Description

   The World Nuclear News reports that Russia has released a plan to site up to forty-two new nuclear reactors by 2020. The World Nuclear Organization states thirty new nuclear plants are under construction and 104 more are “ firmly planned”. China alone has thirty in the advanced stages of planning. South Korea has 20 operating nuclear power plants, eight under construction and last week announced 11 more will be ordered.  Even famed investor Jim Rogers has chimed in on nuclear energy, “….nuclear energy has a spectacular future. There  is a huge amount of nuclear power plants which have to be replaced . No one has been opening uranium  mines for decades. I think uranium is a great place to be.”

     Nuclear energy has had a history reminiscent of a child star. Early on it was the toast of the town with fans worldwide and a bright future.The Anti-Nuclear movement, which was peopled by the anti-war movement radicals of the the 1970’s, along with the Three Mile Island accident,  slowed its growth to a trickle during the 1980’s and 1990’s in the United States. During the past few years the industry has had a renaissance.  Soaring oil prices and   the trending towards “green” energy has brought nuclear energy back to the forefront.  With a huge power to resource ratio and negligible emissions, nuclear power offers a viable solution. Safety has also been  increased exponentially since its early years.  Now the nuclear movement has a 30 year successful track record of nuclear power in all western countries.   Europe in general, and France in particular have gone full speed into the industry and now runs over 70% of the country on uranium. France has been at the forefront of designing more productive, more efficient, and safer plants that are being used as models for upcoming sites.

      A telling sign that the worlds view towards the nuclear industry is changing comes from an unlikely source, Greenpeace cofounder Patrick Moore from an article in the Washington Post.  “  My views have changed, and the rest of the environmental movement needs to update its views, too, because nuclear energy may just be the energy source that can save our planet from another possible disaster, catastrophic climate change.” 

       Uranium is poised for a rebirth, a resurgence unseen since its early years. Stocks within the industry have come back to earth after having boomed from 2004 to 2007.  In 2004 you could have invested in any of the more than 400 choices in this sector.  If you sold before the summer of 2007 you would have reaped spectacular results with any of them, the majority of which had nothing more going for them than the word uranium or nuclear in their name.  Searching thru the wreckage, we feel we have uncovered a deeply undervalued victim of this decline, Strathmore Minerals. An under followed company, Strathmore Minerals offers the three most important ingredients for a winning investment; experienced management, solid fundamentals, and a valuable reserve asset.

       Uranium has been found worldwide  and  in varying environments. Two factors that play into the value of the reserve is the location of the reserves and the political situation. Strathmore benefits in both categories. The bulk of their inventory is located within the borders of the U.S. the world largest uranium producer in the 20^th Century.   Strathmores’ deposits are in the two main uranium districts of New Mexico and Wyoming.

       Historical and potential reserves for the company now stand at about 110 Mm lbs. Of their sixteen sites, Gas Hills and Roca Honda merit mention. Gas Hills, Wyoming has potential reserves of 19 mm lbs and is on a “fast track” towards  start-up of mining operations in 2010-2012. Roca Honda, New Mexico is estimated at 45 mm lbs potential and has been forecast to begin mining in 2013. Both areas are safely ensconsed within the US borders and accessible.

     Both areas over the past decades have been quite prolific, having cumulative production of 340 million pounds of uranium in the Grants District, New Mexico and 100 million pounds of cumulative production in the Gas Hills District of Wyoming.

    The attractive valuation offered by sthjf can be observed by studying a sampling of its peers. The following table should clearly show the estimated costs of buying historical uranium reserves on the floor of the various exchanges, rather than going out and exploring for new finds.

        Stock      symbol    price     outstanding    enterprise value        reserves      ev/pound

                                                        shares              ev

    Cameco             ccj      29.0     344 million                 $9976                  960         $10.39 

    Denison            dnn       5.3      187 million                  $991                   270           $3.67

    Uranium One   sxrzf     3.5      500 million                 $1750                   987           $1.77

    Uranium Res    urre      2.6        60 million                   $156                   112           $1.39       

    UR Energy       urg       1.37     100 million                  $137                     85           $1.61

    Strathmore       sthjf       .71      80 million                    $ 57                    110           $0.52

        With a recent stock price of $0.71, the market cap of sthjf (stm in Canada) is around $57 million. Using a conservative estimate of 110 Mm lbs, investors are acquiring uranium at a ridiculous $0.52 per pound of mineral. This is less than half of the closest advanced junior miner and a fraction of those in production.

          Uranium for long  term contracts has been consistently selling at $85.0   a pound over past several months. Purchasing historical in the ground assets at $0.52 a pound-   less than 1% of its selling price- would seem like a no brainer.

           Over the past eighteen months, Strathmore has entered into six joint ventures on various projects in Wyoming and New Mexico. Probably the most noteworthy was the deal with Sumittomo  of Japan who can earn up to a 40% interest in the Roca  Honda project by spending 40% of the feasibility costs and funding  50+ million dollars in development costs unmatched by Strathmore. It is estimated that all cash commitments for the joint ventures on the six sites total in excess of 100 million dollars!

             The largest institutional holder is Sprott Investments at 19.9%. Cash is about $10 million, no long term debt with approximately 80 million shares outstanding,

       Several recent developments bear note-

      1. Kazakhstan is on the way to becoming the worlds largest uranium producer.  Just how secure is this uranium supply to the western world if we enter a new Cold War?

       2. The Cameco announcement of Cigar Lake dewatering problems is absolutely the biggest news of last week.  Of course released on Friday in the middle of the Olympics, it was lost in all the noise.  Cameco has discontinued dewatering efforts on the largest uranium mine (to be) in the world.  This uranium was sold many years ago at prices likely less than 1/3 of current prices.   Those utilities that bought that uranium are going to be shocked when Cameco announces that the earliest they can have production is now 2013, it was to be producing last year, then with the flood they changed to 2009, then 2011, now,  the next announcement could  be a delay until 2013 or even later. Some Canadian engineers  think they have totally screwed up and contaminated the mine with the high grade ores, in addition to their  huge water problems.   Remember this was to be producing 18 million pounds per year now and for the next 20 years.  It now looks like the market is going to be a few hundred million pounds short! If this turns out to be on the money, then this is big news to the future of uranium prices.

       3.While Obama will accept some nuclear growth in the US,  McCain is strongly pro-nuclear. With the race now tight, a McCain win could mark a major change in the American nuclear outlook. The rest of the world is already almost all pro-nuclear. 

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