RE: CombinationEmerging Junior Uranium Producer Looks Cheap
By Michael J. DesLauriers
11 Oct 2005 at 03:51 PM EDT
TORONTO (ResourceInvestor.com) -- Despite the recent correction in energy shares and the price of oil, uranium stories have remained strong and so have yellowcake prices. Many analysts are becoming increasingly bullish on uranium, which would appear to have the potential for further appreciation of a sustainable nature.
In recent months RI has been quite successful in sorting through the growing catalogue of junior players, separating the wheat from the chaff, and unearthing some exciting opportunities such as Titan Uranium at 53 cents in early June. The stock hit C$2 today in heavy trading before closing at C$1.89.
The latest play showing promise is Standard Uranium [TSXv:URN]. The company has just entered into a binding LOI, which should see them in production within two years if the deal goes through. Importantly, the project is located in south Texas, in an area with a mining history and a favourable geological climate, which should allow for rapid progress and reduce the opportunity for regulatory and environmental snags.
The deal also involves the Hobson plant, which last saw production in 1988. The plan is to increase the plant’s annual production capacity to 1 million pounds, with initial production coming in conservatively in the 800,000/lbs a year range.
Company President Nathan A. Tewalt told RI that the CAPEX should come in between $15 - $20 million. Tewalt also noted that the company was in the process of making the project’s rather conservative historical ISL resource of 4.8 million pounds 43-101 compliant.
Standard is planning on using In-situ Leach (ISL) production technology and outlined some of its benefits in today’s press release, “ISL technology has several advantages including: lower capital costs and improved cash flow, less lead time to production, lower energy use and equipment maintenance, exceptionally low labor per unit of product, and significant environmental benefits.”
Based on some of the above figures the company’s current valuation is very encouraging, even given the realistic prospect of dilution (probably at higher prices). With a market capitalization of only about C$15 million, the stock could well be trading just above 1X its cash flow two years out, assuming prices hold. Of course, all indications are that uranium prices are heading higher and that the company’s numbers are conservative.
Tewalt also told RI that the cash flow from Palangana will be actively employed in the exploration and development of other opportunities and potential acquisitions.
Conclusion
Few junior uranium players can boast the prospect of relatively near-term production, and the market is sure to show its appreciation in the form of a healthy premium for Standard.
Tewalt is well aware of the deals significance from a market standpoint and told RI, "The Standard Uranium - Everest joint venture will propel URN from the ranks of junior uranium explorer to the ranks of up and coming producer. We will share a niche with a only few other companies and all of them much larger. This is a rare opportunity for URN's shareholders to capitalize on the strong energy market and surging uranium prices."
Although money is being made in just about every uranium play nowadays, sound fundamentals and strong management ultimately trump promotion every time, and will protect investors through downturns. The market is sure to catch on soon and it’s decidedly unlikely that current prices will last too long.