In what was nothing short of a terrible year for the uranium industry, the end of 2011 will undoubtedly be marked by sighs of relief from uranium mining and exploration professionals around the world. With the sector beaten and bruised from the fall-out of the nuclear reactor crisis in Japan, is it finally time for a sector recovery?
As early as last summer, many analysts and investors were pondering that very question. David Talbot, an analysts at Dundee Capital Markets, remarked in a research note, “We are starting to hear a buzz in the sector – many investors are starting to realize that many of these stocks are trading well below their net asset values.” Some analysts, including Talbot, are of the opinion that, despite the Fukushima reactor meltdown, longer-term fundamentals haven’t changed for uranium and there will be more demand than supply in two to three years. However, two or three years is not the near-term as some point out. Mining investment advocate Peter Grandich noted on November 14th, 2011, that uranium stocks are “clearly a contrarian play“.
Heading into December, a month that may very well attract some significant tax-loss selling from off-side owners of uranium stocks, we take a look at the once high-flying mining subsector. Are uranium stocks radioactive gifts beneath the Christmas tree or are they just plain radioactive? From biggest to smallest we start with Denison Mines.
1. Denison Mines Corp. (TSX: DML – AMEX: DNN)
One of the few intermediate uranium producers, Denison mines combines production in the U.S. with a diversified development portfolio of projects in North America, Zambia and Mongolia. And for those who like strategic menerals, Denison also produces vanadium as a co-product from some of its mines in Colorado and Utah. The company’s most significant development project is the Phoenix deposit located in the Athabasca Basin in Saskatchewan.
The Athabasca Basin is a region of Northern Saskatchewan and Alberta Canada that is best known as the world’s leading source of high-grade uranium. The region currently supplies about 20% of the world’s uranium. The world’s largest high-grade uranium mine, Cameco’s McArthur River mine, is located in the Basin. The region has been in the headlines recently as Hathor Exploration (TSX: HAT), a junior exploration company with eleven uranium projects in the Basin, was the subject of a bidding war between Cameco (TSX: CCO) and Rio Tinto (LSE: RIO). Rio Tinto recently emerged as the winner paying $4.70 per share valuing the company at $654 million.
How does Denison Mines measure up? On September 30th, 2011 the company announced quarterly earnings of $0.04 per share. With a healthy balance sheet and a strong cash position which attributes 10% of the company’s market value, Denison is currently trading at (CDN) $1.46 for a market cap of $560 million which is right around the company’s net asset value and well below the price paid for Hathor Exploration.
2. Ur-Energy Inc. (TSX: URE – AMEX: URG)
Ur-Energy is a junior mining company focusing on exploration and development of uranium properties in the United States and Canada. On October 24th, 2011 Ur-Energy received the thumbs up from the Wyoming Department of Environmental Quality (WDEQ). WDEQ issued a permit to mine the company’s Lost Creek uranium project. The permit authorizes Ur-Energy to construct and operate the Lost Creek ISR uranium mine facilities, including the first mine unit. Construction on a two-million-pounds-per-year processing facility is scheduled to start in the summer of 2012. However, prior to mine development, Ur-Energy requires approval from the U.S. Bureau of Land Management (BLM) which it is has yet to receive.
Regardless, with the ink still wet on the WDEQ permit, Ur-Energy announced a strategic marketing arrangement with NuCore Energy. Under the agreement, NuCore will provide uranium marketing advisory and professional services with the intention of negotiate uranium off-take sales agreements for the future production derived from the company’s Lost Creek mine.
On September 30th, 2011 Ur-Energy reported $28.8 million in cash and short-term investments and liabilities of just over $2.7 million. The company’s shares are trading at around $1 per share valuing the company at just over $100 million. Dundee analyst David Talbot has a $3.25 price target on the company’s shares.
3. Uracan Resources Ltd. (TSX-V: URC)
Uracan Resources is one of many junior uranium stocks that appear to be down and out. Or is it? In 2007, with uranium prices hitting record highs, Uracan Resources hit highs of over $1.60. Today, in the aftermath of the Japan crisis, the company’s shares are trading at a mere $0.07 valuing the company at $10 million. With net liquid assets north of $5 million (over half the companies market cap) the market is deeply discounting Uracan’s mineral properties which, according to the company’s most recent financial statements, have seen almost $30 million of past exploration and development expenditures.
Uracan is lead by well-know Vancouver mining venture capital professional Gregg Sedun. Mr. Sedun is a former corporate finance lawyer with 28 years of mining industry-related experience and now heads Global Vision Capital. Global Vision Capital develops mining projects and raises expansion capital for those projects from its network of institutional and professional retail investors. Collectively, Gregg Sedun and Global Vision Capital have raised over $1 billion in support of mining venture development; which may provide investors with some comfort that Uracan, although down, may not be out.
MiningFeeds.com recently connected with Mr. Sedun for an exclusive interview – CLICK HERE – to read more.