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  • Energy Fuels, 2nd Largest U.S. Uranium Producer, Poised To Move 11 comments
    May 17, 2013 12:47 PM | about stocks: UUUU
    Energy Fuels, (EFR.TO) & (EFRFF.PK) Doubly Leveraged to Rising Uranium Prices

    Thursday, May 16, 2013 · Posted in Uranium, Uranium Companies · by Peter Epstein From

    "Security of Supply," these are not just words when it comes to uranium. Global geopolitics mean that uranium supply could literally be fought over in coming years. Casey Research believes that Russia is making a grab for as much uranium production, processing and down-blending business as it can. Russia is also aggressively going after contracts to build and service nuclear reactors.

    The U.S. is highly vulnerable to uranium supply disruptions from Russia and Kazakhstan. Worse, it should come as no surprise that Putin and his cronies have a lot of influence in Kazakhstan. If the U.S. wants to diversify away from Russia & Kazakhstan it can go to….. Africa! Yes, that's right, Niger and Namibia are fairly big in uranium. Of course, uranium also comes from Canada, but with Canada increasingly supplying China & India, where will the U.S. get its uranium fix?

    The U.S. consumes between 50-55 million lbs of uranium a year in its 104 nuclear reactors. Nuclear energy provides about 20% of the country's electricity. However, the U.S. only produces 4-5 million lbs domestically. The U.S. is far LESS energy independent in uranium than it is in oil. Clearly, the U.S. needs to ramp up domestic uranium production, and soon. Luckily, this is not as daunting as it may sound. The U.S. used to be the largest uranium producer in the world and still has ample reserves.

    Energy Fuels, (EFRFF.PK) & (EFR.TO) is very well positioned to help the U.S. reduce its dangerous dependence on Russia and Kazakhstan. This year the Company will produce about 1.2 million lbs of uranium, equal to about a quarter of total U.S. production. Energy Fuels has permitted, recently-producing mines on standby, as well as numerous attractive development projects, most notably the 30 million lbs Sheep Mountain Project in Wyoming. Therefore, the Company could ramp up annual production to 3 million lbs relatively quickly if market conditions warrant.

    Today's long-term contract price of $57 per lb is not sustainable. Few large-scale projects will come online with that kind of pricing. Areva, Rio Tinto and Cameco have each delayed mega-projects. These projects require long-term pricing of $65-$85 per lb to be economically viable. Like the Big Boys, Energy Fuels likely requires long-term prices to rebound above $65 per lb before it re-starts idled production.

    However, unlike U.S. peers, Energy Fuels is 100% owner of the only permitted and operating conventional uranium mine in the country, the White Mesa Mill in Utah. Therefore, the Company is more leveraged to the inevitable increase in uranium prices than peers. Why? As other conventional mines come back, they will have little choice but to send Energy Fuels their output for toll milling. In the past, White Mesa milled as much as 4 million lbs of uranium in a single year. The mill has nameplate capacity of 8 million lbs.

    Thus, within just a few years, Energy Fuels could be producing and milling up to 3 million lbs of its own uranium and toll milling an additional 3 million lbs through the White Mesa mill. That 6 million lbs would be roughly 10% of U.S. consumption and greater than half of U.S. production. Energy Fuels is already the 2nd leading uranium producer in the U.S. and poised to become an important North American player.

    Dundee Securities, Dahlman Rose and Haywood Securities follow Energy Fuels closely. Dundee and Haywood have price targets of $0.75 and $0.35, respectively. The current stock price is $0.135. Neither Dundee nor Haywood ascribe much value to Energy Fuels' toll milling opportunity. Toll milling is a low-risk, sustainable, long-run business that lowers unit operating costs due to economies of scale.

    BMO, Cantor Fitzgerald, Roth Capital, RBC, Raymond James, CIBC and Global Hunter are also active in the uranium sector, but none cover Energy Fuels at this time. Together, that's ten sell-side shops, up to seven of which could become active followers of the Company in coming months.

    With 71 million lbs of U.S. uranium resources, (a top holder) Energy Fuels is too big to be ignored. With an Enterprise Value of about $100 million and the White Mesa mill arguably worth at least that much to a company like Rio Tinto, Paladin or Cameco, Energy Fuels is trading extraordinarily cheap compared to peer uranium producers. In fact, the Company is even trading cheap to some of the development companies.

    Investors interested in uranium need to look at this May, 2013 Corporate Presentation. On page 10, one can see that peer uranium producers are trading at an average EV / lb of uranium resource of $3.5. Energy Fuels is trading at an EV / lb of uranium resource of $1.44. I think this major gap in valuation will close in coming months. I see a decent shot of Energy Fuels' stock price doubling to $0.27 cents per share once uranium prices start to rebound.

    Disclosure: I am long EFRFF.PK.

    Additional disclosure: I am long Energy Fuels, (EFR.TO) / (EFRFF.PK). This article was written by me, Peter Epstein, for

    Stocks: UUUU
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Comments (11)
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  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » New money is coming into EFR this week. As the article from states, only 3 sell-side research firms are covering Energy Fuels closely. That's in the process of changing. Many uranium stocks have bounced smartly off of 52-week lows. EFR is just now catching up to peers.


    For example, Kivalliq Energy, Cameco, Macusani Yellowcake, Uranium Energy, Uranium Resources, UR-Energy, European Uranium, Uranerz, and Virginia Energy are up 30%-75% from recent lows.


    Energy Fuels owns 16.5% of Virginia Energy, which is up 73% from its 52-week low!


    Casey Research has been very aggressively promoting the Uranium stock story over the past 2 weeks. They do excellent work. They are presenting an online webinar on May 21st where they will be pounding the table on Uranium stocks. Even Rick Rule of Sprott is onto the Uranium bandwagon, he's typically just a precious metals / PGM promoter.


    Jeb Handwerger and Mickey Fulp are also highly optimistic about Uranium stocks for the remainder of the year. All this hype and not even any movement at all in underlying Uranium prices!


    It won't take much of an upward move in the spot price for these Uranium stocks to take another leg up...
    17 May 2013, 12:53 PM Reply Like
  • ClayMontgomery
    , contributor
    Comments (116) | Send Message
    Peter, very interesting post! Do you have any thoughts on the enrichment companies, like USEC?
    18 May 2013, 12:34 PM Reply Like
  • Daniel oaklandpark
    , contributor
    Comments (313) | Send Message
    Peter, Do you know of any nuclear accident clean up companies? I feel like with all these old reactors around the world and the new reactor that are being built more accidents will be occurring. The companies with technology for cleanups should do very well.
    18 May 2013, 12:55 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » Clay,
    sorry, I do not know about the enrichment companies like USEC.
    18 May 2013, 09:13 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » Danielvincer,


    I do not know of nuclear accident clean up companies. I agree, that would be an interesting line of business.
    18 May 2013, 09:14 PM Reply Like
  • jjmc2001
    , contributor
    Comments (1358) | Send Message
    The key to the success of Energy Fuels is their ability to produce and sell at a profit. Have you analyzed the cost of delivered yellowcake and looked at their contracts and key customers. Just curious. I was formerly a banker to this company many years ago when it was owned by one of the pioneers in the US uranium industry. Ownership changed a few times since then and it has never quite lived up to its potential.
    20 May 2013, 03:35 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » jjmc2001,


    The Company has fairly high cost assets, I agree with that. I think $70 uranium prices are need longer-term for a decent biz, $80+ for a thriving biz.


    I think in an $80+ uranium world, the White Mesa Mill is worth a lot.


    I would love to compare notes with you. I speak with Graham Moylan frequently. Graham became CFO of EFR about a year ago. He's a former investment banker himself.


    EFR is pursing acquisitions that can feed the White Mesa Mill, I think they're on to some good assets at good prices, (buyer's market). One of EFR's largest shareholders is KEPCO, with whom they have an active dialogue about strategic initiatives.


    It seems to me that if uranium prices increase a lot, EFR should benefit as much or more than North American peers because it could toll mill third party ores.


    Do you like any other uranium juniors?
    20 May 2013, 06:38 PM Reply Like
  • jjmc2001
    , contributor
    Comments (1358) | Send Message
    I have not followed the uranium miners for several years. I do follow and trade other miners but I am not bullish on US coal right now due primarily to the US political climate and the looming availability of Natural Gas.
    I did listen to your interview with the CFO and I thought you asked all the right questions. I intend to follow that company. I toured that mill many years ago when I was working with the prior owners.
    21 May 2013, 01:27 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » Here's the link: energy-myths.caseyrese... The Casey Research webinar on Uranium will start promptly at 2pm today, May 21st.


    This is going to be a pound-the-table Uranium stock session. Not sure Energy Fuels stock will be mentioned because it's flying under the radar.....for now.
    21 May 2013, 12:37 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » Energy Fuels Signs Letter of Intent to Acquire Strathmore Minerals Creating One of the Largest Uranium Companies in the United States
    Marketwire - Canada
    TORONTO, ONTARIO and VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 24, 2013) - Energy Fuels Inc. (TSX:EFR) ("Energy Fuels") and Strathmore Minerals Corp. (TSX:STM)(OTCQX:STHJF) ("Strathmore") are pleased to announce the signing of a Letter of Intent (the "LOI") pursuant to which Energy Fuels and Strathmore have agreed to pursue a transaction (the "Transaction") whereby Energy Fuels would acquire, by way of a plan of arrangement, all of the issued and outstanding common shares of Strathmore. Under the terms of the LOI, Strathmore shareholders would receive 1.47 common shares of Energy Fuels for each common share of Strathmore held, resulting in the shareholders of Strathmore owning approximately 21% of the issued and outstanding shares of Energy Fuels upon completion of the Transaction. The consideration represents a premium of 31% based on the 20-day volume weighted average prices on the TSX as of May 22, 2013.


    Energy Fuels and Strathmore believe the Transaction will position the newly combined Energy Fuels as the premier pure-play U.S. uranium company, supported by significant current uranium production of 1.175 million lbs. for its current fiscal year, as well as a robust pipeline of development projects. The U.S. remains the largest consumer of uranium globally, yet it is heavily reliant on imported uranium for over 90% of its supply requirements. Energy Fuels is well-positioned as a large, reliable source of uranium supply within the U.S., currently accounting for over 25% of estimated U.S. production.


    Stephen Antony, President and CEO of Energy Fuels commented, "It is rare to find an acquisition that offers the magnitude of synergies that we believe exist between Energy Fuels and Strathmore. I am very excited about the merits of this transaction and the opportunity it represents for the shareholders of both companies. It is consistent with our corporate strategy and significantly strengthens the company's long- term production profile throughout the Four Corners region of the southwest U.S. and in Wyoming. Strathmore is recognized for building a quality portfolio of U.S. uranium projects, and I look forward to working with them and their partners to realize the many synergies and to capitalize on the strengths that are created by this transaction."


    David Miller, Strathmore's CEO continued, "We are excited to enter this transaction with Energy Fuels, which represents a strong fit with Strathmore's asset base and a significant step forward in both the near- term and long-term development of our U.S. uranium portfolio. We evaluated this transaction extensively and believe the synergies between Energy Fuels and Strathmore are substantial. We look forward to the completion of this transaction which we expect will contribute to our shared goal of becoming the dominant uranium producer in the United States, and ultimately create significant value for our shareholders."




    Energy Fuels and Strathmore believe the Transaction will result in significant value creation for the shareholders of both companies through numerous synergies.


    Energy Fuels' White Mesa Mill and Strathmore's Roca Honda Project


    Energy Fuels' White Mesa Uranium Mill (the "White Mesa Mill") is the only operating uranium mill in the U.S., centrally-located to service the Four Corners region, which includes numerous uranium projects in Arizona, New Mexico, Colorado and Utah owned by Energy Fuels, Strathmore, and others. Strathmore's advanced stage Roca Honda uranium project ("Roca Honda") in New Mexico is one of the largest and highest-grade uranium projects in the U.S. with an NI 43-101 compliant resource estimate. The Roca Honda project is held in the Roca Honda Resources LLC Joint Venture, which is owned 60% by Strathmore and 40% by Sumitomo Corporation of Japan. The total resources for Roca Honda are summarized in the table shown below:


    Summary of Roca Honda Mineral ResourcesMeasured & Indicated:Classification Tons Grade % eU3O8 Lbs. eU3O8-----------------... 284,000 0.395 2,247,000Indicated 1,793,000 0.405 14,536,000------------... M&I 2,077,000 0.404 16,783,000Inferred:Cla... Tons Grade % eU3O8 Lbs. eU3O8-----------------... 1,448,000 0.411 11,894,000According to the August 6, 2012 technical report prepared in accordance with NI 43-101 entitled, "Technical Report on the Roca Honda Project, McKinley County, New Mexico, U.S.A.", which also includes a Preliminary Economic Analysis (the "RHR PEA" ), the base case evaluation shows attractive project economics, including a Net Present Value of US$220 million (using an 8% discount rate and $75/lb. uranium price), a nine year mine life, $24/lb. operating cost, and production of 2.6 million lbs. of U3O8 per year. In March 2013, the U.S. Forest Service published a draft Environmental Impact Statement on Roca Honda.


    The recently completed RHR PEA assumed that a new uranium mill would be built in New Mexico to process uranium from Roca Honda. Given that Roca Honda is located within transport distance of the White Mesa Mill, Energy Fuels and Strathmore believe the Transaction will provide the option to process Roca Honda uranium at the White Mesa Mill rather than at a newly constructed mill. This could result in significant savings on development capital expenditures and reduce Roca Honda's permitting timeline and cost. Based upon certain forecasts contained within the RHR PEA, as well as previous experience in conventional ore processing at the White Mesa Mill, Energy Fuels believes there is the potential for Roca Honda to be the largest, and one of the lowest cost, producing mines in the Energy Fuels asset portfolio.


    Energy Fuels and Strathmore caution that the RHR PEA is preliminary in nature and includes inferred resources that are considered to be too speculative geologically for economic consideration that would enable them to be classified as mineral reserves. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that the RHR PEA will be realized.


    To view the figure "Major Projects of the Combined Company in the Four Corners Region," please visit the following link:


    Energy Fuels' Sheep Mountain Project and Strathmore's Contiguous Claims and Gas Hills Project


    Energy Fuels' Sheep Mountain uranium project ("Sheep Mountain") is a large conventional uranium project in Wyoming which Energy Fuels is developing as a stand-alone production center. An April 13, 2012 technical report prepared in accordance with NI 43-101 entitled "Sheep Mountain Uranium Project, Fremont County, Wyoming, U.S.A., Updated Preliminary Feasibility Study" (the "Sheep Mountain PFS") outlined improved economics for the project. Energy Fuels continues its permitting efforts on Sheep Mountain. Strathmore currently owns various mining claims that are contiguous (the "Contiguous Claims") with Sheep Mountain. By combining the claims, it is expected that the design of Sheep Mountain can be modified to take advantage of the additional area provided by the Contiguous Claims, thereby simplifying permitting and design and lowering Sheep Mountain's development capital expenditures and ongoing operating expenses. The Sheep Mountain PFS estimates that the project has 12.9 million tons of Indicated Resource containing 30.2 million lbs. eU3O8 with an average grade of 0.12% eU3O8. Included in the above Sheep Mountain Indicated Resources are 7.4 million tons of Probable Mineral Reserves containing 18.4 million lbs. eU3O8 with an average grade of 0.123% eU3O8. The Sheep Mountain PFS also describes attractive project economics under three separate production scenarios, with Energy Fuels' preferred scenario having a Net Present Value of $201 million (using a 7% discount rate and $65/lb. uranium price), $32.31/lb. operating cost, initial capital expenditures of $109 million, and a production rate of up to 1.5 million lbs. per year for 15 years.


    Strathmore's Gas Hills, Wyoming uranium project ("Gas Hills") is located only 28 miles from Sheep Mountain. Gas Hills is currently being developed by Strathmore pursuant to a phased joint venture agreement with Korea Electric Power Company ("KEPCO"). According to a March 22, 2013 technical report prepared in accordance with NI 43-101entitled "Update of Gas Hills Uranium Project, Fremont and Natrona Counties, Wyoming, USA", Strathmore showed a substantial increase in uranium resource estimates from the previous July 2012 report, including 2,300,000 tons of Indicated Resources containing 5,400,000 lbs. of eU3O8 with an average grade of 0.13% eU3O8. In addition, the technical report estimates that Gas Hills contains 3,900,000 tons of Inferred Resources containing 5,500,000 lbs. of eU3O8 with an average grade of 0.07% eU3O8. Under its joint venture agreement with Strathmore, KEPCO has the option to earn-in up to a 40% interest in Gas Hills by spending US$32 million over three years beginning in 2013. Energy Fuels and Strathmore believe that significant synergies exist between Sheep Mountain and Gas Hills which can be realized through combining the two projects including:


    -- Evaluating opportunities that could result in significant savings on co- development capital expenditures by utilizing a common precipitation, filtering, drying and packaging plant circuit for uranium recovery from each project's heap leach process solutions;-- Targeting a larger combined annual production profile in excess of the 1.5 million pounds U3O8 currently outlined in the Sheep Mountain PFS;-- Applying the Sheep Mountain permitting and design work to accelerate the Gas Hills development timeline;-- Evaluating general and administrative expense savings in areas including payroll, purchasing, environmental compliance, engineering, surveying and geologists, land management and safety; and-- Considering capital cost savings by utilizing common equipment fleets.Finally, Strathmore's Juniper Ridge uranium project ("Juniper Ridge") in Wyoming is located approximately 92 miles from Sheep Mountain. Energy Fuels and Strathmore are currently evaluating the opportunity to potentially develop Juniper Ridge as part of a larger regional project with Sheep Mountain and/or Gas Hills.


    To view the figure "Major Projects of the Combined Company in Wyoming," please visit the following link:


    Expanded Relationship with KEPCO


    KEPCO (NYSE:KEP)(KRX:015760) is the largest electric utility in South Korea, responsible for the generation, transmission and distribution of electricity and the development of electric power projects. KEPCO is responsible for 93% of South Korea's electricity generation. The South Korean government owns a 51% equity interest in KEPCO. KEPCO is understood to be the largest shareholder of both Energy Fuels and Strathmore, owning 9.1% and 11.7% respectively. An affiliate of KEPCO will be Energy Fuels' largest uranium customer during Energy Fuels' Fiscal Year 2013. In addition, KEPCO is Strathmore's partner at Gas Hills. KEPCO has expressed its willingness to enter into a support agreement with both Energy Fuels and Strathmore to, amongst other things, vote their common shares of each company in favour of the Transaction. Based on each company's common shares currently outstanding, following the closing of the Transaction, KEPCO will own 9.6% of Energy Fuels' common shares. In addition, following the closing of the Transaction, Energy Fuels will appoint a director, nominated by KEPCO, to join Energy Fuels' Board of Directors.


    Additional Assets Held by Strathmore


    In addition to the aforementioned Strathmore assets, which Energy Fuels believes are synergistic with its existing portfolio, Strathmore owns a number of other property assets and royalties, which, in the opinion of Energy Fuels and Strathmore, enhance the overall value of the Transaction. These assets include a number of additional uranium properties, as well as the Copper King gold/copper project located in southeastern Wyoming. After closing of the Transaction, Energy Fuels intends to complete a thorough evaluation of these assets to determine how best to enhance shareholder value.


    Transaction Details


    Pursuant to the LOI, the completion of the Transaction is conditional upon a number of items, including, without limitation, the entering into of a definitive agreement, required shareholder approvals, receipt of all necessary regulatory approvals, and other customary conditions. Upon closing of the Transaction, Strathmore will nominate one director to join the Energy Fuels Board of Directors. In addition, other key Strathmore executive team member(s) will be retained on a consulting basis to advise Energy Fuels post- closing. The Management Teams and Boards of Directors of both Energy Fuels and Strathmore have expressed their willingness to enter into support agreements to, amongst other things, vote their common shares owned in favour of the Transaction.


    The LOI contains customary deal support provisions, including a reciprocal expense reimbursement fee of $650,000 payable to the other party if either party does not obtain shareholder approval of the Transaction, as well as a reciprocal break fee of $1,300,000 payable if the Transaction is not completed in certain other circumstances. In addition, the LOI includes customary non-solicitation covenants by Strathmore, as well as the right for Energy Fuels to match any superior proposal that may arise.


    Strathmore's outstanding options and warrants will be adjusted in accordance with their terms such that the number of Energy Fuels shares received upon exercise and the exercise price will reflect the exchange ratio described above.


    The Transaction is expected to be completed in August 2013 or such later date as the parties may agree. A special meeting of the shareholders of Strathmore and, if required, Energy Fuels, to approve the Transaction will each be held at a time yet to be determined.


    Advisers & Counsel


    Haywood Securities Inc. and Dundee Securities Ltd. are acting as financial advisers to Energy Fuels and its board of directors. Borden Ladner Gervais LLP is acting as legal adviser to Energy Fuels.


    Raymond James Ltd. is acting as financial adviser to Strathmore and its board of directors. Blake, Cassels & Graydon LLP is acting as legal adviser to Strathmore.


    Other Strathmore Assets To Be Acquired Separately by Energy Fuels


    Strathmore owns a 5% gross production royalty (the "Royalty") on the Reno Creek in-situ recovery uranium project in Wyoming ("Reno Creek"), which is currently owned by an affiliate of Bayswater Uranium Corporation ("Bayswater"). Reno Creek is an advanced stage project, which recently released a pre-feasibility study in March 2013 which, according to an April 2, 2013 press release issued by Bayswater, is in the process of being amended to incorporate the Royalty.


    As a form of interim funding to Strathmore pending the approval and closing of the Transaction, Energy Fuels has agreed to separately acquire the Royalty from Strathmore in exchange for consideration of CDN $3,000,000 by way of a non-interest bearing, unsecured, convertible, promissory note (the "Note"). The Note shall be repaid in three equal monthly cash installments of $500,000, beginning with the first installment due on June 28, 2013. Following payment of the third installment, the outstanding balance of CDN $1,500,000 is payable on October 31, 2013, either by cash payment or, at the option of Energy Fuels, by the issuance and delivery to Strathmore of the equivalent amount of common shares in the capital of Energy Fuels, based on the previous five day volume weighted average price.


    The technical information in this news release has been prepared in accordance with the Canadian regulatory requirements set out in National Instrument 43-101 and reviewed by Stephen Antony, President and Chief Executive Officer for Energy Fuels Inc. and David Miller, Chief Executive Officer for Strathmore Minerals Corp., both Qualified Persons under National Instrument 43-101.


    About Energy Fuels Inc.


    Energy Fuels Inc. is America's largest conventional uranium producer, supplying approximately 25% of the uranium produced in the U.S., and is also a significant producer of vanadium. The company operates the White Mesa Mill, which is the only conventional uranium mill currently operating in the U.S., capable of processing 2,000 tons per day of uranium ore. Energy Fuels has projects located throughout the Western U.S., including producing mines and mineral properties in various stages of permitting and development.


    Additional information about Energy Fuels Inc. is available by visiting Energy Fuels' website at or under its profile on SEDAR at


    About Strathmore Minerals Corp.


    Strathmore Minerals Corp. is a Canadian based resource company specializing in the strategic acquisition, exploration and development of mineral properties in the United States. Headquartered in Vancouver, British Columbia with a branch administrative office in Kelowna, the company also has U.S. based Development Offices in Riverton, Wyoming and Santa Fe, New Mexico.
    24 May 2013, 09:46 AM Reply Like
  • Peter Epstein
    , contributor
    Comments (1658) | Send Message
    Author’s reply » I've been following Strathmore and several other uranium companies with assets in the U.S. Strathmore owns very significant, "hidden assets." Starthmore owns two royalties that combined could be worth $10 million or more-- (according to corporate slide show on Strathmore).


    One of the royalties is on the Lance Project, a Project owned by Peninsula. Strathmore owns a royalty on a portion of Lance, not the entire Lance project.


    The other hidden asset is a gold project. I think the gold project is worth $10 million or more as well to the right buyer.


    Therefore, Energy Fuels is getting Strathmore's Uranium resources very cheaply in my opinion....
    24 May 2013, 10:09 AM Reply Like
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