What popular opinion is ignoring is that the nuclear industry is not a luxury that can be dispensed with but a critical necessity.
The great white hope of the general population is the renewables solar and wind. These perennial solutions have been touted since the oil crisis of the 70s. What is shocking when you look at solar and wind is how amazingly little has actually been built. Everyone talks endlessly about these saviors but production rarely happens. There is a very sound reason for this. The more you dig when you investigate wind and solar, the more problems you discover. Humans are strange creatures. They want their energy 24/7 and not just when the wind blows or the sun shines. Go figure!
The nuclear industry is not going away because it is indispensable. There is no ready substitute that can match the sheer size and brute force that a nuclear reactor can command.
The ultimate proof of this is that despite Japan’s nuclear disaster reactors continue to be built. Today there are 443 operational nuclear reactors. An additional 62 are under construction and 156 are in the planning stage. Only Germany appears to be willing to pull the plug with out regard to the consequences. It still intends to close all nine of its reactors by 2022 and rely on the nuclear reactors of France and the Czech Republic to supply them with their energy requirements. How sweet it is!
Today’s 443 active reactors require about 180 million pounds of uranium per year. Global production is 130 million pounds a year. The 50 million pound gap is being made up by a limited fuel reprocessing capacity and Russia, which is dismantling its nuclear warheads under the so-called HUE (highly enriched uranium) Agreement. This program ends in 2013. Russia states it will not renew the program because it is running out of warheads. There is at least a 25 million pound global annual shortage and no mine in the world produces more than 20 million pounds a year.
US nukes alone consume 57 million pounds a year while we produce only 4 million pounds of uranium a year. Half of US annual uranium consumption is being supplied by Russian nuclear warheads.
Kazakhstan is the leading global producer at 27% followed by Canada at 20%. These two leaders account for 47% of the world’s production almost all of Canada’s production comes from the fabulous Athabasca Basin. The richest known uranium ore body on earth.
The price of uranium peaked in July of 2007 at $136 a pound. Today it is selling at $52 a pound. This is a big problem. The industry breakeven point is around $65 a pound. The present is grim but the future s bright. The policy that I follow is to establish an initial position in all the uranium plays that I like but not add to them until uranium breaks through the $65 a pound level.
The largest pure player in the industry is Cameco, which I do not own. I am an unrepentant small cap investor. The stock peaked in 2007 at $56 and now sells at $20 and is currently profitable. Once you leave Cameco, the carnage really begins. The number two in the industry is Denison Mines its 2007 high was $15 and it is now selling at about $1.50. It currently has a market capitalization of $704 million. It is currently producing uranium but at a loss of about a penny a share. If uranium breaks above $65, a pound its profit potential is awesome. Beneath Denison, I own a mix of non-producers that have been mauled by savage price declines but who own huge acreages of uranium mining claims in relation to their capitalization, which has been decimated. They are listed alphabetically with a brief thumbnail sketch.
ESO Uranium- this is a stock whose value has been absolutely pulverized. Its five-year high is $1 and it is currently selling for about 10 cents a share. It has 112 million shares outstanding. This means that the whole company is selling for roughly $11.2 million dollars. The Paterson Lake property is its flagship property in the fabulous Athabasca basin. It owns the mineral rights to 180,000 acres in the basin. If my math is right, the market is valuing each acre of land that it owns at less than $100/acre. It also has additional properties to which I am assigning no value to.
Energy Fuels- the five-year high on this little jewel was $4.94 a share and the five-year low is 9 cents a share. It is currently selling for about 34 cents. It has about 124 million shares outstanding for a total capitalization of about $42 million. It is concentrating its limited resources on building the Pinon Ridge Mill in Colorado. The first uranium and vanadium mill built in the United States in over 30 years. Currently there is only one uranium mill operating in the United States in Utah. Energy has acquired six ex-producers located in Colorado and Utah that can supply the mill with ore.
Fission Energy- the five year high on this stock is a $1.40. It is currently selling for about 85 cents. It has 102 million shares outstanding or a total market capitalization of $89 million. This company has ten projects located in the Athabasca basin and in Quebec. Its Davy lake project alone is 185,000 acres. This is another acreage rich play.
Forum Uranium- the five-year high for this stock is 81 cents and the five-year low 2 cents. It is currently selling at a whopping 9 cents a share. There are 160 million shares outstanding. You could buy out the whole company for a princely $15 million. Forum has 5 projects, which are located in the Athabasca basin and the Thelon basin, Canada’s second rated uranium play. For a stock selling at 9 cents a share, it offers extraordinary value. Its Key Lake Road project alone located in the Athabasca Basin comprises about 223,000 acres and its North Thelon project alone has 607,000 acres.
Now at this point the astute reader unless he has read my book should be questioning why I am so keen on acreage and mining camps or plays and why I never mention ore bodies. After all, if there in no ore then the mining claims are worthless. Not really. Do you have any idea of how many millions of dollars which the juniors don’t have to begin with would have to be spent to be reasonably certain as to whether or not a mining claim like Forum’s Key Lake Road project with its 223,000 acres did or did not have an economic ore body?
Penny mining stocks are not paid to do geological work on their mining claims. However, they should do $200,000-$300,000 if possible every year in geological work to try to prove up their claims. They are paid to assemble land packages in strategic, proven mining camps or mineral plays and to hold on to them until the next turn of the wheel sends all the stocks in the mineral play skyrocketing upwards. All will go up. The market does not discriminate and the junior penny stocks will go up more than the majors. Even if it later turns out that, they have nothing.
If it did not work that way, I would not be wasting my time with penny stocks. The market is only concerned about land packages in strategic locations. And the larger the better. Proving up ore bodies is the job of the majors.
Strathmore Minerals- the five year high on this stock was $5.04 a share and the five-year low was 13 cents a share. It is currently selling for about 45 cents a share. It has 89.9 million shares outstanding. The total market capitalization is about $40 million. To my mind, its 86,700 acres in Wyoming and New Mexico are the finest uranium properties owned by any junior in the continental United States. The market is currently placing an absurd value on Strathmore’s holdings of $460/acre.
UEX Corporation-the five year high for the stock is $9.43 and the five-year low is 36 cents. The current price of the stock is 92 cents a share. There are 203 million shares outstanding and the total capitalization is about $188 million. The share price of this high quality junior was absolutely pulverized. It has 824,000 acres of mining claims in the fabulous Athabasca Basin. Ten of its properties in the basin are joint-ventured with AREVA Resources, which is owned by the French government. There is nothing more positive for a junior than to have senior sponsorship.
Uranium Resources- the five-year high for this stock was $14.99 and the five-year low was 36 cents. The current price for the stock is about $1.00. There are 94 million shares outstanding and the current market capitalization is $95 million. This producer has been in operation since 1977 and has produced 8 million pounds of uranium from its 183,000 acres in Texas. It specializes in what is referred to as in-situ uranium recovery. In this process uranium is leached out of the ground and rises to the surface through a web of pipes.
If you have read this far I think you will agree with me that these stocks have been absolutely pulverized and represent enormous value if uranium can sustain a price above $65 a pound. One final word of warning. If you read my book you know that I am a fanatic on diversification. If you put more than 1% of your investment capital in any of these plays other than Cameco and Denison you are on your own.
Forty Years a Speculator
Fred Carach
Oakland Park, FL 33309
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