Next up in my ongoing focus in the uranium market is a look at what are the best tiny uranium stocks - "tiny" being defined as stocks with a market capitalization of under $200 million. These stocks, by virtue of their market capitalization alone, have enormous upside potential. In fact, some of them that were around for the uranium bubble in 2007 traded at more than 10X their current price back then. If we have another uranium bubble coming our way, something I recently discussed as being well within the realm of possibility - and something that, in light of articles like this one, may be on the way - the stage is being set for these stocks to provide investors with massive returns.
Of course, it should be noted that the downside volatility can be extreme here as well; most of the tiny uranium stocks have a market beta greater than 3, which means they are more than 3X as volatile as the market as a whole. So, if you're playing these, I think it is especially important to understand the risk involved and to use this volatility to your advantage by leaving some cash ready for when there are sharp sell-offs. Personally, I like to have cash on hand for when there are broad market sell-offs that feel like panic selling; high beta stocks usually fall even more in such environments, and thus can constitute prime buying opportunities.
With that introduction out of the way, let's drill down and take a closer look at three tiny uranium stocks I've currently got on my radar: UR-Energy (NYSEMKT:URG), Uranium Resources (URRE), Strathmore Minerals (OTC:STHJF), U308 (OTC:UTREF), and Crosshair Energy (CXZ).
URG gets some notability for having a market capitalization over $100 million, a share price over $1, and a beta of 2.21. These numbers suggest the stock is very small and still has great upside potential, but perhaps not prime territory for the gamblers looking for penny stocks. For those who want to stay away from stocks whose numbers make them targets for excessive speculation, that's a bit comforting.
Ur-Energy is another ISR-focused company operating primarily in Wyoming - much like Uranerz, which I previously covered. Personally, I like Uranerz more and will be investing there (mainly because it has a strong relationship with industry incumbent Cameco (NYSE:CCJ) ), but for those who want to invest in a smaller company that conceivably has an even greater upside, I think Ur-Energy has something to offer. The firm is well-capitalized and has completed all the headaches of permitting for a few of its projects; production is slated to start in 2013.
A healthy balance sheet is always especially important for a young, pre-production company like Ur-Energy - it needs to have enough cash to get it to production. And I don't think that will be a problem for Ur-Energy; the firm has nearly 29 million in cash and no debt as of its latest available financial statement, and its current price/book ratio is sitting right at 2. For a company that has promising projects near production, I think that's very favorable.
The firm just completed a private placement where shares were sold for $1 CAD; it's currently trading at around $1.30. I think this is still a good price for those interested, but as is generally the case in our very volatile markets, I think having some cash ready for when big sell-offs inevitably occur - whenever they may be - is prudent.
I like Ur-Energy, but ultimately this is one I'll pass on. I'm not 100% sold on their management team (I think there may be better ones out there) and I would prefer to see stronger connections to industry incumbents, big nuclear power reactors, or some type of major investor I believe will help drive the price up. That is not meant to be a harsh criticism of Ur-Energy, as ultimately I suspect the company can bring a product to market at favorable prices and yield their shareholders great returns in what I believe is a fantastic bull market well underway in uranium, but investors are fortunate to have the opportunity to easily invest in a number of quality uranium companies - and so from that perspective I think there are some opportunities out there that are better than Ur-Energy for investors that wish to be more selective.
Uranium Resources is one I previously covered. I don't have much to add, but wish to re-iterate the point I previously made, which is that this is a very volatile stock even by uranium standards, which tends to be an especially volatile market as a whole. The beauty of volatility is that it offers potential for huge returns, but of course by that same measure, it offers potential for huge losses as well. The stock is up over 51% this year thus far, outperforming almost everyone except Uranerz (who is up over 52%). But, URRE has the higher beta, which illustrates the volatility investors face. Personally, this is too speculative for me, as I like the fundamentals of others more and as a general rule of thumb, the more an asset requires me to stomach volatility, the more convinced I must be of its superiority relative to other options.
And on those grounds, URRE is a pass for me - at least until there is a massive sell-off and the volatility to the down side creates an irresistable buying opportunity. But if you have the tolerance for volatility and want to incorporate it as part of an aggressive strategy in the uranium sector as a whole, perhaps it is for you. I have little doubt that some folks are going to get quite wealthy off Uranium Resources and stocks like it in this sector.
There's a lot to like about Strathmore. First, the firm has about $20 million in working capital (according to its February investor presentation) and its Q3 2011 financial statement shows a book value of over $53 million; it's current market cap is less than 70% of that. I love to see quality stocks trading at below book value.
The firm recently enlisted Korea Electric Power (KEPCO) as a shareholder, taking a stake of about 14% in the company. Korea is one of the major players in the nuclear movement, as the World Nuclear Association reports, South Korea plans to increase its nuclear power capacity by 56%, and meet 59% of its electricity needs via nuclear power, by 2030. In other words, Korea is committed to nuclear power. To see Strathmore have a strong partner like Korea Power as a shareholder signals a valuable connection that plugs the company into an emerging value network - all of which translates to a higher share price for shareholders.
According to the recent investor presentation, KEPCO bought its stake at $0.55 Canadian per share (the Canadian dollar and US dollar are near parity at this point). Strathmore is currently trading at approximately $0.52. The price KEPCO entered it as certainly one I think is worth keeping in mind as a key reference point for prospective shareholders, and anything at or below it is one I find very favorable.
As for its projects, Strathmore aims to be a major producer of uranium in North America largely through its mining properties in Wyoming and New Mexico. As I noted in my article on Uranerz, I find Texas to be the promised land of uranium in the United States because of a highly favorable regulatory environment -- but Wyoming has certainly proven its ability to foster a robust network of operators, ranging from small explorers to industry incumbents like Cameco , and has much larger reserves.
While Strathmore has its own projects that it will be pursuing - both via ISR and open pit mining - it also has a portfolio of properties that it can sell or establish royalty partnerships with. Indeed, two projects which it has sold off to others under royalty arrangements are slated to go into production in 2012.
Last but certainly not least is the management team. David Miller, CEO, comes from Areva, the major player for nuclear power in France. A CEO with great experience is one of the most bullish signs any company in a promising sector can have.
The subject of great executives provides me with a nice segue to discussing U308, as I was originally drawn to this company because one of its founders, Dr. Keith Barron, has a stellar track record in the mining industry. And another U308 board member, Bryan Coates, is the CFO of Osisko Mining -- a major mining firm with a market capitalization greater than 4.5 billion. Talented management and founders is probably the most important ingredient, in my opinion, so this is a positive sign not to be underestimated; I'm sure there are many investors who would invest based on this fact alone. And in fact, U308 just completed two private placements, with investors putting in over $21 million and buying shares at approximately $0.60.
U308 is focused primarily on deposits in three areas: Colombia, Argentina, and Guyana. I don't doubt the geological quality of these deposits -- and I certainly don't doubt Keith Barron's ability to find good spots -- but I'm particularly concerned about jurisdictional issues pertaining to Colombia and Argentina. It could be the greatest mine in the world, but if the host government doesn't let you walk out with the goods at a good price, it doesn't matter. With that said, while these deposits do focus on uranium, they will also yield some other minerals - most notably vanadium and neodymium (an especially important important rare earth). I find this to be quite promising.
I certainly see the appeal of U308, but it's one I'll most likely pass on at the current moment. I'll keep my eye on it, though, to see how its affairs progress in South America as it gets closer production.
Crosshair is another firm that kept coming up in my hunt for tiny, promising uranium stocks. The company has some strong financial backing from Forbes West, a company that has helped a number of public mining companies get started. Crosshair currently has a book value of about $13 million and is trading at just over 2X - a price I find favorable for a company of its size and with the growth opportunities it has before it. Only 50 million of its 70 million fully diluted shares are outstanding, though, so there is a not insignificant supply of stock that can be dumped on to the market. This is one of the reasons why I'm ultimately waiting on Crosshair; I think it could be especially volatile, and that there may be some great sale opportunities that could emerge even as the uranium market heats up.
Crosshair is focused in Wyoming, and has a joint venture arrangement with the previously metioned Strathmore on a project. It is focused on ISR mining, which I also find to be favorable, as I've noted in my previous coverage of the uranium sector.
Ultimately for me, though, Crosshair is a bit too young. I can see the company doing very well in the future, but I want to see this one grow up a bit; most of its projects aren't going to get going until 2016. If a big sale happens here that pushes Crosshair back to its book value or below, I may go in. Until then, though, I'd prefer to focus on the promising companies that are a bit more mature. Of course, the biggest gains go to those who pony up early, so if your tolerance for risk is higher than mine, I do think this is one worth considering.
As those who have read this article may conclude, Strathmore is my favorite amongst the tiny uranium stocks. I think it's upside potential is outstanding and I will be initiating a position shortly.
Disclosure: I am long CCJ.