Uranium Resources: Insider Selling Presents Buy Opportunity

| About: Uranium Resources, (URRE)

About a week ago I wrote about the dangers of insider selling with Uranium Resources (NASDAQ:URRE) as it moved onto the Nasdaq. As of the most recent filings, insiders have dumped about 100k shares so far this week. After taking another look at URRE, I felt pretty confident that there would be a bit more selling here, and so I put in a bid at $9.20 in the hope that it might get filled. Well, it just so happened to get filled, so I’ve picked up a medium sized holding in URRE at $9.20.

I still have some concerns about their past production shortfall, and the legal status of some of their reserve deposits remain a bit dubious (because of a potential injunction in Texas and the fact that some New Mexico properties are on Native American land), but I felt that the recent 15% pullback from its highs made the stock a very interesting buy at such low levels.

Given the fact that URRE’s selling costs are contracted out, they do not take full advantage of the spot price, but rather, receive a price of half the difference between $50 and the 8 week average of the spot price. Therefore, their average selling price for the first quarter of 2007 should be in the mid $50s. Given that recent production costs have been in the low $40s, the company should return to positive cash flow.

In addition, a recent estimate of URRE’s uranium resources put their total resources at 91 million pounds in New Mexico. However, given URRE’s history with in situ mining, probably about 2/3 of these are recoverable, and URRE is engaged in a joint venture with Itochu to develop much of their New Mexico development.

Therefore, URRE’s net recoverable reserves are probably around 30 million pounds in New Mexico. At present uranium prices, assuming 20 years of mining in New Mexico, the assets are worth just over $1 billion. This is an impressive asset valuation for a company has a market cap of $475 million (at my purchase price of $9.20). If URRE can get production back on track, I believe the market will begin to value its potential asset base more richly, and this recent spate of insider selling has opened up a nice opportunity for profit.

Disclosure: Author is long URRE

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