyclical acquisitions to build a global, geographically diverse asset portfolio. Deep Yellow's strategic growth plan focuses on establishing the Company as a low-cost, Tier-1 global uranium platform with a geographically diversified project pipeline. In line with its strategy, Deep Yellow also completed a merger with Vimy Resources Limited (Vimy) in Aug 2022 to build a pure-play uranium company with a significant scale. The merger has created a new global uranium player, with a significant scale, cash resources of $106 million, one of the largest uranium Mineral Resource inventories globally (389Mlb), and two advanced, world-class assets in Tier-1 uranium mining jurisdictions. In Feb’2023, the company announced a robust DFS for its 100% owned Tumas Project in Namibia, with a 20% increase in production capacity from 3Mlbpa U3O8 to 3.6Mlbpa U3O8 and an 11% increase in throughput from 3.75Mtpa to 4.15Mtpa. The project is expected to deliver indicated an after-tax project net present value (“NPV”) of $341 M and with an internal rate of return (“IRR”) of 19.2% using a uranium price of US$65.00 /lb, a vanadium price of US$8.90 /lb and a discount rate of 8%. The overall project life is estimated to be 22.25 years based on existing ore reserves, with additional resources likely to increase life to a +30-year operation. Deep Yellow’s focus is now on detailed Front End Engineering and Design (FEED), project financing, and product offtake ahead of a Final Investment Decision (FID). The Mulga Rock Project is a long-life asset and is the only project in WA positioned to capture the future upside of the uranium market with a granted Mining Licence. A revised Definitive Feasibility Study (DFS) is underway to improve project economics. This is scheduled for completion in late CY25, with significant value expected to be added.

Investment Rationale

Advancing towards a targeted +30-year Life of Mine (LOM)

On 29 Nov’2023, Deep Yellow announced an updated Mineral Resource Estimate (MRE) for the Tumas 3 Deposit, located in EPL3496 in the Erongo Region of Namibia. The company announced an 11% increase in Tumas 3 Mineral Resource to 66.8Mlb at 300ppm eU3O8 without loss of grade, with Tumas 3 Indicated Mineral Resources increased to 60.6Mlb at 325ppm eU3O8. With that, the Total Indicated Mineral Resources of Tumas MLA increased to 108.5Mlb at 265ppm eU3O8. This upgrade in MRE resulted from a two-phase 235-hole, 8,017m RC resource and infill drill program completed in Sep'2023. On 11 Sep'2023, the company completed a Two-phase 235-hole, 8,017m RC resource, and infill drill program to expand the current resource base, west of the Tumas 3 deposit toward Tumas 3 West and Tumas Central. The primary objective of the drill program was to identify additional resources to eventually extend the overall Tumas Project to a +30-year LOM from its current 22.5 years. The upgraded MRE of 66.8Mlb eU3O8 is a notable improvement in both the quality and amount from the Indicated and Inferred Mineral Resource of 59.9Mlb eU3O8 announced to the ASX on 29 July and 19 Aug’2021. Overall, 90% of the Tumas 3 MRE is now reported as an Indicated Mineral Resource category. Importantly, the Tumas 3 MRE upgrade has increased the overall Indicated Resource base at a 100ppm eU3O8 cut-off associated with the Tumas palaeochannel (Tumas 1, 2, 3 and Tubas) from 102.8Mlb to a total of 108.5Mlb eU3O8. Further, a resource drilling program is planned to the west of Tumas 3 during FY25 with a focus on identifying a further 30Mlb to achieve a 30+year LOM.

The Re-Costing Study validated the commercial viability of the Tumas Project as a long-term, high-margin, globally significant uranium operation.

On 12th Dec'2023, Deep Yellow announced updated costs and forecast financial outcomes for its flagship Tumas Project (Project or Tumas) following a review of DFS announced in Feb’2023 in the light of a prevailing inflationary environment. The Re-Costing Study identified a reduction in the capital cost estimate and a modest increase in the operating costs estimate (mostly due to increased fuel and power costs) for the first 10 years of operation (while the solar array and associated infrastructure are amortized), followed by a minor reduction in the operating cost estimate for the remainder of the Project. Financial modeling at US$65/lb validated the original DFS conclusions. The re-appraisal of the marketing outlook concluded that, in the uranium market conditions as of November 2023, a base case pricing deck based on US$75/lb was both conservative and suitable under the prevailing market outlook, and further upside to this was considered likely.

  • The Re-Costing Study identified net savings of US$24.6M, reducing the CAPEX from the DFS total of US$385.1M (A$566.3M) to the re-costing total of US$360.5M (A$530.1M). In total, 71% of project CAPEX was re-costed.
  • The revised LOM C1 operating cost after vanadium credit increased slightly to US$34.36/lb U3O8 from January 2023 DFS of US$33.99/lb U3O8 due to a 13% increase in power charges from NamPower announced November 2023, 9.5% increase in diesel cost, and 15% increase in HFO cost respectively.
  • Based on the updated base case Uranium price of US$75/lb, the project is expected to deliver a 67% increase in NPV8 to US$570M (A$838M), and an IRR of 27.0%.
  • The Study validated the commercial viability of the Project as a long-term, high-margin, globally significant uranium operation.               

Achieved a significant milestone with an 18% increase in Ore Reserve Estimate for Tumas to 79.3 Mlb U3O8 at 298 ppm

On 11th Sep’2024, Deep Yellow announced updated Mineral Resource Estimates (MRE) for the Tumas 1, 1-East, 2, and 3 Deposits following the RC resource upgrade drilling program. The objective of the program was to improve drill spacing across parts of Tumas 3 to 50 m x 50 m, to enable the conversion of approximately 20 Mlb U3O8 from an Indicated to Measured JORC Mineral Resource status and collect additional core samples to enhance the density database of the orebodies to upgrade further resources at Tumas 1 and 2 to the Measured JORC Mineral Resource status. The drill program successfully established a Measured Mineral Resource for Tumas 1, 2, and 3 of 38.5 Mlb at 286 ppm U3O8 at a 100 ppm eU3O8 cut-off, whilst materially maintaining the overall grade and uranium content of the deposits. Tumas 3 is the largest uranium deposit along the Tumas palaeodrainage and contains Measured and Indicated Mineral Resources at a 100 ppm eU3O8 cut-off of 58.2 Mlb U3O8 at 321 ppm U3O8. The Tumas total Measured and Indicated Mineral Resource now stands at 106.2 Mlb grading 264 ppm eU3O8. An open pit optimization and mine scheduling work is currently underway to define an updated Ore Reserve estimation including Reserves for +20 years of Life of Mine (LOM) and sufficient Proven Reserves for the initial 6 years of mining for the Tumas Project. On 18th Dec'2024, the company achieved a significant milestone with an 18% increase in its Ore Reserve Estimate to 79.3 Mlb U3O8 at 298 ppm using a 100 ppm U3O8 cut-off including Proved Reserves of 28.4 Mlb at 287 ppm U3O8 and Probable Reserves of 50.9 Mlb at 305 ppm U3O8. The Updated Ore Reserve Estimate for Tumas is sufficient for a 30-year Life of Mine (LOM) and was achieved using the increased throughput announced in the DFS of a maximum of 4.2 Mt pa or production rate of 3.6 Mlb pa U3O8. There exists a significant potential to further increase LOM by upgrading the remaining Inferred Mineral Resources with approximately 30% of the highly prospective Tumas palaeochannel system remaining untested.

The Company continues to make significant progress, with all work undertaken to date continuing to demonstrate the strong economic viability of Tumas. However, the board deferred the Tumas Final Investment Decision consideration until March 2025 due to delayed costings and quotes for equipment and construction, and further project optimization. The Board is of the view that this small delay will not have a material impact on the Project’s overall timeline and objective of commencing production in late 2026, subject to sufficient uranium price incentivization. The board firmly believes that forecast increases in uranium supply by some analysts are materially overstated in the short, medium, and long term and there is significant doubt regarding the pace of available greenfield uranium developments in the next 10 years. This, combined with the rapidly increasing demand for commercial nuclear power, cannot justify the current uranium price as a basis for new development start-ups and it will need to increase to incentivize new production.

ACE’s Recommendation

Deep Yellow’s strategic growth plan is focused on establishing the Company as a low-cost, Tier-1 global uranium producer. On 2nd Feb’23, DYL announced a strong DFS for its Tumas Project in Namibia. The DFS confirmed that the Tumas Project is a commercially attractive project, despite cost inflation experienced and increased CAPEX. On 29 Nov’2023, Deep Yellow announced an 11% increase in Tumas 3 Mineral Resource to 66.8Mlb at 300ppm eU3O8 without loss of grade, with Tumas 3 Indicated Mineral Resources increased to 60.6Mlb at 325ppm eU3O8.  On 12 Dec 2023, the company announced the Re-Costing Study outcomes on its Tumas project. The Re-Costing Study identified a reduction in the capital cost estimate and a modest increase in the operating costs estimate (mostly due to increased fuel and power costs) for the first 10 years of operation (while the solar array and associated infrastructure are amortized), followed by a minor reduction in the operating cost estimate for the remainder of the Project. The Re-Costing Study identified net savings of US$24.6M, reducing the CAPEX from the DFS total of US$385.1M (A$566.3M) to the re-costing total of US$360.5M (A$530.1M). The Study validated the commercial viability of the Project as a long-term, high-margin, globally significant uranium operation. On 18th Dec'2024, the company achieved a significant milestone with an 18% increase in its Ore Reserve Estimate to 79.3 Mlb U3O8 at 298 ppm using a 100 ppm U3O8 cut-off, which is sufficient for a 30-year Life of Mine (LOM).      We believe that the recently announced updated ORE for the Tumas Project will have clear and positive implications for the Project economic, including a significant increase in Project life, with the potential to exceed 30 years; and a likely increase in Project NPV and IRR. We also believe that the company is well-positioned to take advantage of the incentive-driven production target post-2025 arising out of the current demand-supply mismatch. The stock closed the day at A$ 1.010/sh and presents an investment case in our view. So, we would like to recommend a SPECULATIVE BUY rating on the stock.

 

 

 

 

 

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