Seeking Alpha
Profile| Send Message|
( followers)  
I was in Corpus Christi for the 2007 Global Uranium Symposium recently. I had a good talk with a bunch of executives from Uranium Energy (URME.OB), including President and Chief Executive Officer Amir Adnani, and Chief Operating Officer Harry Anthony. I also made a site visit to the company’s Goliad operation, where I got the tour from Michael O’Leary, the company’s senior geologist.

Five drilling rigs worked the site as we walked around. When ground conditions are right, those rigs can drill 800 feet per day. To be fair, when the ground conditions are wrong, those drills grind much slower. But the point is, the company is using the information from the hundreds and hundreds of holes it has drilled to come up with a new resource estimate.

The new estimate will probably confirm the 5.2 million pounds the company previously estimated it had earlier, and all the new info will likely result in a resource that is better than the “inferred” category. The company may be sitting on as much as 15 million pounds of uranium at Goliad, but that remains to be seen.

Lets stick with 5.2 million pounds. On average, a typical ISR operation will recover at least 75% of that, but Uranium Energy recently announced extraction efficiency of 86% to 89%. Mr. Anthony said he expected the project’s Capex to be around $18 million and operating costs would run in the neighborhood of $25 per pound. The company also pays a royalty on the uranium it mines. The royalty is variable, but we can figure that at around 6.5%. So, that’s about $382 million worth of uranium at the Goliad site alone at current prices, and there’s no telling where the price will be in 2009 when the company expects to start production. But I expect the price of the metal will be much higher down the road, just as I expect Uranium Energy will likely triple its known resource at Goliad.

The company has other projects as well, including 15 past producing uranium/vanadium mines on the Colorado Plateau, and four projects in New Mexico. The New Mexico projects alone have a historic resource of another 12.7 million pounds. Plus the company has a huge database of former projects that used to belong to big miners during the last uranium boom. I expect the company to start developing the choicest properties in that database, which adds a tremendous amount of value to the company all on its own.

The company also has a deep bench of experienced uranium geologists and mine engineers. If you've talked to uranium miners recently, you know the pool of talented individuals in this field is very limited -- you might say they're worth their weight in uranium. In fact, I know at least one other uranium explorer that has outsourced some work to Uranium Energy. Having a deep bench of experienced people -- people who know how to take a project from resource to mine -- can be the difference between being a successful uranium miner and being a company that just owns a lot of interesting real estate. I have no doubt that Uranium Energy has the team to bring its Goliad operation online as expected.

Going forward: Uranium Energy has a pending listing on the American Stock Exchange. That should open it up to investors and big funds who shun the OTCBB stocks. It will release independently verified 43-101 compliant resource estimates on its Texas and New Mexico projects. It should be submitting its mine permit for Goliad in three months, and production is expected to start in 2009. And yet the company has a market cap of just $174 million. That means you can buy the known resource of a potential near-term producer for about 45 cents on the dollar.

Considering how the price of uranium keeps rising, that sounds dirt-cheap to me. The stock has come down to price support -- it's a good place for an entry.

Disclosure: Sean Brodrick, an analyst for Weiss Research in Jupiter Florida, has recommended a “long” position on Uranium Energy (URME) in his “Small Uranium Wonders” portfolio.

URME 1-yr chart

URME

Source: Uranium Energy: This Near-Term Producer Looks Dirt Cheap