By James Steels / @steelsjh
The newsflow (and share price reaction) coming out of Sandstorm Metals and Energy (“SND“) warrants some commentary. Let me be clear upfront – I have been DEAD wrong on the timing on this one. With an average cost of $3.25 per share initial purchase at $4.00 and a second purchase at $2.50) at today’s closing price of $1.84 the value of my shares are down a whopping 43%. Ouch.
For new readers – a quick recap. Sandstorm Metals & Energy is the smaller sister company of Sandstorm Gold. SND’s business model, in simple terms, can be thought of as a bank for development-stage resource companies. SND puts up capital for these development-stage companies and, in return, receives a stream which allows SND to purchase output from the mine at below market prices.
Equity Research provided by SteelsCorp
Ticker: PDN (TSX)
Current Price: $0.92 CAD
Our Entry Price: $0.88 CAD
52 Week: High $1.52 Low: $0.75c
Recommendation: SPECULATIVE BUY (VERY HIGH RISK)
PALADIN ENERGY Ltd is a uranium production company with two operating mines in Africa and has a strategy to become a major uranium mining powerhouse.
The Langer Heinrich Mine (“LHM”) in Namibia is Paladin’s flagship project. Having reached its initial production of 2.7Mlb U3O8 per annum in 2008, the mine completed its Stage 2 ramp-up to 3.7Mlb per annum in the 2010 financial year. Subsequently, the Company has completed a Stage 3 expansion and is now producing at a 5.2Mlb per annum rate.
The Kayelekera Mine (“KM”) in Malawi, the Company’s second mine, provides an excellent follow-up to Langer Heinrich. A Development Agreement with the Government of Malawi was executed in February 2007, which provides fiscal stability for the project for ten years. KM was officially opened in April 2009 and is now operating at design production rates of 3.3Mlb U3O8. Project life is expected to run for at least an additional 8 years with exploration underway to identify feedstock’s to extend the current project life.
The company also has significant exploration and development projects in Australia and Canada.
Key Risks / Issues
McClean Lake uranium mine in Northern Saskatchewan - Photo: Canadian Nuclear Workers Council
There have been some big moves in the uranium space this week, as the predictions by several analysts and close watchers of the space have begun to come true. It starts with two high-profile deals that were announced this week:
- ARMZ is buying the remaining 49% of Uranium One for $1.3B. While the purchase price, announced on Monday Jan 14th, of $1.3B translates to a roughly 20% premium for minority shareholders, several industry observers (including myself) feel the offer price is too low. ARMZ (which is controlled by ROSATOM, the Russian state organization) appears to be trying to gobble up the rest of Uranium One at a very cheap price – just as the fundamentals for Uranium are beginning to turn around. Analysts have recommended that minority shareholders vote down the deal. Some good reading here: http://www.mining.com/uranium-one-being-taken-private-for-1-3-b-by-russian-firm-75587/
- Denison is buying Fission Energy. In the second uranium deal announced this week, Denison is buying most of the assets of Fission Energy. Both Denison and Fission are developing projects that are intended to become mines one day. As Fission Energy’s keystone asset is next-door to Hathor Exploration’s old assets (Recall, Hathor was taken over by Rio Tinto last year after winning a bidding war with Cameco) most suspect that Dension is attempting to build itself into an entity that can one day be sold to a major producer – possibly Rio.
In my view, these takeovers underscore the strong fundamentals of the Uranium Market. Continue reading