On Monday morning I decided to add three new holdings to my portfolio. Readers know that I have been sounding the inflation alarm for the last few weeks, and my new purchases reflect a desire to hedge against inflation, especially with the PPI due on Friday. My reasoning for each new buy is below.
SXR Uranium One (SXRFF.PK) – I decided to add SXR Uranium One to the portfolio yesterday after reading (via Paladin’s most recent press release) that the uranium price had jumped to $113/lb, the largest one-week increase since the data began to be reported almost 40 years ago. I have followed SXR only a bit in previous articles, but they have recently brought online a large new uranium project in South Africa. In addition, they have just managed to acquire UrAsia at what appears to me to be a fairly reasonable price. The combined company will has 50 million pounds of uranium reserves and expects to produce 7 million pounds per year by 2011. In addition, SXR also has exposure to rising gold prices through their majority owned subsidiary Aflease Gold, which has about 4 million ounces of gold in the ground. My purchase price was $15.74, and the holding is of a medium size for my portfolio.
SXRFF 1-mo chart
Vaalco Energy (NYSE:EGY) – I have been following Vaalco for quite some time, and read through their Annual Report in a fairly detailed manner a few weeks ago. I had the stock on my ticker screen in anticipation of a move higher, and yesterday’s action caught my attention as the stock finally showed some life. After I made the purchase, I came to find out that the move is probably Cramer induced, as he recommended the stock over the weekend. However, the stock has managed to hold its gains so far, and my reasoning for buying here doesn’t have a lot to do with Cramer.
Vaalco has gotten killed lately on the fact that they have not been able to replace their reserves over the last few quarters, and production has begun to decline. However, the stock has now been crushed back to a PE under 8, so it is clear that there is a fair bit of pessimism here. Nevertheless, the company has a huge cash pot and some solid exploration opportunities in West Africa. The company is still generating a solid amount of money, and that gives them both time and the resources to expand their reserves over the next 2 years. Moreover, oil prices appear to be ready to attack the $70 mark again with the summer looming, and the stock is still priced as if oil were trading in the 50s. I think that there is a strong probability of the stock ramping up to $6, with the potential to move higher if new reserves can be found. I bought a position at $5.24.
EGY 1-yr chart
Northwestern Mineral Ventures (OTC:NWTMF) – I replaced Uranium Energy (URME.OB) with this speculative uranium play because I believe they have some interesting prospects in Niger. Niger is the world’s third largest uranium producer (as well as the world’s poorest country), and the government has granted Northwestern Minerals two grants to explore for uranium. The company has confirmed that some uranium mineralization has been found above ground on the sites, and they expect to begin drilling at some point in April in Niger.
Northwestern also has some interests in uranium projects in Canada, both in Quebec and the prolific Athabasca basin area. The company had about $16 million in cash at hand as of Sept. 2006, so raising capital through dilution may be necessary in 2007, but the need for financing is not imminent. With no revenues or confirmed reserves as of yet, this is obviously a very speculative play, but with a market cap of about $80 million, the company appears to be cheaper than many other speculative plays in the uranium sector. I bought a small position at $0.79.
NWTMF 1-yr chart