Revisiting Stans Energy

February 07, 2011

 

A few months ago we were one of the first to bring Stans Energy to the attention of investors.  Since that time, much has changed with the company gaining the attention of investors and many newsletter writers.  The returns for our readers and others that have purchased shares over the past few months have been tremendous.

Around the world there are not too many ‘shovel ready’ projects where HREEs would constitute a major portion of production.  There are a few past producing mines, two in Africa and one in Kyrgyzstan, which are currently planned to be brought back into production.  Stans Energy was one of our picks due to their past producing mine in Kyrgyzstan which is further along the development process than most other projects around the world.  One cannot stress how important this jump start on the rest of the world’s hopeful producers is; being first allows them to grab the low hanging fruit in regards to supply contracts and financing for the project at attractive terms.  Stans has the best chance to be the world’s first new HREE mine that will offer supply on the open market to the world’s hungry HREE consumers.

Before investing in companies or deciding to highlight them in our articles, we like to come up with projections for what a company is worth if the plans materialize.  In the rare earth space we have a few companies we believe will be those proverbial 10-baggers, and in some cases that has already happened.  Stans Energy is one of these companies, and in our opinion has further room to run. 

Since we began researching Stans Energy, we understood that excitement would push shares up once investors were aware of the potential.  From the beginning we have thought that the company has the potential to be a $1 billion dollar market cap company.  At current prices and share count that would result in a stock price just north of $8/share.  We expect some more dilution to take place which would in fact result in that $8/share price coming down, but there are other factors which could more than make up for that dilution.

It is our opinion that the company will have news coming soon that will give investors a better idea of the upside the project has.  There is a JORC report and a drill core still being evaluated.  Also on the table is Stans picking up some of the monster REE deposits in Russia and developing them with the help of the Russian government.  Many are doubtful of this, but in our conversations with management, it is a very real ‘thing’.  The company wants to be THE largest HREE producer in the world, and in our interview with Stans President & CEO Mr. Robert Mackay back in October he indicated that the MOI was just, “the first step” in their Russian ambitions. 

Lately there have been a lot of attacks on Stans, the one we really question is from Mickey Fulp, also known as “The Mercenary Geologist”.  I have never really been able to figure the man out, but putting that aside I think much of his logic involving Stans is flawed…fatally (I must note that he has picked up coverage of a few companies we have highlighted to investors: Quest Rare Minerals, Mawson Resources, Tasman Metals and Strathmore Minerals…all after our initial stories, but we do agree on these stocks).  Mr. Fulp makes no secret that he is a gun for hire, the mercenary gives that away!  Also the man has a history of going after companies which he is not paid by to promote.

We here at theinvestar.com are not geologists, but rather investors.  What we lack in geological knowledge is more than made up in investing experience.  So let us take a look at what Mr. Fulp believes to be issues regarding Stans:

A lack of junior resource experience

They have a team that is politically connected, which Mr. Fulp acknowledges.  That goes a long way, especially in this part of the world.  Also the company has all the people who used to work in the country now working or consulting for them.  If they did not have the people on the ground, one could worry but they have a lot of knowledge in the country right now working for, or ready to work for, the company.

Share Structure

This is potentially our favorite of his “musings” in this article.  Mr. Fulp claims he could not find the company’s share structure on the website and he fears that the company wants “to stay quiet on the subject,” because they have 132 million shares outstanding.  I really hope Mr. Fulp’s ability to find rocks exceeds his ability to find readily available information on the web, if not some serious questions need to be asked.  The link to see their share structure is here: http://www.stansenergy.com/more/investors/.  Nothing is trying to be hidden, and although the numbers are off by a little from Mr. Fulp’s figures (less than 1 million to be sure) this is probably a timing issue and a lot closer than many junior resource companies can claim when it comes to their websites and actual figures.  Further the management team has all their shares locked up in a lockbox which the shares cannot be sold out of for a few more years.

 

Geopolitical Risk

This is a serious interest for investors, and the company does address it.  They send out emails updating investors and kept them updated during the recent voting.  It looks risky to many, but remember that Centerra Gold, Cameco’s spun-out gold subsidiary, operates there and has for many years, and quite successfully it must be noted.

 Corporate Powerpoint Missing

Once again, poor information prospecting/mining skills in this “musing”.  I see a trend developing, but in all fairness it is on the same page Mr. Fulp previously overlooked.  The corporate Powerpoint presentation from November 2010 is located here: http://www.stansenergy.com/more/investors/.

The HREE Plant

It takes time to do due diligence and other work before making a purchase.  The agreement is signed and the company has begun its proper due diligence.  These things do not happen overnight as everyone who follows the junior industry knows, so this is not something that is a problem at this point.

Resource Estimates

The company decided to get a JORC over a NI 43-101 and our guess is that this is due to the fact they are in Asia.  There are companies that trade in Canada and get JORC reports done.  His problem I guess is with the fact they are based in Canada.  When in Rome do as the Romans, when in Asia, get a JORC.  The company is disappointed with the length of time it has taken, but the resource estimate should be one of the most accurate as much time was spent taking spaced samples from the mine walls and the resampling of the adit.  The company did release a data set, which Mr. Fulp acknowledged was quite detailed, that essentially confirms the historical numbers.

Recent Press Releases

Most of this is tough to address as these are the questions everyone is waiting on.  These are the questions I suspect will be answered very shortly, within weeks.  As there is no JORC to work from, I have not been able to use the data to develop a revenue model, but to call 0.07% “little more than a geochemical anomaly,” as Mr. Fulp stated misses the point.  There are uranium mines that work with less than that, it all depends on the total size of the deposit, what you are mining and most importantly the metallurgy.  Historic recovery rates will only increase with modern technology, so what Mr. Fulp points out is simply a base case.  

We agree that the rare earth elements are there, but what is left out of Mr, Fulp’s analysis is the by-product that is associated with the project.  The near-surface mineralization has rich mineralization of base metals which adds to potential revenues.  All of these points in the press release musing section of his report really need to be addressed at a later date.  However, if you are investing in REEs one needs to look at the opportunities where production could be soon, rather than moose pasture like some of the most recent stocks he recommends over Stans Energy.

Who knows why this article was put out by Mr. Fulp, but one has to suspect Stans rebuffed a request to be their mercenary, or worse he was paid by someone else to be an attack dog.  It really appears to be a case of sour grapes, and sour grapes are not to be invested on.  In the past we have been burned by certain managements of companies not paying bills for banner advertising, yet refrained from the bashing as all boats rise with a rising tide.  Mr. Fulp also recently put out an article regarding Ucore Rare Metals.  Since that article Ucore has been up, dramatically too.  If you believe in rare earths you want to be in those companies with strategic advantages, because investors and geologists alone are not going to be the ones picking the winners in this industry; end-users will play a major role.  Investors get this, geologists don’t.