GTR launching USA uranium drilling campaign

Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 16,662,000 GTR shares and 746,615 GTR options at the time of publication. S3 Consortium Pty Ltd has been engaged by GTR to share our commentary on the progress of our investment in GTR over time.

Amid geopolitical tensions, energy security is high on the USA’s agenda.

In particular, the US is prioritising nuclear power and securing domestic uranium supply, just look at the headlines:

• “US is Set to Launch a $6 Billion Effort to Save Nuclear Plants”
• “US Seeks $4.3 Billion for Uranium to Wean Off Russia Supply”

With these macro tailwinds blowing in its favour, our US-based uranium exploration Investment GTI Energy (ASX:GTR) is kicking off its 2022 exploration program.

Yesterday, GTR completed the planning process for its upcoming 100,000 foot (~30,000 metre) drilling program across its uranium projects in Wyoming - drilling should start in the coming weeks and be completed by Christmas.

Wyoming is the uranium capital of the USA, where over 80% of domestic supply is produced.

Not only does the state produce the bulk of America’s supply, but it is home to a US$4 billion next-generation nuclear power plant being developed by Bill Gates and Warren Buffet.

GTR plans to drill ~130 holes across five different targets, following up on drilling done earlier in the year when the company announced a maiden discovery.

The ultimate aim of the drilling program is to either put out a maiden uranium resource estimate or, at the very least, an achievable exploration target to base future exploration programs.

We will measure the success of GTR’s drilling program against the following expectations:

• Bull case = Uranium intercepts lead to a maiden JORC resource.
• Base case = Enough uranium is intercepted to put together an achievable exploration target.
• Bear case = No uranium is intercepted, and projects are considered stranded.

Yesterday’s announcement comes after GTR completed the acquisition of additional ground in Wyoming, increasing its landholding from 22,000 acres to 35,000 acres — a 59% increase in size. Importantly, all of this newly acquired ground surrounds Rio Tinto’s projects.

GTR has a $6.9M cash balance after completing a $5M placement earlier in the year at 2.1c per share and has spun-off its gold assets. It is now a fully focused pure play uranium exposure on the cusp of a big drilling program chasing a US uranium discovery.

With the uranium price trading just off an 11-year high and the US government scrambling to secure additional domestic supply, we think GTR is drilling at the perfect time.

Why do GTR’s projects being in the US matter?

The US has over 91.5GW in installed nuclear capacity from 93 reactors across 30 states, making it the world’s largest producer of nuclear power.

Despite this, US domestic uranium production has been declining.

This is slowly looking like it will change though, with the US government quickly realising that nuclear power offers a solution in transitioning to low emission power generation and to the domestic energy crisis.

In April, the US Department Of Energy was reported to be preparing to launch a US$6 billion program to keep uneconomic nuclear plants in service.

More recently, the Biden government came out in support of the industry, pushing for lawmakers to support a US$4.3 billion plan to buy enriched uranium from domestic producers to wean the US off Russian imports.

At present, Russia is a significant supplier of uranium and enrichment services to US utilities, with up to 20% of reactor requirements met by uranium enriched in Russia.

We think this means that the US will move to secure domestic uranium supply as it is now strategically important.

These strengthening macro tailwinds are a large part of the reason we hold GTR in our Portfolio.

More on the drilling program

With the drilling program fully planned, let's look at the areas GTR will target.

First, is the “Thor” project:

This is just a continuation of the drilling works GTR did earlier in the year.

Thor is GTR’s most advanced project area and sits right next door to Canadian listed Ur-Energy’s (capped at ~CAD$326M) 18Mlb Lost Creek uranium deposit/processing plant.

GTR dedicated an entire drilling program over this project area earlier this year and intersected uranium mineralisation that displayed economic potential, leading to GTR declaring a new discovery.

That last round of drilling discovered a ~3km mineralised zone, which GTR will be looking for extensions to in the “ north-eastern section of the project”.

This round of drilling will be for a total of 40,000 feet (~12,000 metres) over ~70 holes.

To see how GTR’s first drilling program went over this part of its project area, check out our last GTR note: Drilling results are in as Uranium prices keep edging upwards

Second, GTR will be targeting its Wicket East Project.

This sits right on the southern boundary of Ur-Energy’s Lost Soldier deposit, which hosts a 14Mlb uranium resource.

Here GTR will be drilling a total of ~20 holes over 20,000 feet (6,000m) testing for extensions to Ur-Energy’s deposit.

Similar to the way the “Thor” drilling was planned, GTR is using historical drilling information to target its drilling.

The drilling will be predominantly focused on testing for extensions to Ur-Energy’s deposit, the thinking being that the ~5km mineralised zone (yellow line in the image below) extends into GTR’s ground.

The rest of the drilling program will be focused on the Odin, Loki and Teebo projects.

GTR’s Odin and Teebo deposits are between Uranium Energy Corp’s (UEC) Antelope Project and Ur-Energy’s Lost Soldier deposit.

While its Loki project is wedged between UEC’s Antelope and north of Ur-Energy’s Lost Creek Project.

Here, GTR is planning up to 40 holes over a collective ~40,000 feet of drilling.

Over the three project areas, GTR has ~8km of previously intercepted uranium mineralisation to follow up.

All of this information comes from the same historic drilling data that the company used to plan its drilling program earlier in the year.

What’s next?

Drilling commencement 🔄

With the planned drilling program now on the verge of being fully permitted, GTR just has to get its drill rigs on the ground and start exploration work.

Managing director Bruce Lane commented on yesterday’s announcement saying that, “We are confident that we can successfully execute the drilling this year which will set GTI up to produce a uranium resource report in 2023. We look forward to providing updates in the coming weeks as the program progresses”.

This should mean we get a better understanding of when the drilling program will start over the coming weeks.

Drilling results from the 100,000-foot exploration program 🔄

Below we have set our expectations for what we want to see from the company’s drilling results.

As this round of drilling follows up on an exploration program completed earlier in the year, we will be tracking the drilling results against the expectations we set in our 2022 GTR Investment Memo.

Our expectations are primarily based on the intercepts received at the nearby Lost Creek Project, using the general economic cut-off criteria for ISR uranium projects in this part of Wyoming.

The Lost Creek ISR uranium deposit has a 13mlbs (measured/indicated resource) at an average grade of 0.048% uranium with an average grade thickness (GT) of 0.2.

As a result, our focus for the drilling results will be on the "GT Measure" (grade x thickness), where we want to see:

• 10 foot intercepts grading >0.2% uranium (GT >0.2).
  • i.e. 3m @ 0.02% uranium.

🎓 To see our deep dive on “grade thickness”, check out our previous article here: GTR uranium drilling now - to confirm previous mineralisation.

Again, we will base the success of GTR’s drilling program on the following expectations:

• Bull case = Uranium intercepts lead to a maiden JORC resource.
• Base case = Enough uranium is intercepted to put together an achievable exploration target.
• Bear case = No uranium is intercepted, and projects are considered stranded.

Target generation works at the newly acquired green mountain ground 🔄

In mid June, GTR acquired an additional ~13,800 acres in ground next to its existing uranium projects in Wyoming.

This acquisition, of the “Green Mountain Project”, brought GTR’s landholding to a total of ~35,000 acres across a region that is considered the uranium capital of the US.

Interestingly, the newly acquired grounds all sit against a border shared with Rio Tinto and in close proximity to Canadian-listed Energy Fuel’s (capped at CAD$1.1B) 30Mlb Sheep Mountain deposit.

Uranium media review

The world is in the midst of an energy crisis while trying to transition away from fossil fuels into cleaner, lower emission energy sources.

We think the case for baseload power generation through nuclear power is getting stronger by the day.

As a result, we see the opportunity in the uranium space as one of the few “unloved” commodity plays, where the macro thematic continues to strengthen.

Here are some developments in the uranium space that we think impact both the uranium macro theme and GTR directly.

Below are our key takeaways:

• The Biden government is pushing lawmakers to support a $4.3 billion plan to buy enriched uranium from domestic producers to wean the US off Russian imports.
• Energy Department officials have met with key congressional staff, who said such funding is urgently needed.
• Russia accounted for 16.5% of the uranium imported into the US in 2020 and 23% of the enriched uranium needed to power US commercial nuclear reactors.

Below are our key takeaways:

• The US has 93 reactors which provide around one-fifth of the country's electricity. Importantly, the reactors supply more emission-free power than all other renewable energy sources combined.
• But these reactors are unable to compete with modern/cheaper sources of electricity generation, mostly due to age. As a result, a lot of these were being considered for early shutdowns due to the economics of keeping them open.
• If the US government intervenes these plants could stay in operation for longer and, in turn, ensure that there is more demand for the raw material which powers them - uranium.
• It’s long been our view that future electricity grids around the world will need to have some mix of nuclear energy, given it is one of the lowest carbon emission sources of baseload electricity generation.

Our key takeaways:

• The European parliament has backed EU rules labelling investments in gas and nuclear power plants as climate-friendly.
• The vote in favour of the proposal means the EU can look to pass the proposal into law. To not pass, 20 of the EU’s 27 member states would have to oppose the move.
• The new rules will add gas and nuclear power plants to the EU "taxonomy" rulebook from 2023, enabling investors to label and market investments in them as green.
• EU financial services chief Mairead McGuinness said "The Complementary Delegated Act is a pragmatic proposal to ensure that private investments in gas and nuclear, needed for our energy transition, meet strict criteria".
• Slovakian Prime Minister Eduard Heger said the vote result was good for energy security and emissions-cutting targets.

Our GTR Investment Memo for 2022:

Below is our 2022 Investment Memo for GTR, where you can find a short, high level summary of our reasons for investing.

The ultimate purpose of the memo is to record our current thinking as a benchmark to assess the company's performance against our expectations 12 months from now.

In our GTR Investment Memo, you’ll find:

• Key objectives for GTR in 2022
• Why we invested in GTR
• What the key risks to our investment thesis are
• Our investment plan