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« The Uranium Banana Skin? | Main | The Uranium Futures Market »
Tuesday
May152007

UraMin Incorporated: BUY

This weeks quiz question is how do we determine an entry point for this uranium stock?

UraMin Stock Chart

This uranium stock is very young, barely old enough to draw a 50dma let alone a 200dma but despite this it has been making very good progress and we are adding Uramin to the Uranium Stocks BUY list.

Its way too early for us to analyse this chart other than to say what a fantastic start for the company, the shareholders must be jumping for joy. But in our experience when the wind blows the flagpole can snap, so we are approaching this stock with caution.

With the small amount of data to go on we can scrap some technical analysis for Uramin. The STO for UMN rarely goes below 50 and at just above 50 this seems like a satisfactory entry point, not a brilliant pull back opportunity, but better than purchasing this stock on an extreme high.

UraMin Incorporated

The most important projects in Uramin's portfolio are located in Namibia, Central Africa and South Africa and with the company's very aggressive development plans they could be producing by the end of next year by test mining in Namibia.

The main focus of Uramin is in Africa in Namibia, South Africa, Mozambique, Botswana, Chad and the Central African Republic although Uramin has exploration permits in Athabasca Basin in Alberta. A map of Uramin's projects in shown below.

UraMin Map

Lets take a closer look at Uramin's projects.

Firstly, their main uranium project, the Trekkopje project in Namibia. This project is 100% owned by the company and covers an area of 129,000 hectares. It is situated in the west central area of the country roughly 65km north east of Swakopmund. Judging from the drilling that Uramin has carried out, Uramin has a NI 43-101-qualified Measured and Indicated Mineral Resource of 142,738,211 million pounds of U3O8 in a 499,604,97 tonne resource at a grade of 130ppm. In addition to this, Uramin also has a Inferred Mineral Resource of 12,120,486 million pounds of U3O8 at 150ppm.

Uramin suggests that their Trekkopje project could get a place in the top ten largest uranium mines in the world when it comes into production and it could be one of the top five uranium mines in the list of lowest cost production. Reports indicate that this uranium project has the potential for cost effective open pit miming as around 80% of known mineralization occurs at levels shallower than 15m. By the end of 2008 production at Uranium could be in full swing at an amazing rate of three million pounds of uranium per year.

Although Uramin's Trekkopje does indeed have a very large resource of uranium, on the downside the deposit is a low grade, but Uramin plans to develop the project into a heap leach operation which should take advantage of some good economies of scale. If the tests for leach process turn out to be positive, then it is possible that production could take place at a much larger rate, at around 5 to maybe even 8 MM lbs per year.

Another significant uranium project that Uramin has an interest (90%) in is the Bakouma project in the Central African Republic. Uramin has completed 10,000 m of 15,000 m drilling program on the project and historical resources were reported at 41 million pounds by the previous owners of the property, 7 million tonnes at a grade of 0.27%

On April 25 the company reported that they had confirmed the resource at Bakouma to NI 43-101 standards. They now have an Inferred Mineral Resource of 26,000,000 lbs U3O8 at an average grade of 0.20% U3O8 at the Patricia Deposit, which represents a 33% increase. Drilling is going ahead on schedule and Uramin is on course to report a NI 43-101 compliant resource for the entire Bakouma Project in Q3 of 2007

Bakouma Map

The Chief Executive, Ian Stalker, said “The NI 43-101 compliant resource identified from the initial reverse circulation (“RC”) drilling at the Patricia Deposit indicates an inferred mineral resource of 5.7 million tonnes (Mt) grading 0.203% U3O8 (11,670t or 25,720,650 lbs. of U3O8) at a 1000 ppm U3O8 cut-off grade which exceeds our expectations based on historical records. This increase in the mineral resource in only one of the ten known deposits previously identified in the Bakouma Project area augurs well for a total increase in overall resource numbers.” Overall Uramin's Bakouma Uranium Project consists of ten documented uranium deposits all close to each other. Production at Bakouma could begin by 2010 and the project could hit full production capacity by 2012 at a rate of 5.9 MM lbs.

Uramin also has twelve licenses and a 65% interest in the Ryst Kuil in the Karoo region of South Africa. The historical resource indicates a resource of 64 million lbs of uranium and 29 million tonnes at a grade of 0.1%, Uramin is currently performing an exploration program on the project and the company hopes to complete a NI 43-101 resource in the second quarter of this year. Uramin believes that this project could be at commercial production by the end of 2009 at a rate of 2.6 – 3.0 million lbs per year with the added sweetener of a significant molybdenum by product.

Uramin does have many more projects but the most important ones are those discussed above. Uramin has the management team to bring this projects into production with a team with a proven track record in mine development particularly in Africa. The CEO, Mr Stalker has over 30 years experience in the mining industry across Europe, Africa and Australia. Before joining Uramin, he worked at Gold Fields, the fourth largest gold producer in the world and he has also worked as a consultant on the Langer Heinrich Uranium project in Namibia, which is good to know considering Uramin's main project is in Namibia. Mr Stalker also the managing director for Ashanti Goldfield Company and was in charge of all the company’s large scale projects in Africa. The Chief Operating Officer at Uramin, Mr. Macpherson, is a senior mining engineer with more than two decades of experience across the world including senior management and executive positions in South Africa, West Africa, Eastern Europe, Western Europe and Russia. Mr Saunders hold the position of chief Geologist at Uramin and has a great deal of experience, totalling over 23 years, mainly focused on Southern Africa. Before joining Uramin he worked at AngloGold Ashanti, where he was responsible for exploration in the East and West Africa regions as well as being in charge of exploration in Mali and Senegal.

UraMin Mining

The fact that Uramin has a great deal of experience in their management is great to know, but what is especially encouraging is that the management's experience has a African focus. Africa is a continent with a infinite amount of opportunities, but it takes a lot of expertise to take advantage of these opportunities due to the geopolitical situation in the continent.

As far as geopolitics are concerned, we are comfortable with Namibia as a country on the whole. There is a lot of mining in Namibia and it is the fourth largest exporter of non-fuel minerals in Africa. Mining accounts for 20% of Namibia's GDP and it is the worlds fifth largest producer of uranium so another uranium mine going into production should go smoothly but we will be keeping a close watch for any developments.

We are less comfortable with the Central African Republic, where Uramin has their Bakouma Project. The first fair democratic election in CAR took place in 1993 and elected Ange-Félix Patassé who ruled until he was overthrown by General François Bozizé in 2003. Bozizé won an election in May 2005 and remains in power to this day. He is pictured below, at the official opening of the project, which could indicate that he is supportive of Uramin, but we all know how fast things can change.

UraMin Opening of Bakouma

However in February of last year, violence broke out in the north of country and became widespread causing thousands of refugees to flee from their home as they were caught up in the cross fire between government troops and rebel forces. Over seven thousand people fled to Chad (a neighbouring country). There were some reports of government troops systematically killing men and boys suspected of cooperating with the rebels. This unrest coupled with the fact that CAR is one of the poorest countries in the world makes us slightly uncomfortable about investing in the region. We hope that these issues can be resolved in a peaceful manner and that projects such as Bakouma are what is needed to revive countries like the Central African Republic. However this amount of risk is not for everyone and we shall be approaching this stock with caution and will be keeping a close watch on the area for any developments.

In conclusion we shall be making an investment in the company on the merits of its projects but we remain concerned about the geopolitics of the areas where the projects are located and we will continue to monitor the progress closely. (We bought yesterday at $C6.72)

Uramin trades on the TSE and the AIM market in London as UMN. The company has a Market Capitalisation of $C1.8 billion with 272 million shares outstanding at around $C6.69.

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Reader Comments (10)

I would of waited until the stock created a bottom around $6.30 a share instead of creating a false bottom at your price. Are you trying to create a bottom??? The call for a buy is too soon. How do you know that it isn't just going thru the moving avg, on its way down lower? It is better to follow the stock up, not down.

May 15, 2007 | Unregistered CommenterStielf Erdmann

Thanks for your input it is very much appreciated. With so little history it was difficult for us to define an entry point and you may well be correct to wait until $6.30 appears. We will review the stocks progress as we go along and time will tell us if we were right or wrong to move now.

May 15, 2007 | Unregistered CommenterUranium Stocks

Under $6.30 today, and still looking for a bottom. I just didn't like the chart yesterday, maybe we will get some volume to help create one.

May 16, 2007 | Unregistered CommenterStielf Erdmann

The gold price is down $10, we wonder if gold’s decline adds to the nervousness of uranium bugs, after all this sector isn’t going anywhere at the moment.

May 16, 2007 | Unregistered CommenterUranium Stocks

I agree, whole sector has been negative. The sector is resting after huge gains. Time to buy on dips for the longer term. Profits maybe slower now, but they are still profits. Long term bull here for now, until Uranium hits 250.

May 16, 2007 | Unregistered CommenterStielf Erdmann

hi..i brought this stock early in january, a few days after it was listed on the tronto stock exchange at 3.75 and 4.4 and also 4.6, but i sold all my 3000 shares @ 6.8 to cash in some profits. i like the company earlier on because it didn't have the publicity to go with it while other uranium stocks that i hv purchased over years like emc.to, dml.to or formerly knowned as dml.to tripled in last than 1 yr in price. i believe this stock still hv the potential, but i m cautious about the nambia mine and the political issues in afraca.

May 23, 2007 | Unregistered Commentercoolbe

Thanks for the laugh. If you are worried about risk then why are you investing in Uranium? You better buy something else safer like a CD than stocks.
Enron was a safe investment - and look where the price of their stock is today.
Myself I am letting Russia and China fight it out in Africa over Uranium. I think the rewards will out gain the risk.
I am also betting on Aussie, Canada, US and etc. So if one stock fails, the rest can make up for that loss. Remember this is fun money that you invest, not the rent money.

May 23, 2007 | Unregistered CommenterStielf Erdmann

Uramin analysis

Disclaimer : I take no responsibility whatsoever for any errors, bad conclusions, important facts missing etc that might affect my analyses and their readers in any respect, but I always try to keep the facts accurate, as well as the calculations with their usually simple mathematics. Sometimes even the companies analysed deliver false information which could be impossible to detect for me and many other interested parties. In general I trust the corporate information and use it for my analyses. The future can´t be predicted 100 % and the stock market in particular is associated with considerable risks on the company level, but also on branch-, country- and world market level, implying that each person has to take their own full responsibility of the consequences of buying this particular stock.

Do your own due diligence !

2007 price target CAD 12.65

Uramin (UMN) is a near term uranium producer formed in 2005, but nevertheless with an experienced team and with respected mining industry persons on their board. Their CEO has a very long experience in the mining industry having been involved in the development of many mines from start to completion, including 5 mines in Africa which also is Uramin´s main target now. Uramin has near term uranium projects in mining friendly Namibia (where also Paladin`s Langer Heinrich mine is situated), Central African Republic and South Africa.

Uramin has a very big historic resource base of 236 million pounds of uranium, which should last around 14 years 2008-2021 with the current production potential, assuming an unchanged production level after 2011. Uramin has a clear potential for more resources. The discounted value now of the cash flow or profits from a possible additional production 14 years with mainly unchanged production rate though is a relatively small fraction of the corresponding value for the initial 14 years due to the very high nominal average uranium price expected for 2009-2015. The price average should normalize thereafter due to the higher supply from new production stimulated by the current high uranium price forecasts. The thus added production possibly could include Cameco´s huge but troubled/delayed Cigar Lake project that could account for around 5 % of world demand in 2012-2014, and maybe more after that. Therefore an additional uranium resource base from Uramin´s first three big projects than that covering the first 14 years of the commercial production phase should be of relatively small importance also to the theoretical Uramin stock valuation. (This is in some contrast to when valuating assumed long term steady growth companies where the discounted value of the initial let say 5-10 years of profits or cash flow often constitutes a relatively small part of the total theoretical company value thereby motivating a high p/e ratio. You might reflect that in that case the unknown far distant future earnings is of more vital importance in today´s stock valuation, compared to the Uramin case where the more near term years, and therefore likely more predictable years, matter significantly more thus resulting in a lower stock risk in this respect.)

Uramin though has a further uranium resource potential from exploration projects, in Canada, Chad, Niger, South Africa and Senegal, that could increase the long term production potential within resonable time. In Athabasca Basin in Canada Uramin holds an option to aquire 50 % of the Rea property owned by Red Dragon resources. In March 2007 Uramin and Waseco Resources announced a radiometric airborne survey based major new uranium discovery in Quebec Labrador Through in Canada. Uramin holds an option to earn 70 % of this project, and this might be the most obvious example where Uramin has a potential for additional stock value-adding uranium production, which though is not considered in this calculation. The possible uranium production should not commence before many years from now.

After a private placement in March 2007 Uramin had well over USD 300 million in cash, which will be used to carry out trial mining of the Trekkopje project and deliver feasibility studies for both the Ryst Kuil Uranium project in South Africa and the Bakouma Uranium project in the Central African Republic. Furthermore around USD 200 million will be used to advance the Trekkopje Project to commercial production. Hence there should be no need for further private placements within resonable time.

Uramin has recently communicated a new much higher production potential of 20 million pounds of uranium for 2011. That happens to be somewhat over the 2012 production potential described recently by sxr Uranium One just after their Urasia take-over. But the new sxr will have a diluted market capital of around CAD 6.8 billion compared to less than 30 % of that for Uramin at March 8 diluted market capital. Even if you compensate for sxr owning around 72 % of Aflease Gold as of Dec 2006, you find that position worth only around 2 % of the sxr Uranium One market capital. Neither could sxr having a relatively bigger resource base explain the huge valuation difference as hinted in the second paragraph of this analysis. There seems though reasonable to assume that Uramin will suffer from further stock dilution due to their capital costs for taking their second and third projects to commercial production. But even if you assume a huge stock dilution to 500 million diluted shares in Uramin, the market capital would be less than 50 % of that of sxr ! Thus it seems rather clear that Uramin still, also adjusted for risk differencies, most likely is much fundamentally undervalued compared to sxr Uranium One, as shown in this short but logical reasoning.

The Uramin commercial production phase is scheduled to begin with the Trekkopje project (Namibia), in the end of 2008, after the trial production period which will begin this year. Trekkopje has NI 43-101 compliant 110 million pounds of uranium measured & indicated and 8 million pounds inferred. The Trekkopje project is recently estimated to have low uranium production costs of around USD 18 per pound uranium, due to a vanadium production credit. Uramin plans for an open pit mine at Trekkopje with a large scale (sodium carbonate/bicarbonate and ion exchange) heap leach process, with a mining rate of 100000 tons per day. Water consumption using heap leaching is substantially lower than with tank leaching. The process will require a water supply from a desalination plant of 12 million cubic meters per year. Uramin will try to share the construction costs of the desalination plant with other parties sharing the same plant, thus reducing their own costs. With around USD 680-765 million expected in yearly revenues from Trekkopje (with USD 85 average uranium price) at full scale production (8-9 million pound per year) the yearly costs for the plant over its whole lifetime should be comparably low even if Uramin gets no partners, maybe around USD 15-30 million a year or so in my assumption. That corresponds to around 0.03-0.06 CAD/share after tax, of which I conservatively use 0.06 CAD/share as an additional cost in the calculation below.

I calculate with a Uramin 2010 uranium production of 16 million pounds. It is derived from the 8 million pounds in the Trekkopje project, 74 % share of (2.6-3) million pounds or around 1.9-2.2 million pounds from Ryst Kuil (South Africa) and 90 % share of 6.6 million pounds or around 5.9 million pounds from Bakouma (Central African Republic).

With 16 million pounds of uranium production in 2010, my assumptions of USD 85 uranium long term price average and costs of USD 25 per pound uranium produced, Uramin would get earnings of USD 624 million or CAD 686 million after an assumed 35 % tax (the tax rate not confirmed though) and with 1.1 CAD = 1 USD. There are 268 million UMN shares, plus around 55 million warrants and options, but as in my analyses of other uranium near term producers like EFR, UPC, PWE and URE, I calculate with some additional dilution , in this case to 350 million fully diluted shares as a reasonable calculation base. Earnings per share in 2010 then would be CAD around CAD 1.96. As stated above the costs for a desalination plant is estimated to reduce the earnings per share to CAD 1.90. If you study the Uramin Trekkopje report from Feb 2007 very carefully, you should find that just that project could account for more than half of my 2010 estimated earnings per share if you assume USD 85 uranium price.

Uramin, as one of the predicted biggest uranium producers in the world and still growing after 2010, should have a 2010 p/e-ratio of 13 resulting in a UMN stock three year potential of CAD 24.70. If you discount that future UMN stock price potential with a rather high risk-weighted interest rate of 25 % per year, high for such a relatively big company due to assumed relatively high ( political et al) risk, you get a 2007 price target interval for UMN of around CAD 12.65. Uramin is also an obvious take over-candidate and China is said to be a potential buyer, with their increased long term demand for uranium.

The biggest risk would be that Uramin cannot meet my 2010 production assumption. But cautiously applied 25 % risk adjusted discounting interest rate has reduced the 2007 price target interval for UMN by as much as 32 % compared to if applying a more normal 10 % discounting interest rate. It could be interpretated as that the expected value of the 2010 calculated production of 16 million pounds uranium production is 40 % lower or just 9.6 million pounds in a simplistic probabalistic point of view. Therefore the stock price target is cautiously riskadjusted.

If the long term uranium price average 2010-2019 will be expected to stay well above my current USD 85 calculation assumption , the stock price potential should be adjusted upwards accordingly, and vice versa.

Hence I find the UMN stock price very attractive with a very fine risk/reward ratio, in spite of the recent big stock price gain. UMN should most likely have a much higher fundamentally based stock long term potential than, as explained above, one of my biggest uranium holdings last year SXR.

Anyone with other input data can, as always, change these figures easily and do their own rough, simple and I think very useful calculations for an absolute and relative stock valuation purpose.

June 8, 2007 | Unregistered Commenterloparn

Thanks for the detailed UMN analysis. Have you replaced your SXR holdings with UMN?

June 9, 2007 | Unregistered Commenterashley dermer

Re ashley dermer

I sold my last SXR holdings a few months before buying my first UMN shares. Clearly I think UMN is still far cheaper, in spite of the fine performance the last few months and the SXR pullback.
I feel you should avoid trading UMN and just keep them 1-2 years as long as we have these high over USD 100 uranium prices.

June 9, 2007 | Unregistered Commenterloparn

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