This ASX uranium company is set to surge: Brokers

Shares in Deep Yellow Ltd (ASX: DYL) have crashed to a 12-month low after the company decided not to go ahead with its flagship Tumas uranium project this quarter.

The company said Tumas remained a world-class, greenfields uranium project, but that it had determined that current equity market conditions did not support going ahead with a final investment decision.

The analyst teams at both Macquarie and Morgans have since issued new research notes on the uranium company, with both expecting significant share price upside.

Work to continue proving up the project

Management said it had made strong progress in areas such as concrete preparation, reinforcing steel installation and the award of key construction contracts.

Managing Director Greg Field said:

Despite the compelling global uranium market fundamentals, challenging equity market conditions continue to constrain funding options for uranium developers. Against this backdrop, we believe it is prudent to defer FID beyond Q4 2026 while maintaining construction momentum and progressing our funding strategy to ensure Tumas is well positioned to advance when market conditions improve. The commencement of civil works on schedule represents another significant milestone for Tumas, reflecting the considerable progress achieved across engineering, procurement and construction readiness as we systematically de-risk the project’s development.

Deep Yellow said work on an updated value model for the mine was nearing completion and would be released to the market once finished.

About 440 contractors and employees had also been inducted to work on the project.

Shares looking very cheap, brokers say

In a research note, Morgans said the withdrawal of the FID timeline was not altogether surprising given the weakness in the company’s share price.

They added:

In our view, raising equity at current levels would have represented an unattractive funding outcome for existing shareholders. Importantly, we view this as a delay rather than a change in strategy, with DYL remaining focused on advancing Tumas and positioning the project for a future FID.

Morgans is forecasting a 12-month delay to a final investment decision, “resulting in a corresponding reduction in our discounted cash flow valuation as future cash flows are delayed”.

The broker reduced its price target on Deep Yellow shares from $1.95 to $1.50, compared with 76 cents at the time of writing.

They added:

While financing, execution and uranium market risks remain, we believe the market is underappreciating the value of a development ready uranium asset with significant leverage to improving fundamentals. That said, the need to secure funding for Tumas, including a likely equity component, is expected to remain a key overhang on the stock.

Macquarie has a price target of $1.95 on Deep Yellow shares.

The post This ASX uranium company is set to surge: Brokers appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.