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What MORE Could You Want?
Tuesday, January 23, 2007

As the uranium bull market plows ahead, we are having more and more trouble finding the best companies to invest in. The pickings were good early on, but now it seems that reality has set in and we must do 5x more research in order to be sure that a company is investable, not to mention discover 10 junk companies to each keeper. We expect our recommendation of new companies to dwindle from here on out, but we shall keep to our guns and stick with what we know (our current picks) and hopefully diversify into new companies.

As you may have grown accustomed to, we from time to time point out some of our picks we feel are undervalued (as we have done numerous times with Pitchstone, SXR, URE, and Oilsands Quest). This may seem boring, yet look at each of those calls and notice that there was plenty of money made on each one! So today we present to you what we believe to be ‘The Most Undervalued Uranium Stock.’

Investors meet Strathmore Minerals, a company we have highlighted recently in an interview with David Miller, the company's President and COO. You may laugh at our pronouncing this ‘The Most Undervalued Uranium Stock’ however you would be terribly wrong if you thought otherwise. To our knowledge there is not a single uranium company out there with reserve ratios that can rival Strathmore. Based on our calculations the company has roughly 223.8 million lbs. of uranium reserves. This is impressive and right away puts Strathmore into an elite group within the uranium sector: The Reserve Holders. Now with 70,165,964 total shares outstanding at this time, Strathmore shareholders enjoy (I use this very lightly as I will explain why shortly) a valuation sported by...count other shareholders! Each share of Strathmore currently entitles the owner to roughly 3.2 pounds of uranium. Owning shares of Strathmore is something between a dream come true and a nightmare. Some might say it is a valuation trap, but we believe otherwise. Soon investors will realize the hidden potential within Strathmore, and the smart investors will move from uranium metal funds into Strathmore because it is valued much lower and offers exponential returns.

Last we checked the uranium metal tracking fund in Toronto was trading at a 30% premium to its Net Asset Value, and its only assets are the lbs. of uranium that it possess to back its shares up! Strathmore shares finished at C$3.29 which values their reserves at a paltry C$1.03, which can be converted to American Dollars at about $0.93! So, in short each pound of uranium which is trading at $72 is currently valued at $0.93 in Strathmore stock. Attention Wal-Mart shoppers, we have a sale on Strathmore Minerals stock at unbelievable discounts!!!!!!

Now all that may seem as though we are blowing hot air, because they do not have a mine in place to extract the minerals, but they are getting close. Also of important note, the company has cheaply extractable reserves in New Mexico which will cost them around $14 to mine at some large deposits. That would leave Strathmore with profits of nearly $58 of operating profit per lb. of uranium mined at this deposit, and investors are telling us this uranium is worth a mere C$1, it is laughable and an insult that I cannot even sell a share if I wanted to for an American Dollar!

Why the undervaluation you ask? Simple, most junior mining stocks eventually become pump-and-dumpers. Investors feel that they need to get in and out of mining stocks so as not to be the one left holding the bag, so they look for stocks with news flow. Sadly this usually means that investors are going to invest in companies who are going to be drilling for uranium, and should that company hit something...well the investor sticks with the shares. However, Strathmore is special. They really have not taken any exploration drilling underway on their big projects as they have historical deposits with the drill logs/core logs to go along with them. Other companies have felt the need to drill out their historical reserves to make sure that they are really there because their projects do not possess the pedigree Strathmore's do. Strathmore is lucky enough to possess the projects formerly owned by Kerr McGee, and they were even luckier to grab the historical data to go along with the projects. So the lack of a need to drill out their properties has caused a lack of following among investors for Strathmore. It very well could be the first and last hidden gem discovered in our very own portfolio.

Sprott Asset Management owns nearly 20% of the shares outstanding with Strathmore Minerals management owning another 10%. Add this with the fact that the company's shares trade at a low multiple in respect to its uranium holdings (lbs. in the ground) as well as in respect to its peers, and there is the potential for a blast off that could mirror that of Forsys Metals, if not leave it in the dust! Forsys lagged behind the rest of the uranium pack for a while (as Strathmore has done over the past few months) but when investors warmed to it, the stock shot off and to this point still has not looked back.

At this time we are going to double our holdings in Strathmore Minerals (STM.V) at C$3.29 as we think the risk reward scenario is very enticing. We also think that this stock has less room to fall in a downturn in respect to its peers, but all the room to move upward when compared to the same companies.

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