Saturday, June 24, 2006
Strathmore Minerals (STHJF) updated uranium estimate
I've been meaning to do a better estimate of uranium value for Strathmore for some time and now's a good time to do it. I did a lousy post just guessing a year ago.
Strathmore has this table in addition to the details in the links below.
What I'd like to do is discount the amount by the type of resource, do a better adjustment for the cost of extracting the uranium, and account for the grade concentration of the uranium. So first I'll discount by some amount for the type of resource: 10% for measured, 10% for indicated, 10% for determined, 40% for inferred resources, 50% for possible or estimated reserves. Next, I'll assume 65% of that remaining amount can actually be extracted (technically, the higher the price of uranium, the more ore that can be profitably extracted, but at a higher cost). Finally, I'll assign a cost of extraction based on the grade (which is way simplistic, but it's better than a guess). I'll figure that anything less than 1 pound per ton is not worth much. 1-2 pounds per ton might cost $35 per pound to extract. 2-3 pounds per ton might cost $30 per pound to extract. 3-8 pounds per ton might cost $25 per pound to extract. Anything over that might cost $20.
1 tonne is slightly more than 1 ton, so I'll just assume everything is in tons. Most of this stuff is done before the National Instruments 43-101 standard, but I'm going to use the data anyway without modification. It's difficult to know how much this might differ from the current standard.
NOTE: No one has checked these assumptions for sanity and I suspect someone like David Miller would be horrified by it. So remember that this is simply a slightly better guess. Not to mention that I can make basic math mistakes.
Duddridge Lake
Estimate 0.75 million pounds @ 2.14 pounds/ton (but this is widely varying from 9.8% down to typical 0.15%).
RESULT: 0.244 million pounds, cost=$7.3 million to extract.
Dieter Lake
"Possible" resource (quoted from 3rd party source) of about 65 million pounds at 0.25%. (5 pounds per ton). I'm only going to accept about 35% of this instead of 50% and I'm going to assume just over 2 pounds per ton.
The company says OR this could be 50 million tons of ore at 0.10% U3O8. I'm not sure I want to go with that. I'll stick with what I have above.
RESULT: 14.79 million pounds, cost=$444 million to extract.
Athabasca Basin
This is a large area. Strathmore "currently holds the largest land package in the Athabasca Basin", but I don't know if it's the best parts. It's tempting to see the nearby drill results 15km away from Strathmore's property coming up with 21% (420 pounds per ton!) U3O8 across 5 meters, but we know that uranium deposits are highly concentrated and localized. This doesn't tell us much.
RESULT: This is a huge wild card. It could be anything, but considering the experience of the Stathmore team, it's likely to be "a whole lot" (meaning it can't be quantified and is just icing on the cake).
Waterbury Lake
Once again, nearby projects have come up with great reserves, including the Cigar Lake mine (89 million tons of ore at over 15%).
RESULT: Another big wild card.
Comstock
This is a silver/gold mine. No idea what resources it has or the quality of them.
Peru
Another big wild card. It could be very promising. There was exploration done, but Strathmore doesn't say much.
Roco Honda
NI 43-101 compliant resource estimate. They provide some good detail on how the estimate was developed. There was some article I saw that talked about the polygon measurement method. They assume a cutoff grade and then develop a model of the ore within a polygon containing this grade or higher. And the polygon shape has certain requirements as well. This ore is in sandstone is can likely be extracted by ISL methods (cheaper, easier to get approval, can use with smaller amounts of uranium).
Estimate 17.5 million pounds at 0.23% or 4.6 pounds per ton.
Inferred 15.8 million pounds at 0.17% or 3.4 pounds per ton.
I'm discounting both of these by 50% since the inferred resource is based on an estimated resource.
RESULT: 10.82 million pounds, cost=$46 million
Church Rock
NI 43-101 compliant resource estimate.
Measured 3.23 million pounds at 0.10% (2 pounds per ton).
Indicated 8.61 million pounds at 0.09% (just under 2 pounds per ton).
Inferred 3.53 million pounds at 0.09% (just under 2 pounds per ton).
RESULT: 8.31 million pounds, cost=$281 million
Powder River Basin
Demonstrated resource of 2.6 million pounds @ 1.4 pounds per ton.
Inferred resource of 0.625 million pounds @ 1.2 pounds per ton.
RESULT: 2.72 million pounds, cost=$95 million
Cedar Rim
No idea. Assume nothing.
Copper Mountain
Inferred and indicated resource (treat it like an estimate) of...
24.6 million pounds @ 0.54 pounds per ton.
14.4 million pounds @ 0.34 pounds per ton.
RESULT: It doesn't look like this can be extracted using ISL, so I'm writing it all off.
Northeast Wyoming
No idea. Assume nothing.
Chord
Pretty much an estimated resource of 15.6 million pounds at an unknown grade. Assume 1 pound per ton.
RESULT: 5.07 million pounds, cost=$177 million.
Total extractable pounds of U3O8: 42 million pounds (plus the various wild cards)
Estimated cost to extract: $1,050 million
At a price of $45 per pound of U3O8, the gross value of the uranium (after cost to extract) becomes $840 million. I say gross value because there's going to be a cost to monetize this beyond the cost of simply extracting the U3O8 out of the ground (anyone doing the actual mining operations will want to earn a significant profit). There's also the time value to consider. But there's also the various wildcard properties to consider.
Let's assume that Strathmore gives up 50% of the profits in exchange for running the mining operations and part of the exploration operations (plus this might cost Strathmore all the cash + short term investments that Strathmore has on hand: roughly $30 million).
I've assumed 100 million totally diluted shares that will eventually be outstanding. If Strathmore gives up half the value of the uranium in order to monetize it, and the price of U3O8 remains at $45 per pound, then it means they're left with $420 million ($4.20 per share) which must then be discounted for time but increased by the value of the wild card properties. Some of the 100 million share dilution might be double counting some of the cost of monetization, but not much.
If the average realized price of uranium at the time of monetization is different, then we multiply the difference by 21 million (half of the uranium since we assume we're giving up half of it in a joint venture to mine it) to get the change in value (which must still be discounted for time and increased by the wild card properties). Since I'm assuming 100 million shares, any difference in assumed U3O8 price would be multiplied by 0.21 and added to (or subtracted from) the stock value. So bumping the U3O8 price assumption to $65 per pound roughly doubles the value of the stock to $8.40.
The most important thing to me is that the value is not less than the current stock price. Taking everything into account in the various posts I've written, I think that's fairly safe (current price is around $1.50). I tend to think that the wild card properties are worth a lot. I also think that Strathmore will likely give up quite a bit in order to monetize the uranium. And I tend to think the average realized price of U3O8 will be significantly higher than $45.
It's very important to note that there are a lot of assumptions going into this stuff.
Update June 27, 2006: After 175 years, Harriet died, having outlived all other animals. It was a sad day.
Strathmore has this table in addition to the details in the links below.
What I'd like to do is discount the amount by the type of resource, do a better adjustment for the cost of extracting the uranium, and account for the grade concentration of the uranium. So first I'll discount by some amount for the type of resource: 10% for measured, 10% for indicated, 10% for determined, 40% for inferred resources, 50% for possible or estimated reserves. Next, I'll assume 65% of that remaining amount can actually be extracted (technically, the higher the price of uranium, the more ore that can be profitably extracted, but at a higher cost). Finally, I'll assign a cost of extraction based on the grade (which is way simplistic, but it's better than a guess). I'll figure that anything less than 1 pound per ton is not worth much. 1-2 pounds per ton might cost $35 per pound to extract. 2-3 pounds per ton might cost $30 per pound to extract. 3-8 pounds per ton might cost $25 per pound to extract. Anything over that might cost $20.
1 tonne is slightly more than 1 ton, so I'll just assume everything is in tons. Most of this stuff is done before the National Instruments 43-101 standard, but I'm going to use the data anyway without modification. It's difficult to know how much this might differ from the current standard.
NOTE: No one has checked these assumptions for sanity and I suspect someone like David Miller would be horrified by it. So remember that this is simply a slightly better guess. Not to mention that I can make basic math mistakes.
Duddridge Lake
Estimate 0.75 million pounds @ 2.14 pounds/ton (but this is widely varying from 9.8% down to typical 0.15%).
RESULT: 0.244 million pounds, cost=$7.3 million to extract.
Dieter Lake
"Possible" resource (quoted from 3rd party source) of about 65 million pounds at 0.25%. (5 pounds per ton). I'm only going to accept about 35% of this instead of 50% and I'm going to assume just over 2 pounds per ton.
The company says OR this could be 50 million tons of ore at 0.10% U3O8. I'm not sure I want to go with that. I'll stick with what I have above.
RESULT: 14.79 million pounds, cost=$444 million to extract.
Athabasca Basin
This is a large area. Strathmore "currently holds the largest land package in the Athabasca Basin", but I don't know if it's the best parts. It's tempting to see the nearby drill results 15km away from Strathmore's property coming up with 21% (420 pounds per ton!) U3O8 across 5 meters, but we know that uranium deposits are highly concentrated and localized. This doesn't tell us much.
RESULT: This is a huge wild card. It could be anything, but considering the experience of the Stathmore team, it's likely to be "a whole lot" (meaning it can't be quantified and is just icing on the cake).
Waterbury Lake
Once again, nearby projects have come up with great reserves, including the Cigar Lake mine (89 million tons of ore at over 15%).
RESULT: Another big wild card.
Comstock
This is a silver/gold mine. No idea what resources it has or the quality of them.
Peru
Another big wild card. It could be very promising. There was exploration done, but Strathmore doesn't say much.
Roco Honda
NI 43-101 compliant resource estimate. They provide some good detail on how the estimate was developed. There was some article I saw that talked about the polygon measurement method. They assume a cutoff grade and then develop a model of the ore within a polygon containing this grade or higher. And the polygon shape has certain requirements as well. This ore is in sandstone is can likely be extracted by ISL methods (cheaper, easier to get approval, can use with smaller amounts of uranium).
Estimate 17.5 million pounds at 0.23% or 4.6 pounds per ton.
Inferred 15.8 million pounds at 0.17% or 3.4 pounds per ton.
I'm discounting both of these by 50% since the inferred resource is based on an estimated resource.
RESULT: 10.82 million pounds, cost=$46 million
Church Rock
NI 43-101 compliant resource estimate.
Measured 3.23 million pounds at 0.10% (2 pounds per ton).
Indicated 8.61 million pounds at 0.09% (just under 2 pounds per ton).
Inferred 3.53 million pounds at 0.09% (just under 2 pounds per ton).
RESULT: 8.31 million pounds, cost=$281 million
Powder River Basin
Demonstrated resource of 2.6 million pounds @ 1.4 pounds per ton.
Inferred resource of 0.625 million pounds @ 1.2 pounds per ton.
RESULT: 2.72 million pounds, cost=$95 million
Cedar Rim
No idea. Assume nothing.
Copper Mountain
Inferred and indicated resource (treat it like an estimate) of...
24.6 million pounds @ 0.54 pounds per ton.
14.4 million pounds @ 0.34 pounds per ton.
RESULT: It doesn't look like this can be extracted using ISL, so I'm writing it all off.
Northeast Wyoming
No idea. Assume nothing.
Chord
Pretty much an estimated resource of 15.6 million pounds at an unknown grade. Assume 1 pound per ton.
RESULT: 5.07 million pounds, cost=$177 million.
CONCLUSION
Total extractable pounds of U3O8: 42 million pounds (plus the various wild cards)
Estimated cost to extract: $1,050 million
At a price of $45 per pound of U3O8, the gross value of the uranium (after cost to extract) becomes $840 million. I say gross value because there's going to be a cost to monetize this beyond the cost of simply extracting the U3O8 out of the ground (anyone doing the actual mining operations will want to earn a significant profit). There's also the time value to consider. But there's also the various wildcard properties to consider.
Let's assume that Strathmore gives up 50% of the profits in exchange for running the mining operations and part of the exploration operations (plus this might cost Strathmore all the cash + short term investments that Strathmore has on hand: roughly $30 million).
I've assumed 100 million totally diluted shares that will eventually be outstanding. If Strathmore gives up half the value of the uranium in order to monetize it, and the price of U3O8 remains at $45 per pound, then it means they're left with $420 million ($4.20 per share) which must then be discounted for time but increased by the value of the wild card properties. Some of the 100 million share dilution might be double counting some of the cost of monetization, but not much.
If the average realized price of uranium at the time of monetization is different, then we multiply the difference by 21 million (half of the uranium since we assume we're giving up half of it in a joint venture to mine it) to get the change in value (which must still be discounted for time and increased by the wild card properties). Since I'm assuming 100 million shares, any difference in assumed U3O8 price would be multiplied by 0.21 and added to (or subtracted from) the stock value. So bumping the U3O8 price assumption to $65 per pound roughly doubles the value of the stock to $8.40.
The most important thing to me is that the value is not less than the current stock price. Taking everything into account in the various posts I've written, I think that's fairly safe (current price is around $1.50). I tend to think that the wild card properties are worth a lot. I also think that Strathmore will likely give up quite a bit in order to monetize the uranium. And I tend to think the average realized price of U3O8 will be significantly higher than $45.
It's very important to note that there are a lot of assumptions going into this stuff.
Update June 27, 2006: After 175 years, Harriet died, having outlived all other animals. It was a sad day.
here's a video of a radio controlled airplane
// posted by Bruce @ 2:27 PM 
