In order to capitalise on the coming rise in the price of uranium we have begun buying uranium mining companies. Two of the companies we have purchased thus far, are Strathmore Minerals (CVE:STM) and Fission Energy (CVE:FIS), both of which are junior (small cap) exploration and development companies. This article provides an overview of both companies and explains our reasons for buying them.
Strathmore Minerals Corp. (CVE:STM)
Strathmore is a junior exploration and development company with some of the largest in-ground uranium resources in the United States. The company is focused on two core projects, the Roca Honda project in New Mexico, and the Gas Hills project in Wyoming, which are located in the two largest historic uranium producing regions in the U.S.
For its Roca Honda project Strathmore is partnered with Sumitomo Corp. of Japan (Strathmore 60% Sumitomo Corp 40%), while at Gas Hills the company has entered a strategic agreement with KEPCO, which is the Korea Electric Power Corp. (Strathmore 100%/ KEPCO 40% earn-in). These partnerships ensure that Strathmore has end customers once it begins production. Earlier this year KEPCO acquired an 11.8% equity stake in Strathmore.
If the environmental impact assessment and permitting process goes according to plan, then the Gas Hills open pit mine could begin production around 2016, while the Roca Honda underground mine should begin production around late 2017 or early 2018.
Strathmore also has an advanced gold-copper project, Copper King, which has significant historical gold and copper resources (866 thousand ounces of gold and 153 million pounds of copper). The company is in the process of preparing an NI 43-101 compliant estimate for these resources.
A 2 year chart of Strathmore Minerals
Chart courtesy of stockcharts.com
Strathmore’s goal is to become a leading uranium producer for the United States – a nation that only produces 4.2 million pounds (2010) and yet consumes around 55 million pounds every year in its 104 nuclear power plants. In fact, the company has already been approached by several US utility companies looking to secure future uranium supplies.
Strathmore is a well managed company with a strong team of geologists and the potential to deliver considerable upside for investors over the next 3 to 5 years. However, thanks to a weaker uranium price and the fact that the company is around four years away from production, Strathmore’s share price is now down 83% from its February 2011 high of $1.68.
The company has 134 million shares outstanding (on a fully diluted basis).
Fission Energy Corp. (CVE:FIS)
Fission Energy is a Canadian based junior exploration and development company with properties in the Athabasca Basin in Quebec, and the Macusani District in Peru. The company’s two principal assets are its Waterbury Lake property, and its Patterson Lake South property, which are both located in the Athabasca Basin, Saskatchewan Canada – home of the richest uranium deposits in the world.
Waterbury Lake is a high grade uranium deposit which is immediately west of Rio Tinto’s Roughrider deposit. It’s thought that Fission’s high-grade J Zone discoveries are the same deposit as the Roughrider West Zones. The J Zone now measures about 680m along strike and it is likely that there is considerable room for expansion.
Fission’s Patterson Lake South property is a 50/50 joint venture with ESO Uranium and consists of 17 mineral claims totaling 13,497 hectares. In 2011 the company made a high grade discovery at the property with assays as high as 39.6% uranium.
A 2 year chart of Fission Energy
Chart courtesy of stockcharts.com
Arguably the most important ingredient in a junior resource company is a strong management team, and Fission certainly has that. The company is also well funded (with C$17.5 million as of May 2012) and its projects are located near some of the biggest and highest-grade uranium mines in the world. As a result of its location Fission is a potential takeover candidate, since it’s unlikely that Rio Tinto would develop its Roughrider deposit without having what is believed to be its extension, which lies within Fission’s property.
We believe that Fission provides the potential for considerable upside, not only as a takeover candidate but also from its continued exploration success. It’s also worth noting that Sprott Asset Management own 8.8% of Fission.
Fission’s stock trades at a 72% discount from its February 2011 high of $1.50, and the company has 139.7 million shares outstanding (on a fully diluted basis).