Rolling off the assembly line, seven Strathmore Minerals’ non-core uranium properties were snapped up by joint venture partners in less than five months by non-binding Letters of Intent (LOI). Strathmore Minerals corporate secretary Bob Hemmerling nicknamed the strategy ‘fast and furious.’
After totaling the dollar amounts of exploration expenditures, cash option payments and market value of shares granted to Strathmore, we arrived at nearly C$150 million equivalent, and this came about without diluting the company’s shares. Instead, companies such as Yellowcake Mining and American Uranium signed Letters of Intent to raise the exploration expenditures and paid cash and shares to earn-in to specific Strathmore properties.
In Strathmore’s case, the sum of the parts is greater than the whole.
In Tuesday’s conversation with Strathmore Minerals chief executive Dev Randhawa, he told us, “The market has been valuing Strathmore at about $2/pound. With the non-binding LOIs, we are getting more than the market will pay.”
Can we expect more projects to be partnered with outside firms? “Absolutely,” Randhawa said. “We may have three or four more.”
Having been among a handful in the uranium space in 1996, Randhawa has been frustrated by the low dollar figure assigned to his company’s properties. “Investors tend to focus on the first few properties,” he pointed out. “Who looks down the list at properties 4, 5 and 6? How many times has anyone talked about the Chord (South Dakota) property or Nose Rock (New Mexico)?”
In a previous interview we conducted with Strathmore’s vice president of technical services John DeJoia, he told us, “I suspect Nose Rock may eventually have the highest grade of any Strathmore property.” Phillips Petroleum had drilled Nose Rock during the last uranium cycle and estimated an average grade of 0.135 percent U3O8. DeJoia’s boss, David Miller, believes Nose Rock could be mined for up to twenty years.
Exploration drilling by Union Carbine, around the same time frame, found an historical resource estimated at about 3.8 million pounds U3O8. Neither has been classified by National Instrument 43-101 technical filings.
Randhawa’s goal is to get $5/pound for the U.S. properties through his spin-off strategy. This is about the dollar amount stock analysts assign to the properties of comparable companies in the near-term producer’s peer group. “By unlocking shareholder value (with these spin-offs), we are getting more for the sum than the whole,” he said.
Moving toward Production
Commitments of exploration expenditures and fresh cash without share dilution have accelerated Strathmore’s expansion pace. “We have added staff and continue to add on a weekly basis,” Strathmore president David Miller wrote in an email to us. “We have expanded from a small Riverton office to a newly remodeled 5000 square foot building. We have rented space in Grants (New Mexico) for our project office.” This is in addition to the company’s permitting office in Santa Fe.
Miller added, “A few weeks ago we received our first geophysical logging truck. We have another truck on order that can directly assay for uranium in the drill hole. New computer modeling and mining software is being added on a weekly basis.”
Strathmore’s large portfolio of uranium properties, acquired before yellowcake became more popular, prohibited the company from the intense evaluation process required before beginning the permitting process. “For example, Juniper Ridge was not yet in our pipeline,” Miller confided. “After we acquired the data and started the evaluation process, the more we studied Juniper Ridge, we became more optimistic about its true potential. The joint venture decreased the time frame for going into production on this property by several years.” According to Miller the ‘fast and furious’ partnering process is speeding up the process to mine these properties.
Randhawa praised his technical team and pointed out that because Strathmore had gotten into the uranium space early, they were able to acquire experienced people at all levels. “We have veterans who have done open pit, underground and ISR,” he pointed out.
We asked David Miller if the large number of concurrent projects was spreading his technical team too thin. He told us, “We have added a number of high quality industry veterans over the past few months as quality new hires are learning their new profession.” Miller also pointed out drill rigs were now available as coalbed methane drilling Wyoming had recently slowed down.
Both Randhawa and Miller are optimistic about the speed at which the Wyoming properties are moving forward. “The fastest to production will be our Gas Hills (Wyoming) portfolio of projects,” Miller said. “This group of projects consists of over six open pits that were designed in the last uranium boom.”
If 2006 was Strathmore’s year of marketing the company to be acquired, and 2007 is unfolding as the ‘year of joint ventures,’ then what is in store for 2008?
Aside from increasing the company’s value and the Roca Honda project, Randhawa told us, “We hope to get mining permits to move up the timeline to production.” Miller added, “We will get one permit for the Gas Hills and then amend that permit to incorporate additional areas under the one permit.”
Miller checked off his list of projects heading for production. “The fastest will be the Gas Hills,” he said. “The Gas Hills was the largest uranium producer in Wyoming with over 100 million pounds.” Then he named off the remaining projects he believes could be producing, “Second fastest will likely be Sky. Third will be Reno Creek, fourth Pine Tree area, fifth maybe Juniper Ridge, sixth Roca Honda, and seventh Nose Rock.” And so on down the assembly line for the first ten projects. “The size of individual mines will vary from one-half million pounds to over one million pounds each,” Miller added.
And what is the latest on Roca Honda? On Valentine’s Day this year, Strathmore announced the company had signed an exclusivity agreement with a Fortune Global 500 company. “We will issue an update in the middle of July,” Randhawa told us. “We are quite hopeful. They’ve traveled here many times.” Miller refers to Roca Honda as the ‘company maker.’ The Roca Honda project was at the top of Kerr McGee’s mining list during the last uranium cycle.
On Dev Randhawa’s Christmas wish list is a mining permit later this year or early 2008. He wouldn’t say where he hopes the first one will come from. But then again, if your company has properties in three Canadian provinces, three U.S. states and Peru, there are 20 possibilities from which to choose.
During the close of our conversation on Strathmore-specific questions, we asked when the company would join its peers on the senior exchanges in both Canada and the United States. Randhawa told us Strathmore should be listed on the more visible exchanges by the third quarter of this year.
Whatever else happens in 2007, for the time being, Strathmore has quadrupled its potential ‘buying power’ with its new exploration commitments, cash and shares of its partners. And this should help accelerate the development of many projects which had never really been noticed before.
Fission Energy Corp Spin-off:
Canadian ‘Blue Sky’
“Uranium and nuclear energy are being talked about in the big company boardrooms around the world,” Randhawa explained. “People would be shocked at the ‘household names’ that have contacted Strathmore Minerals.” He wouldn’t name any names, but told us several were companies outside, or not normally associated with, the uranium mining sector.
Because Randhawa does not believe we are in a uranium bubble, he strongly believes in the spin-off of Strathmore’s Canadian exploration properties into the newly formed Fission Energy Corp. Once this new company clears the mandatory regulatory approvals, it should begin trading sometime in July.
In an attempt to divorce the company’s development projects from the exploration projects, Strathmore’s board of directors voted earlier this year to spin off the ‘blue sky’ projects. “Some investors prefer the high leverage of an exploration,” said Randhawa. “Other shareholders, especially in the United States and Europe, were more comfortable with the U.S. assets.”
After the spin-off from Strathmore, shareholders of record will receive one share of Fission Energy for every three shares of Strathmore Minerals.
We obtained a copy of the Fission Energy PowerPoint, which was presented by Jody Dahrouge at the annual shareholders meeting. “Shareholders were impressed by the extent of the Canadian properties,” Randhawa remarked. The new company’s property portfolio includes about two million acres in Saskatchewan’s Athabasca Basin.
It came as a surprise to us - having mostly followed Strathmore’s U.S. uranium assets - that Waterbury Lake strategically surrounds the area’s Midwest uranium project. Denison has been drilling near the Waterbury boundary.
Another, which we wrote about in late 2005, was Davy Lake. In the early exploration, the company discovered a 51-kilometer conductor. Fission Energy’s Davy Lake is the largest contiguous exploration block in the Athabasca Basin.
Fission also holds Dieter Lake, which is an advanced stage development project. This is the single property which is accompanied by a National Instrument 43-101 filing. The resource is estimated at hosting 24 million pounds U3O8. Few ‘pure’ exploration companies have a uranium deposit with this size of a resource, let alone one which also includes the pedigree of a technical document.
“We wanted to unlock shareholder value,” Randhawa told us. “Analysts were giving the Canadian properties zero value, because they concentrated on our U.S. assets.” He believes down the road the new company could be revalued for more than C$75 million.
So while Strathmore Minerals will be aggressively pursuing the permitting process to bring the senior company’s uranium deposits into production, the junior company spun-off will focus on the pure exploration plays. In any event, there is a joint venture waiting list for either company’s properties. “It splits up the audience: some prefer the ‘blue sky’ of exploration, and others don’t,” Randhawa concluded. “And now we have something for both audiences.”
COPYRIGHT© 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.
James Finch contributes to StockInterview.com http://StockInterview.com and other publications. He has contributed to the widely popular “Investing in the Great Uranium Bull Market,” and “Uranium Outlook 2007 - 2008.” His recent work, “Investing in China’s Energy Crisis,” is now available at bookstore.stockinterview.com/ http://bookstore.stockinterview.com/
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