North American Uranium Investing
Commodities / Uranium Jun 04, 2009 - 05:13 PM GMTBy: The_Gold_Report
Investment Analyst Marin Katusa, senior editor of Casey Energy Opportunities (CEO) and Casey Energy Confidential (CEC), brings uranium's prospects into focus for The Energy Report readers in this exclusive interview. He waxes enthusiastic about potential 10-baggers in the U.S. (and one 10-bagger already in the U.S. uranium portfolio) and the five companies he ranks among the top players in Canada's Athabasca Basin—"the best real estate in the world for uranium." Next week, Marin will return with colleague Dr. Marc Bustin to talk about other sectors in the energy market.
The Energy Report: Some folks consider the outlook for uranium cloudy if not stormy. For others, it’s just plain clouded, with too many factors at play to get a clear picture. What is your outlook for uranium?Marin Katusa: It depends on how you break it down. In North America, short term, I give it two thumbs up, and long term, everybody in the room—thumbs up. But when it comes to the “-stan” countries, short term, it’s thumbs, thumbs, thumbs, down. I couldn’t give more of a thumbs down. Nothing to do with uranium, just the political risk in the -stan countries. For example, there’s a major company likely to either lose its deposit entirely or pay a huge, huge penalty to keep it. Long term on global uranium, though, thumbs up.
TER: Since the shorter-term outlook looks brighter to you closer to home, would you elaborate on some reasons behind that?
MK: Sure. I’ll give The Energy Report readers a preview of our next issue of CEO, because we’re introducing a new feature called the “10-Bagger Club.” One company we’ll talk about is one I wrote up in November of 2008—Uranium Energy Corp. (NYSE.A:UEC). I believe its president, Amir Adnani, is destined to become one of the biggest players in mining. He’s 31 years old. I actually met him 10 years ago when he sat right behind me in our organic chemistry class in university. He’s now the president, director and CEO of UEC. About three years ago I visited its Goliad Project, and I just said, “I’ll wait for permitting to progress.” The market cap was a bit high at that point for what they had; now they’ve doubled up the resource, permitting is much closer to being a non-issue, and we wrote it up in November to buy under 25 cents. At the time it was trading 23 cents.
Last week it went north of $2.60, so in seven months subscribers who followed that recommendation made over 1,000% on that company. That’s what the 10-Bagger Club is all about, delivering big winners to our subscribers.
When it comes to companies in the U.S., investors are looking for near-term production and exploration with huge upside—companies that have cash and a management team that can move the companies forward. Everything starts with the people who run the company. That’s it. It stops right there. When it comes to the near-term producers, I have three ISR (in situ recovery) producers on my list. In Texas, permitting seems to be going very well. I project UEC CapEx to be between US$25 and US$30 million. Amir says closer to US$20 million, but I like to be conservative. At any rate, this thing will go into production and pump out about a million pounds of uranium a year. With permitting moving forward positively, UEC will be a producing uranium company.
Another company, which I recommended under 40 cents, is Ur-Energy Inc. (TSX:URE). Similar story to UEC’s. Ur-Energy is cashed up, and it will get into production, but the permitting process is a little tougher for them in Wyoming than it is for UEC in Texas. The word on the street is go short Wyoming, go long Texas due to the longer time frame in permitting in Wyoming. I don’t know if I agree with that completely, but we have in our newsletter exposure to both; I believe in mitigating your risks and having exposure for free. That’s something Doug Casey was very big on and has taught me over the years.
The "Casey Free Ride Formula" is about mitigating risk. Holding junior stocks for free is a no-brainer way for our subscribers to have big gains. Doug Casey is a strong believer of mitigating risk exposure, therefore, always take your initial investment off the table when you have the chance, and then the rest is playing with the house's money, so it's a bonus. Own these stocks for free; you’re guaranteed to win. We’ve taken Free Rides on Ur Energy and now on UEC.
Uranerz Energy Corporation (TSX:URZ) (NYSE.A:URZ) is another company to watch. Those are my three near-term ISL producers.
TER: Any others you care to mention?
MK: On the conventional side, as far as companies that are actually moving the rock to produce uranium, you have to look at Denison Mines Inc. (TSX:DML) (NYSE.A:DNN). First of all, it’s among the Lundin Group of Companies. If you don’t know Lukas Lundin, look him up in the Casey Explorers’ League honorees. It’s a free service, and basically, it’s the Hall of Fame of the junior mining sector, filled with the names that Doug Casey personally selects who throughout the years who have made major discoveries and delivered major wins to the Casey subscribers. Lukas Lundin is a winner—that’s what he does, that’s what he is, a winner. It runs in his blood. His father, Adolf Lundin, was a LEGEND in the business, and Lukas is taking the family business to the next level, and he is definitely a person who you want running your company and someone you want to invest in.
Not only is the Lundin family the most powerful family in the North American junior mining sector— it’s the most powerful junior mining family in the world. These guys are huge, and Denison is one of their companies. Denison has excellent people with excellent projects. I visited their mines, the White Mesa Mill, twice. I’ve seen the projects and walked through the mill before it was done and then again after it was operating. Ron Hochstein is the president and CEO, and I have nothing but the utmost respect for him. That’s a company we recommended in late 2008 and early 2009 under $1 and now we’ve taken a Free Ride above $2. So that’s definitely one that we recommend to have in your uranium portfolio.
In fact, we would not hesitate buying the stock at current market prices, and for those investors who paid higher prices, we have no doubt that Denison will come back to the previous highs. Due to the current market conditions, Mr. Market has provided an opportunity for savvy investors to get Denison at a huge discount. I’ll buy any Lukas Lundin company at a discount, and that’s exactly what the current situation is. Be patient; this is a very solid company, run by great people.
Our long shot with huge upside for the U.S. is Magnum Uranium Corporation (TSX.V:MM). Magnum has two excellent geologists, Mitch Bernardi and John Carden. Craig Lindsay (President and CEO) runs it. I really like the people. They’re a tight shop. That’s a company with a lot of cash; they’re going to have north of $13-$14 million cash with big upside potential post merger with Energy Fuels Inc. (TSX:EFR).
TER: Where is Magnum exploring?
MK: The San Rafael District in Utah. I’ve walked the properties; it’s very close to where Butch Cassidy and the Wild Bunch (the train robbers) used to hide out. It’s also in the general area where Madame Curie got her first uranium. The area has a great history. Magnum is a cashed-up junior with big exploration upside for conventional projects in the U.S., with a management team I have no hesitations investing with.
TER: Backing up to UEC for a moment, when will UEC go into production? Six months? 18 months?
MK: That’s still up in the air, as it comes down to when the company gets the go ahead on the permitting front. But I’d say that they’ll be in full production by 2012.
TER: And that’s the soonest you see new U.S. uranium production?
MK: That’s right. The race is between Ur-Energy and UEC, and I think UEC will win that race.
TER: What about uranium in Canada?
MK: The greatest area with respect to grade, the best real estate in the world for uranium is in the Athabasca Basin in Saskatchewan. Again, Lukas Lundin and Denison Mines have production there. Two years ago, we wrote up my five favorite juniors in the Athabasca (there were over 65 companies in the region at the time) in a report called “The Top Five Athabasca Uranium Plays.” At the time, they were Pitchstone Exploration Ltd. (TSX.V:PXP), JNR Resources Inc. (TSX.V:JNN), Triex Minerals Corp. (TSX.V:TXM), Hathor Exploration Ltd. (TSX.V:HAT) and International Enexco Ltd. (TSX.V:IEC).
Why do we like these five? Number one, excellent people. This is something I stress with all investors: Great people deliver great projects. Excellent people have a way of finding and developing excellent projects and delivering investors excellent gains. I think all of your readers should definitely read the Casey Explorers’ League honorees.
The management of our favorite five companies in the Athabasca was first to the game, grabbing the land that they wanted, and the management actually knows uranium. They’re cashed-up. And they drill. Those are the factors you need.
Hathor was one of our companies that made a major discovery. We were the first publication to write up Hathor and have taken a Casey Free Ride above $4 on Hathor since. It’s a great management team, but now the discovery has been made, and the question is now how big the deposit size is and what are the economics—amazing grades the deposit does have. There’s a lot of institutional coverage on it and generally we like to take Casey Free Rides when the institutions start buying up a stock.
If you want to talk about thumbs up, thumbs down, of all the juniors searching in the Athabasca, Pitchstone has the biggest upside. Ted Trueman (President and CEO) has been in the uranium sector for over 30 years. He’s worked with all of the major players. He’s been in the Athabasca Basin for a long time. He’s cashed-up. Pitchstone has one of the most aggressive drill programs in the Athabasca Basin. This year alone he’s going to have the largest drill program of any junior with market cap below $100 million.
Then there’s International Enexco, with Arnie Armstrong as President and CEO (also a Casey Explorers’ League honoree). They’ve held the Mann Lake Property for 30 years. About two and a half years ago they had amazing sniffs of yellowcake —+7% uranium, +5% uranium. They have north of $13 million cash. They’re trading around cash value. If I can get Arnie Armstrong and his projects and team for free, that’s a no-brainer.
TER: What about Triex?
MK: Yes. Good management team with Randy Turner and Mike Gunning. I really like Rick Kusmirski and Dave Billard and their team at JNR Resources (TSXV:JNN)—fantastic people with good projects. In an ideal world, I’d be most happy to see the management team of all JNN, PXP, TXM and IEC merge, consolidate their assets and cash, and without a doubt it would be the “SUPER JUNIOR Uranium company.” I don’t see that happening any time soon, but I would be lining up to buy stock if that ever did happen. PXP, IEC, HAT and JNN are in our portfolio currently.
TER: In what order would you rank the five?
MK: I’ll take Hathor out because we’ve already taken our profits on it. If you want me to rank the others, I’d make Pitchstone number one, JNR number two, International Enexco number three and Triex number four.
TER: Thank you.
Disclosure: Casey Research is a completely independent Research firm, and never takes any money, stock, fees or any compensation in any form from any company for recommendations. Marin Katusa and/or his family members own shares in the following companies mentioned in the interview: Magnum Uranium, Pitchstone Exploration, and Denison Mines.
Marin Katusa is Chief Investment Strategist for Casey Research’s Energy Division, also serving as senior editor of Casey Energy Opportunities (CEO), Casey Energy Confidential. Marin, who earned his Bachelor of Science degree from the University of British Columbia, obtained a degree in education and went on to pursue a successful teaching career before his attention shifted to analyzing and investing in junior resource companies. In addition, Marin participates in the Vancouver Angel Forum (whose members evaluate early-seed investment opportunities), manages a portfolio of international real estate projects and serves on the Copper Mountain Mining Corporation Board of Directors.
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