Increased my PWE position todayafter the heavily increased uranium price after contemplating this analysis :
Powertech Uranium
Disclaimer : I take no responsibility whatsoever for any errors, bad conclusions, important facts missing etc that might affect my analyses and their readers in any respect, but I always try to keep the facts accurate, as well as the calculations with their usually simple mathematics. Sometimes even the companies analysed deliver false information which could be impossible to detect for me and many other interested parties. In general I trust the corporate information and use it for my analyses. The future can´t be predicted 100 % and the stock market in particular is associated with considerable risks on the company level, but also on branch-, country- and world market level, implying that each person has to take their own full responsibility of the consequences of buying this particular stock.
Do your own due diligence !
2007 price target CAD 7.40
Powertech Uranium (PWE) is a near term uranium producer aiming at develop low cost uranium properties with a short lead time to production. They have historic uranium resources of more than 17 million pounds in their advanced Dewey Burdock and Centennial projects in South Dakota and Colorado, and also possibilities to further expand the resource base there. Dewey Terrace and Aladdin projects in South Dakota and Wyoming also have promising historic drilling data and should further increase the Powertech resource base and production. Morover the company has other exploration properties also situated in western part of USA. The management team is very experienced and they are experts of In-Situ Leach (ISL) mining method, with a planned production start in Dewey Burdock in second half of 2009. With the ISL method they can recover U3O8 on site without a regular mill.
The company has a long term production goal of 1.5-2 million pounds of U3O8 per year from the two initial projects. But two other projects should increase the production potential later on to 3-4 million pounds per year.
I assume total costs of USD 30 per pound U3O8 and an uranium production at the rate of 2.5 million pounds per year in 2010 . This would imply annual USD 125 million earnings before tax with an assumed long term average USD 80 U3O8 price. There are about 52.5 million fully diluted shares and a good cash position to keep that figure intact during 2007. Nevertheless I assume there will be 65 million fully diluted shares. This corresponds to around CAD 1.45 earnings per share after tax (tax assumed at 35 %, USD = 1.16 CAD). With a sound p/e ratio of 10 applied we get a CAD 14.50 stock price potential for 2010.
My discounted PWE price target for 2007 is calculated with a yearly 25 % interest rate, very high due to the high risk, which results in CAD 7.40. The interest rate corresponds to a total 32 % risk discount compared to a calculation with a 10 % interest rate.
The main risk factors probably are a delayed time schedule for the uranium production and a lower uranium price but in contrast an even higher long term uranium price average than USD 80 is possible. I also assume that PWE can expand the resource base on their current projects to at least 30 million pounds within 2-3 years. If the long term uranium price average 2009-2018 will be expected to stay well above my current USD 80 calculation assumption , the stock price potential should be adjusted upwards accordingly, and vice versa.
Therefore I think PWE is a very fine long term choise for an uranium stock portfolio with an attractive risk/reward ratio.
Anyone with other input data can easily change these figures and do their own, very rough, but simple, and I think useful, calculations.