RE: CanadapostI appreciate more my own posts like :
GEM – Pele Mountain Resources - calculation example for their uranium project only
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 !
Presentation https://pelemountain.com/pdfs/Pele_presentation.pdf
All time high CAD 1.62 as of Jan 2007. CAD 0.88 close April 27.
2007 price target potential CAD 1.02-2.05 with costs 50-65 USD/lb and long term average uranium-price USD 80 .
High stock price leverage of CAD 0.68 for every 10 USD deviation from the expected long term average price USD 80
At this point there are huge uncertainties of how much uranium Pele Mountain Resources will be able to produce per year if and in that case when the Elliot Lake uranium project is permitted, which year full scale mining would commence and what the costs could be including initial capital costs. In any case Pele Mountain Resources has a huge leverage to an increased uranium price which tis calculation will show :.
The management is not especially experienced in uranium mining, but a team of industry experts has been assembled by Scott Wilson RPA to lead the technical, economic and environmental studies. A prefeasibility study probably will be released 2008 or somewhat earlier . A former Mine Superintendent, Manager of Mining, and General Manager with 14 years at Denison Mines, during the time Elliot Lake was a producing mining camp has been hired to provide Pele Mountains engineering and technical advice and will develop, implement, and oversee operational protocols at their Elliot Lake project. He has more than 35 years of mining industry experience.
Pele Mountain Resources has a big NI 43-101 compliant inferred mineral resource of 33 million pounds uranium on their Elliot Lake uranium project in Ontario, Canada. There is an additional potential mineral deposit of some 25-30 million tons with grades as 0.04 to 0.05 % of uranium, corresponding to over 20 million pounds of uranium even if the true resource magnitude is not known at this point. Drilling will be made there to try to upgrade at least some of the inferred mineral resource to the indicated category, and the potential mineral deposit to the inferred category.
The Elliot Lake area produced over 270 million pounds of uranium between 1955 and 1989. Some infrastructure such as power lines and access roads are there. The most effective mining method is not decided yet, and my calculation stipulates that they can reduce costs to a reasonable level. There are rare earth oxides found in the property, and therefore there may be a potential for some cost reducing credits from rare earth element production.
Now look at this simple calculation example:
My assumptions in the calculation are USD 80 long term average uranium price, production 2.5 million pound per year from 2011, a big stock dilution from 80 to 110 million fully diluted shares for capital costs not debt financed for the uranium project, total production costs of USD 50-65 per pound uranium produced (USD 65 was mentioned in the Scott Wilson RPA report using conventional mining methods, but I assume that there is a potential down to USD 50 could be realistic after choosing the most cost effective mining methods and a possible rare earth elements credit ), taxes 35 % , discounting the future stock potential by 25 % per year due to high risk in these juniors, p/e 10 and USD = 1.13 CAD.
Then the Pele Mountain Resources uranium-based 2011 earnings per share would be CAD 2.5(80-(50 to 65))x 0.65 x 1.13/110 = araound CAD 0.25-0.50. An applied p/e-ratio of 10 would result in a GEM 2011 potential to CAD 2.50-5.00 with my assumptions.
Discounted to 2007 with a very high riskadjusted interest rate of 25 % per year that would correspond to a 2007 estimated price target of around CAD 1.02-2.05, thus giving GEM a very fine fundamentally based potential if the production costs will be near the lower end of the USD 50-65 interval. The estimated price target for 2007 is calculated with a yearly 25 % interest rate, very high due to the high risk. The 25 % interest rate corresponds to a total 40 % risk discount compared to a calculation with a 10 % interest rate. It could be interpretated as that the expected value of the 2011 potential 2.5 million pounds uranium production is 40 % lower or just 1.6 million pounds per year in a probabalistic point of view. Therefore the stock price target is cautiously riskadjusted.
Furthermore the price target would increase with another CAD 2.05 for each USD 30 change in the expected average long term uranium price, or CAD 0.68 per USD 10 price change.
Thus due to the high assumed production costs the GEM stock has one of the best leverages to higher uranium price expectations and vice versa, thus making GEM to a very fine uranium price play if you believe in very high long term uranium prices. The market´s long term expectations will soon be indicated on the new uranium futures trading market which starts as of May 7 . If the 2010 uranium futures steadily trades at a uranium price of well over USD 110/lb GEM should clearly be one of big winners. If Pele Mountain Resources a year later, in 2011, can hedge its production long term at USD 110/lb that implies a calculated GEM 2011 potential of CAD 7.50-10 corresponding to a 2007 stock price target of CAD 3.08-4.10, discounted with the 25 % interest rate.
That shows the clearly the extremely high leverage GEM has to an increased uranium price.
On top of this Pele Mountain Resources has many other canadian exploration projects dealing with gold, diamonds and base metals, with some of the projects in form of joint ventures. The total expected value now of all those other projects together is probably significant but is not included at all in this calculation example which is just dealing with the uranium project. All together they could be worth a lot, but to find out that you should take a closer look at all of them, which is beyond the scope of this calculation..
Thus GEM is a speculative high potential/risk stock now, without knowing more of e g the uranium production costs and the annual production rate, and with a not calculated extre potential in the other projects. As a whole I find the risk/reward attractive enough for a speculativ buy.
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...as others like the swedes do
www.loparn.com