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
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
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 them...no 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
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
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