RE4.95 is still cheap according to my analysis:2007 price target CAD 7.50-9.40
Khan Resources (KRI) is a uranium junior company focusing on a historic russian mine in Mongolia. Their CEO is said to be one of the best in the uranium business with over 40 years of world wide mining experience. Khan has at least a 32 million pound share (58 %) of the indicated NI 43-101 compliant uranium resource at the Dornod Uranium Properties. That is good enough for over 10 years of mining, but there is a potential for more, e g by buying out one of the minority owners, and also by further exploration on a property 100 % owned by Khan. Over USD 150 million was invested on the mine by the former russian owners.
There are around 58 million fully diluted KRI shares, but as usual I calculate with further dilution, in this case to 70 million shares.A USD 80 long term average uranium price is assumed. Total costs when the production has comenced are assumed to be USD 20 per pound of uranium produced, with low taxes at 25 %.
With an assumed Khan Resources 58 % share of a 2010 production potential of 4-5 million per year at the Dornod Uranium Properties, thus implying 2.3-2.9 million pounds of uranium for Khan, earnings after taxes would be (2.3 to 2.9) x (80-20) x 0.75 or around USD 104 - 131 million, corresponding to around CAD 1.72-2.16 per share (with USD=1.16 CAD). A reasonable p/e-ratio of 10 imply a 2010 KRI stock potential to CAD 17.20-21.60. In these type of stocks I discount with a high risk-balanced yearly 25 % interest rate, which would correspond to a 2007 CAD 8.80-11.05 potential. 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.
Due to an assumed high political risk in Mongolia I deduct another 15 % more from the calculated stock price to get a 2007 price target of CAD 7.50 -9.40 for Khan Resources.
Khan is also involved in a legal matter with a former director who has tried to transfer Khan assets, most likely in an unlegal way, from the company. The final outcome of this though is a matter for the courts to decide which could take some time, but I doubt this risk will materialize in anything significantly negative for the Khan Stockholders, even if you may not be 100 % certain of that now. So far the courts have decided in favor of Khan against the former director. 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.
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.