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In 2011 Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior natural resources analyst to help increase awareness of a number of natural resource companies in which he's invested in. PLEASE FOLLOW ME ON TWITTER: @peterepstein2 Mr. Epstein formed MockingJay, Inc., a... More
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  • Energy Fuels Trading Extraordinarily Cheap After Acquisition Of Strathmore! 4 comments
    May 24, 2013 4:11 PM

    Friday, May 24, 2013 · Posted in Uranium, Uranium Companies · by Peter Epstein

    Recap- Energy Fuels is an established uranium producer. It will produce and mill at its 100%-owned White Mesa Uranium Mill, 1.2 million lbs of uranium this year. That's about 25% of total U.S. production.

    Energy Fuels was trading very cheap to producing peers like Cameco, Uranium One, Paladin and ERA in Australia. EFR was also trading very cheap to non-producing players likeDenison and emerging producers Uranerz, Uranium Resources, (NASDAQ:URRE), UR-Energy andUranium Energy Corp, (NYSEMKT:UEC). EFR has 71 million lbs of 43-101 compliant resources, making it a top holder in the U.S.

    Strathmore Minerals has 55 million lbs of 43-101 compliant resources. It also has an additional 50 mm historical (non-43-101 compliant) lbs of resources. We won't count those historical lbs.

    So, EFR is buying 55 million lbs of uranium resources for $26 million, ($28 million net of $2mm in cash) that's 47 cents per lb. However, Strathmore also owns 2 royalty streams on other uranium projects, one of which is stated in the Company's corporate presentation as being worth $10 million. Assuming that BOTH royalty streams could be monetized for $5 million, EFR is effectively paying $21 million.

    But that doesn't include Strathmore's non-core gold property with a Pre-tax NPV of $160 million. Assuming that gold asset could be monetized for net proceeds of $10 million, (presumably worth more), then EFR is effectively paying $11 million for 55 million lbs of 43-101 compliant uranium resources. That's 20 cents per lb.

    Combined, EFR and STM will own 126 million lbs of 43-101 compliant resources. Pro forma for the acquisition, with EFR currently trading at 17 cents per share, EFR is trading at roughly $1.15 per lb of uranium. That valuation compares to an average of about $2.55 for peers, [URRE, UR-Energy, Uranerz, UEC and Paladin]. Notice that I didn't include Uranium One, Denison or Cameco in the peer group as they trade at much higher valuations.

    Therefore, the new EFR, (pro forma for STM's shares) at 17 cents per share, is trading at a 55% discount to a conservative group of producing / near producing peers. Last but not least, EFR owns the ONLY operating, conventional uranium mill in the U.S. (White Mesa) I believe this mill, with permitted throughput capacity of up to 8 million lbs per year, is worth $100 million. In a stronger uranium market the mill could possibly be spun off into an MLP structure.

    Assuming the mill is worth $50 million, then EFR is trading at just $0.75 per lb of uranium in the ground, a 70% discount to the peer group. I really think that the combined company has the components to be a significant player in North America and a compelling takeout target when uranium prices rebound.

    Disclosure: I am long EFRFF.PK.

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Comments (4)
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  • Danielvincer
    , contributor
    Comments (81) | Send Message
    So do you think this is the beginning of a wave of uranium mergers.
    24 May 2013, 04:29 PM Reply Like
  • Peter Epstein
    , contributor
    Comments (1766) | Send Message
    Author’s reply » I do think there will be more mergers this year and next. Yes. One company that I think is a prime target is Australian-listed Black Range Minerals, ticker (BLR.AX) on YahooFinance.


    It has 90 million lbs of resources in the U.S. However, the absolute key part of the story is that it has a 50/50 JV with a private company that owns a game-changing technology to process uranium at the mine-site, turning the ore into a concentrate that has 10x the uranium in 10% of the volume.


    This technology will unlock smaller uranium deposits as well as deposits that are not quite economic. Operating costs, including shipping uranium ore to a Mill like White Mesa, will come down dramatically using this technology. Therefore, the value of the 50/50 JV could be worth twice the entire value of Black Range Minerals.


    I know this story extremely well because my good friend Alex Molynuex recently bought 20% of Black Range for $2.5 million. He has unbelieveable contacts in the uranium sector. He's highly confident in the prospects here.


    Black Range stock could easily triple by year-end as the game-changing technology is proven this summer.
    25 May 2013, 11:41 AM Reply Like
  • Danielvincer
    , contributor
    Comments (81) | Send Message
    Thanks for the response I will look into black range. I was thinking that DNN (Denison mines) is either going to be acquired or merge with equals to become another major producer in the near future. It seems like DNN management is prudent and understand the industry well. I'm thinking at current prices DNN could be a double within a year and the risk seems rather low
    25 May 2013, 01:25 PM Reply Like
  • Danielvincer
    , contributor
    Comments (81) | Send Message
    One more thing, Since you have many contacts in the mining industry I was wondering what your hearing about the uranium from phosphates projects? Cameco and a few other companies like CF are mining phosphates and cheap uranium is a by product. Do you think this technology or process could be a game changer and render small low grade uranium companies uneconomic? Are you hearing anything like this from your contacts in the Uranium industry?
    25 May 2013, 02:01 PM Reply Like
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