Sunday, March 18, 2007

9th Uranium Stocks Pick: Energy Fuels (TSE:EFR)

Energy Fuels Inc. (TSE:EFR) is a Canadian-based uranium exploration and development company that is trying to capitalize on the uranium price escalation (latest spot price $91US/lb) by putting into production several old mines recently acquired in the United States.


Energy Fuels acquired the Whirlwind properties located in Utah and Colorado several months ago. The key in the acquisition is its uranium and vanadium Whirlwind mine. A January 2007 NI 43-101 compliant technical report of the mine disclosed current Indicated resource of 657,000 lbs of uranium oxide and 2.17 million lbs of vanadium oxide based on 69 drill holes while recommending further drilling to be done; the company has contracted another 19,500 feet of drilling to be finished in 2007 on its Whirlwind claims in hopes of finding additional deposits.

In order to put the Whirlwind mine into production and graduate from production visibility to the select group of producers, the company needs to meet certain goals, including steps to rehabilitate the mine (expected to start Q2 2007 lasting 6 months with expected CapEx <$1 million), negotiating a tolling arrangement, preparing a pre-feasibility study, and obtaining full approval of the expansion of its existing permit. If everything goes as planned, Energy Fuels plans to reopen the Whirlwind Mine by late 2007, with processing scheduled a year later once stockpiles have been gathered to adequate levels.

Energy Queen
Located in Utah, Energy Fuels is planning to bring this existing mine into production with a $2 million US mine rehabilitation program that, although the company has a mining permit in place, will require a dewatering permit. Stockpiling of material is optimistically projected to be in mid-2007.

Tenderfoot Mesa
These claims include two past-producing uranium mines called Sapphire and Torbyn located in the Uravan Mineral Belt; the latter mine was reopened in Q4 2006 with some minor rehabilitation. Again, material could be stockpiled as early as mid-2007, with the company expected to drill another 21,500 this year to further delineate these claims.

Energy Fuels is run by very experienced people, most of whom were part of its predecessor company, Energy Fuels Nuclear Inc.. Indeed, the current President and CEO of uranium behemoth Cameco Corporation, Gerald Grandey, held the same positions at Energy Fuels Nuclear and its former VP Marketing and Corporate Counsel, George Glasier is Energy Fuels’ current president and CEO; the former VP Exploration, Chief Geologist, Mill Manager, Mine Superintendent and General Mine Superintendent of the predecessor company—which was the largest uranium producer in the United States in the 1980s—have since returned to upgraded roles in this new incarnation.

Stock and Future Developments
After more than tripling in just a month from the middle of October to November 2006, Energy Fuels’ stock has spent the next four months consolidating its gains and making a solid base to prepare for another run. The company had been hampered by tardiness in filing its most recent financial statements, which it has since remedied. Furthermore, its stock will likely be buoyed by approval to start trading on the bigger Toronto Stock Exchange on March 19th, with a spade of announcements expected in 2007 in regards to drilling results, permitting, and updates on mine re-openings.

With $28 million in the bank (as of Jan 7, 2007) and no debt outstanding, Energy Fuels seems poised to capitalize both as a uranium junior with production visibility and as a potential takeover candidate for one of the emerging uranium seniors, given its mines are within striking distance of Denison’s White Mesa Mill and also sxr Uranium One’s Shootaring Mill—although the company might in the end decide to build their own. Certainly, with the vast amount of work still needed to be done, Energy Fuels has perhaps an overly ambitious timeline to production, but still represents a solid uranium stock that has real assets to work with and should be in production when uranium prices are expected to peak in 2008-2009.


Sunday, March 11, 2007

Another Uranium Mine Flooding: Spot Price Jumps to $90US/lb

We are coming up onto a crossroads two weeks post-global correction that started February 27. The resource stock-laden Canadian TSX Venture Index dropped from 3,274 to 2,955 at closing March 5, a haircut of almost 10%. Since then, it has climbed back up to 3,127 and is looking for direction: will it rise and try to break through a double top (May 2006 being the other peak) or further correct downwards after last week's bounce?

Since the bulk of North American uranium stocks are listed on the TSXV and generally move more or less in lock and step with the exchange, overall sentiment should be gauged. However, if one is relatively assured that the correction is mostly over and done with, there seems to nothing that can obstruct uranium stocks from buoying higher.

This is because the uranium fundamental story that concretized in many investors' minds after Cameco's announcement of its Cigar Lake mine flooding back in October 2006 will now be buttressed by news of another unforseen flooding: the Ranger Mine of Energy Resources of Australia Ltd. (ERA). On March 7, ERA sent out a press release describing the aftermath of cyclone George on its uranium mining operation. First, a force majeure was declared by ERA on its sales contracts as a result of the flooding. Second and more importantly, its first quarter production is estimated to be between 20-30% lower than last year, with second quarter impact still yet to be assessed. James Finch of penned an article suggesting that the impact of the Ranger mine flooding could be the reduction of 4% of 2006 worldwide uranium production, a figure that simply cannot be made up by new production this year.

Indeed, Tradetech's March 9th report raised the uranium spot price from $85 to $90US/lb in part due to ERA's surprise announcement. It seems that the psychological $100/lb of uranium oxide will be broken sooner than expected, although analysts have already been revising their uranium estimates upwards.

Thus, as long as the broader markets remain stable, uranium stocks, especially newly-minted and near-term producers with unhedged uranium sales contracts will likely see short-term appreciation: this list includes sxr Uranium One and Urasia Energy, two uranium juniors who will merge together shortly, as well as Paladin Resources and Denison Mines; Denison, itself a recently-merged company from International Uranium Corporation and Denison Mines, is in the process of applying for an AMEX listing in hopes of attracting some of the nascent American investor interest in uranium stocks.

Tuesday, March 06, 2007

Broad Market Correction: Safe to Buy Uranium Stocks Yet?

The rapidity of last week's events caught many investors off guard, with the precipitate being China's Shanghai Composite Index falling nearly 9%; the reason for decline, I might mention, was the government's fear of rampant market speculation, and not attributed to fears of China's economy slowing down. Indeed, one of the influential bulls of our investing world, CIBC's Jeffrey Rubin, noted that where China's economy has grown on average 9-10%/year, its stock market actually declined significantly in the years before this and last, so the correlation is certainly not strong between stock market trends and overall economic outlook in the East.

Rumors of a slowing Asian economy, US sub-prime collapse, or unwinding of the Japanese carry trade notwithstanding, markets found any and every excuse to correct downwards. However, it is important to stress, as I had before during the mini January correction, that uranium fundamentals have not changed. Whether it is commodities guru Patricia Mohr of Scotiabank (at least $90, headed to $100 end of 2007), CEOs Phillip Shirvington and Neil Froneman (>$100) of soon-to-be merging uranium mid-tiers Urasia Energy (UAEYF.PK) and sxr Uranium One (SXRFF.PK) or Australian Bureau of Agricultural and Resources Economics ABARE ($94.20 average this year, $103 average 2008), forecasts for yellowcake have only been revised upwards.

The extra haircut that uranium stocks experienced was NOT because of an annoucement from Cameco, theoretically, stating that its flooded Cigar Lake mine would be coming back online soon, but more likely was becuase uranium stocks were extremely overbought and desperately NEEDED the correction. Too many speculators, too much froth. A chart of Energy Metals below typifies the technicals of many many uranium stocks lately that scream for a much needed correction.

Judging by the double-digit rebound in uranium stocks today, coupled with my view that nothing in the broader macroeconomic world or in the uranium world convinces me something is fundamentally different now than a week ago, I venture to say that the worst is over. Not to say there will not be more correcting now and, certainly, sharp, short corrections will be present in the future, but the risk-reward balance seems to have shifted sufficiently for many uranium investors to have regained confidence already.