Laramide valuationThe royalty payable to LAM for URI’s Churchrock resources (29.9 mm lbs measured and indicated + inferred), scheduled to begin production in 2013, is conservatively worth $2.52 per share (1mm annual production for 30 years @$60/lb U3O8 long term@18% royalty=$10,800,000 p.a., 4% interest p.a., $188,515,119 P.V./74.7 million shares fully diluted=$2.52). This asset is shown as having a book value of $4.4 million on LAM’s financial statement as at September 30, 2010 i.e. 6¢/share!
Using equally conservatives estimates for La Sal (late 2011 production, 18.9 mm lbs m&i + I, 0.63 mm annual production for 30 years, $10/lb net profit) and for La Jara Mesa (2013 production, 10.4 mm lbs m&i + I, 0.347 mm annual production for 30 years, $10/lb net profit), the net present value per share for the projected profit ($9,770,000 p.a.) is $170,536,429/74.7mm shares = $2.28
Little, if any, of the foregoing has been built into the current share price ($2.65), which is based mostly on the Westmoreland reserve. Using the same methodology on that resource (49.9 mm m&i + i i.e. 1,663,333 lbs p.a. production @$10 net profit/lb= $16,633,333 net profit p.a.), the net present value per share is $290,336,529/74.7mm shares = $3.89.
The total for all of this is $8.69 per share and it is easy to increase this to well over $10 by simply changing the net profit assumption from the $10/lb used herein. By any measure, LAM is extremely undervalued. This is why the insiders are buying in the open market even though they have reasonably generous option allotments.