Virginia Energy Resources Inc V.VAE

Recommendation

[iceman28]

Our next speculation is solely political. Conventional wisdom would have us not speculate on political outcomes, but while these types of speculations carry big risk, they also carry a much greater reward that outweighs the risk. How do you reduce the risk? You speculate on good management teams and you speculate with a smaller allocation of risk capital. In addition, the political outcome is not a 100% driver of price appreciation. Underlying commodity price appreciation can still take a political speculation that goes nowhere and still make it a profitable venture in the end. Virginia Energy Resources (TSXV:VUI) needs the state of Virginia to allow uranium mining. Another option is to have the federal government override the state and allow uranium mining under strategic asset interests to the U.S. government. Either way, aside from a resolution actually happening, the company’s share price will still appreciate in a uranium bull market solely off the speculation and resource price appreciation. Obviously, there is even more explosive upside if the company is allowed to develop a mine and commence operations. Virginia Energy controls the Coles Hill uranium deposit in southern Virginia. Coles Hill is the largest undeveloped uranium deposit in the U.S. Management influence and insiders include Energy Fuels, Walter Coles, and the Sprott Group. Mr. Coles spent most of his career working for the U.S. Department of State. His expertise is in political matters related to land reform and privatization. Mr. Coles and Virginia Energy’s subsidiaries own the land and mineral rights. Other management include past successful uranium expertise, including operations and geology. Further expertise from the Sprott group and Energy Fuels is welcomed value for Virginia Energy. August 2013 was last revised Preliminary Economic Assessment (PEA) for Coles Hill, which had a scenario price for uranium of $64/lb. Of course, at that time, it made sense to have such a price near prevailing market prices. A simple analysis of the PEA shows that the project can still be economic at lower prices, but it really isn’t relevant to the situation today. The capital expenditure for the project is also very attractive at the last visited price of $147 million. But the real value is in the steeply discounted price of the shares. Literally, the company is priced like it will never succeed in getting a mine built. That is the speculation. However, the company’s share price moves with the price of uranium. Again, Virginia Energy can be a safe speculation when the position is applied correctly. We like the optionality and the forces behind this speculation.