GEM - drastically raised target CAD 3.22-4.30
The Rare Earth Oxides credit changes it all !!
STRONG buy ! Increased my position.
GEM – Pele Mountain Resources – maybe the best risk/reward in the whole uranium sector, extremely undervalued and could quadruple
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 !
All time high CAD 1.62 as of Jan 2007. CAD 0.84 close May 1.
2007 price target potential CAD 3.22-4.30 assuming REO net credits covering all uranium production costs
At this point there are big 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 an enormous long term potential with probable cautious assumptions, due to the extremely high revenue potential from the earlier ”forgotten” Rare Earth Oxides (REO) credits in their uranium production, as this calculation will demonstrate.
Even if the management is not especially experienced in uranium mining, 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 . Morover 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 is a big potential for cost reducing credits from rare earth oxides production. A probably very cautious assumption based on the drill results as of the May 1 news release
https://biz.yahoo.com/ccn/070501/200705010387659001.html?.v=1
would be that Pele Mountain Resources has at least 3 times the weight of Rare Earth Oxides compared to the weight of U3O8, with a relative distribution of the REO that indicates that cerium oxide accounts for at least 1.4 times, lanthanum oxide 1.0 times and neodymium oxide 0.5 times the weight of uranium. The rest of the REO were found in small relative quantities. The 2005 REO prices
https://www.indexmundi.com/en/commodities/minerals/rare_earths/rare_earths_t3.html
indicate that total the value REO per pound of uranium of the REO was at least USD 1.4 x 19.2/0.454 + 0.7 x 23/0454 + 0.4 x 28.5/0.454 = around USD 120. My guess is that REO are not cheaper today, since the demand for REO is growing fast. China is the big reason.
Even after very high additional production costs for recovering the REO assumed, this clearly implicates that Pele Mountain would have net REO credits far higher than the total production costs per pound of uranium produced, if my calculations and the interpretation of the information are accurate and with REO prices just near the levels of 2005 ! This is an amazing find and implies that GEM is grossly undervalued now, with the probably finest long term potential of all uranium stocks in Canada with an already classified urananium resource.
Nevertheless I now at this early stadium, cautiously count with uranium production costs of USD 0 after REO credits of around USD 65 per pound far below the calculated USD 120 per pound value, implying very big extra costs for just the additional recovery of the REO.
Now look at this simple calculation example:
My assumptions in the calculation are USD 80 long term average uranium price, production 1.5-2 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 0 per pound uranium produced after REO credits (USD 65 per pound was mentioned in the Scott Wilson RPA report using conventional mining methods, but I assume 65 USD/lb REO credits as derived above ), taxes 35 % , discounting the future stock potential by 25 % per year due to high risk in these juniors, p/e 10 and USD = 1.11 CAD.
Then the Pele Mountain Resources uranium-based 2011 earnings per share would be CAD (1.5 to 2)x (80x 0.65 x 1.11/110 = araound CAD 0.79-1.05. An applied p/e-ratio of 10 would result in a GEM 2011 potential to CAD 7.85 -10.50 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 3.22-4.30, thus giving GEM an extremely fine fundamentally based potential l.
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 1.5-2 million pounds uranium production is 40 % lower or just 0.9-1.2 million pounds per year in a probabalistic point of view. Therefore the stock price target is cautiously riskadjusted.
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 could be significant but is not included at all in this calculation example which is just dealing with the uranium project with its REO. All together the other projects 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 due to the high assumed Rare Earth Oxides credits the GEM stock has an extremely fine long term potential, and is an obvious choise for a uranium stock portfolio, with an excellent risk/reward ratio even, without knowing more of the uranium production schedule and the annual production rate.