EFR still a strong long term buyEnergy Fuels
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2007 price target CAD 7.75
Energy Fuels (EFR) is a near term producer with uranium properties in the USA (and some other type of projects elsewhere not considered here). They have a qualified & experienced management, most likely an adequate uranium resources in existing mines and projects and a good cash position and that seen together with a fine risk/reward ratio indicate a very fine long term stock potential for the coming 1-2 years, which the following simple calculation tries to show a little more explicitely.
Their Whirlwind Mine and Energy Queen could begin stockpiling late in 2007. They are situated 75 miles and 62 distance from the White Mesa Mill owned by Denison Mines (capacity 2000 tons per day) and 215 and 350 miles from Cañon City Mill owned by Cotter (capacity 1200 tons per day). Tenderfoot Mesa is 175 miles from White Mesa Mill and 350 miles from Cañon City Mill and could begin stockpiling in 2008. Energy Fuels has numerous other uranium properties in Uravan Mineral Belt and Arizona strip. Drilling will take place in 2007 on many of these properties. EFR has not reached a final toll milling agreement yet, and full mining activity will not start before that, probably late 2008. EFR though is considering constructing their own mill for processing a bit later..
Later EFR should be more capitalized from the warrants with probably no need for private placements in 2007. In a couple of years the uranium production could reach 1.5-2 million pounds per year. My calculation stipulates a 1.5 million production for 2009. Then EFR would reach profits (before tax) of around 112.5 USD (assuming average uranium price USD 75) thanks to the vanadium production which is assumed to cover all costs for the uranium business. After 35 % tax and full stock dilution (about 58 million shares and warrants now, but I assume 70 million ) that would correspond to about earnings of 1.21 CAD per share, (with USD = 1.16 CAD).. Applying a reasonable p/e ratio of 10 indicates a very fine long term potential CAD 12.
My discounted EFR price target for 2007 is calculated with a yearly 25 % interest rate, very high due to the high risk, which results in CAD 7.75.
The risk factor number one would be that EFR cannot deliver (uranium production) these amounts of uranium soon enough, but on the other hand the production could reach the rate 2 million pounds per year as soon as some time during the latter part of 2009 which would imply an even higher long term stock potential. The calculation also postulates that EFR expands its resource base to at least about 20 million pounds of uranium within a few years. The long term uranium price is also a big risk - but also a possibility for an even higher uranium price and thus higher long term stock price potential. Furthermore the assumed total cost coverage from the vanadium production might be too optimistic, e g if the market price of vanadium declines significantly.
In summary the risk/reward thus seems very attractive for EFR at the current stock price level. Therefore EFR is still one of my favorite near term producer long term picks for a 2007 uranium stock portfolio.
Anyone with other input data can, as always, change these figures easily and do their own rough, simple and I think very useful calculations for an absolute and relative stock valuation purpose.