Deep Yellow Limited

DYL Details

This report is an updated version of the report published on 8 April 2022 at 3:39 PM GMT.

Latest Updates: Deep Yellow Limited (ASX: DYL) is engaged in the mining of uranium in Australia on the Deep Yellow Namibian project which includes the Reptile Project, Nova joint venture (JV), and Yellow Dune JV via its subsidiary Reptile Mineral Resources and Exploration (Pty) Ltd (RMR).

• Drilling Update: DYL has completed the follow-up Phase 2 exploration program at the Barking Gecko North prospect with ~10 holes. It identified mineralisation at all holes returning greater than ~100 ppm eU₃O₈ over 1 metre in thickness. Barking Gecko is part of Namibia's NJV - Nova joint venture project. JOGMEC (Japan Oil, Gas and Metals National Corporation) (Right to equity) and RMR (Manager) both now hold ~39.5% equity stakes individually in the JV.

Merger Highlights:

• On 31 March 2022, DYL declared entering a Scheme Implementation Deed (SID) under which Vimy Resources Limited (ASX: VMY) and DYL will merge.
• As per the scheme, DYL will acquire ~100% issued capital of VMY. The shareholders of VMY will receive 0.294 DYL shares for every share held in VMY on the record date.

• DYL and VMY shareholders will obtain ~53% and ~47% shareholding in the merged entity upon the merger scheme implementation. 

1HFY22 (ended 31 December 2021) Results:

• DYL completed the resource upgrade drilling program at the Tumas 1 East deposit with ~718 holes drilled for ~9,987 metres in 1HFY22. DYL reported a significant increase in the Measured and Indicated Mineral Resource at Tumas 1, 2, 3 and 1 East deposits from ~52.6Mlb to ~98.7Mlb.
• The company focused on exploration activities on the Omahola and Barking Gecko basement targets and drilled ~15,000 metres of drilling and received highly positive results.

Net Loss Highlight; (Analysis by Kalkine Group)

Key Risks: The company faces adverse climatic changes, a shortage of skilled labour and rise in wage costs, exploration risk, and regulatory delays. 

Outlook:

• The company is advancing on the Definitive Feasibility Study (DFS) on Tumas project and plans to complete it during the latter half of CY22.
• DYL also plans to undertake drilling at the identified priority targets on the Omahola project for follow-up drilling and probable expansion of the Ongolo deposit.
• The merger with VMY is expected to have pro-forma market capitalisation of $658 million and lead to scale benefits and cash resources of ~$106 million, uranium Mineral Resource inventories of ~389Mlb, and advanced high-quality uranium assets in Tier-1 mining jurisdictions. A scheme meeting is expected to occur in late June / early July 2022, and the merger implementation is expected by July 2022.

Stock Recommendation: The stock of DYL gave a positive return of ~62.85% in the past nine months and a positive return of ~66.42% in the past year. The stock is currently trading near its 52-weeks’ high level of ~$1.370. The stock of DYL has a support level of ~$1.08 and a resistance level of ~$1.45. On a TTM basis, the stock of DYL is trading at a price to book value multiple of 3.6x higher than the industry (Energy) median ~2.2x, thus seems overvalued. Considering the current trading levels, positive returns in the past few months, valuation on a TTM basis, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $1.215, as of 8 April 2022, 1:16 PM (GMT+10), Sydney, Eastern Australia.

DYL Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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