CAD 1.46-2.56 (+REO credits+gold,diamond etc)GEM Pele Mountain Resources uppdated calculation
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
https://www.elliotlakestandard.ca/webapp/sitepages/content.asp?contentid=521660&catname=Local+News&classif=News
2007 price target CAD 1.46 - 2.56 plus the net present value per share of REO credits and of the gold, diamond and base metal projects
Pele Mountain Resources main focus is the developing of a world-class mining and processing facility at its 100-percent owned Elliot Lake Uranium Project in Northern Ontario, Canada. At this point there are big uncertainties of how much uranium they will be able to produce per year if and when the Elliot Lake uranium project is permitted, exactly which year full scale mining would commence and what the costs could be including initial capital costs and the possible Rare Earth Oxide credits. In any case Pele Mountain Resources has a very fine long term potential.
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. 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 company also have found much higher grade uranium in the Basal Conglomerate Bed, with the highest grades 0.2- 0.5 %. The BCB is deeper than the Main Conglomerate Bed, were all the earlier findings occurred. There were also distinct Rare Earth Oxide (REO) concentrations. Earlier drill results show that Pele Mountain Resources on the average seems to have somewhere around 4 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 around 1.84 times, lanthanum oxide 0.94 times, neodymium oxide 0.56 times, yttrium oxide 0.192 times, praseodymium 0.184 times, samarium oxide 0.096, europium 0.004 times the weight of uranium etcetera. REO production net credits could compensate for relatively high production costs. However it seems very difficult to estimate the REO prices. Different sources state different price levels but the REO prices are forecasted to increase rapidly.
My guess is that the total uranium resource eventually will be estimated to be somewhere in the range of 40-60 million pounds of low-average grade uranium in the indicated and inferred categories. That gives an indication of the extremely low Pele Mountain Resources valuation in terms of USD/pound uranium in the ground. At 80 million fully diluted shares and CAD 1 stock price it would correspond to only USD 1.2-1.8/pound of uranium. The low valuation could only partly be explained by the higher than average production costs.
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. Pele Mountain Resources will probably use the traditional room and pillar mining method, and a mill to recover the uranium. My calculation stipulates that they can reduce costs to a reasonable level. The rare earth oxides found in the property demonstrate a potential for significant credits from this byproduct. The mining could begin within 3-5 years.
I assume a USD 80 long term average uranium price, production 2-2.5 million pound per year from 2011, a further stock dilution to 100 million fully diluted shares for capital costs not debt financed for the uranium project, taxes 35 %, p/e 10 and USD = 1.1 CAD. Production costs I assume will be reduced to an average of USD 45-55/lb uranium also considering the new higher grade uranium discovery in the BCB.
The 2011 earnings after tax of the uranium project per share then would be CAD (2 to 2.5) x (80-(45 to 55)) x 1.1 x 0.65/100 = CAD 0.358-0.626. Applying a p/e 10 results in a CAD 3.58-6.26 2011 potential.
The 2007 value would be CAD 1.46-2.56, 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 2-2.5 million pounds uranium production is 40 % lower or just 1.2-1.5 million pounds per year in a simplified probabalistic point of view.
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 as of May 2007 Pele Mountain Resources has decided to separate their uranium project from the other parts implying that the true company value most likely will be easier to understand for the stock market. Thus, to get a price target for 2007 you should add the expected net present value per share of REO credits and the value of the gold, diamonds and base metals exploration projects to the calculated CAD 1.46-2.56 .
Anyone with other input data can easily change these figures and do their own, very rough, but simple, and I think useful, calculations.