UraMin Inc.

UraMin Inc. (TSX:UMN) & (FSE:UVL) (LSE:UMN)

Share price: CAD 5.58 (mar 16, 2007)
Number of shares: 214 million
Market cap: CAD 1,194 million
Resources: 236.4 mio. lb (NI 43-101 compliant)
Price per pund U3O8: USD 4.3
Estimated production start: Q4 2008
Estimated production output in 2010: 13 mio. lb
Estimated revenue 2010 (U3O8 = $91) : USD 1,183 mio.
Estimated production costs per lb: $ 25
Estimated profit 2010: CAD 1007 mio (USD 858 mio.)
Price target 2010 at p/e 10: CAD 43.79 (230 mio. shares)
12 month price target: CAD 12 (upside 115 %)

Resource Investor's article on UraMin (Feb 05, 2007)

Uramin was incorporated in February 2005 with the aim of acquiring and developing uranium deposits throughout the world. It now has projects in four African countries and Canada.

Three of the African projects are nearing production and are currently estimated to have attributable resources of 236 million pounds of U₃O_8, though note that so far just one of the resources is 43-101 compliant (the other two should be at partially compliant by May).

• Trekkopje (Namibia): Trekkopje, which is 100% owned by Uramin, is located about 70km east of Swakopmund on the Namibian coast and is quite close to two other uranium mines; Rio’s [LSE:RIO, NYSE:RTP] 68.6%-owned Rossing mine and Paladin Resources’ [ASX:PDN; TSX:PDN] Langer Heinrich mine. There is a 40 kilometres graded gravel road to the project and, importantly, water is available. Namibia is a both mining and uranium-friendly; the Rossing mine has been in production for thirty years.
  
  Although relatively low grade (at 0.014%) the Trekkopje deposit is vast. Independent consultants SRK have described it as world-class claiming that it may be the largest calcrete deposit in the world in terms of tonnage of mineralised material and contained tonnes of U₃O₈. About 80% of the resource is within 15 metres of the surface.
  
  The feasibility study for Trekkopje will be completed during the third quarter of 2007. Meanwhile a trial mine and processing operation is being built and will be producing at an annualised rate of 300,000-500,000 pounds of yellowcake by the end of 2007. The trial will be used to aid in the design of the full mine which is expected to produce at a rate of 1,500 tonnes per annum of U₃O₈ from the end of 2008.
• Bakouma (Central African Republic): Uramin hold a 90% share of 10 separate areas of uranium mineralization in Bakouma (the state holds the remaining 10%). There is an airstrip near the site and Uramin have invested half a million dollars to upgrade road access to the site.
  
  A previous feasibility study conducted in the 1970s indicated that there are resources of 41 million pounds of U₃O₈ with an average grade of 0.27% (and thus almost 20 times higher than Trekkopje).
  
  Uramin commenced a two year Definitive Feasibility Study (DFS) in August 2006 and have drilled some 9,400 metres. Recent results have been encouraging, suggesting that the resource could be significantly deeper than originally defined. Uramin have entered into a mining convention with the government which guarantees, inter alia, fixed taxes for 25 years and the right, if necessary, to take any issues to an independent tribunal in The Hague.
  
  Production at the project is expected to ramp up from the last quarter of 2009 to peak at 3000 tonnes pa in 2010, but with an average life of mine estimate of 2,600 tonnes.
• Ryst Kuil (South Africa): Uramin gold a 65% interest in a JV with two BEE partners in Ryst Kuil, which lies in the Karoo area of the Western Cape and was originally explored by Esso in the 1970s The total mineral resource was then outlined as 64 million pounds of U₃O₈ (29 million tonnes at a grade of 0.1%).
  
  Exploration work has recently begun with a target of completing an updated 43-101 resource by May of this year. An Environmental Impact Assessment is underway and no fatal flaws have been identified thus far. Infrastructure in the area is good with access to water, power and communications. The DFS is scheduled for completion by March 2008 and Uramin believe that the property is capable of being placed into commercial production in an open-pit operation by late 2009 at a rate of 2.6 – 3 million pounds of uranium per year with significant molybdenum by-products.

• Other projects: Uramin owns a number of other projects. Besides exploration licences in Chad and South Africa it holds an option agreement with Red Dragon Resources to acquire a 50% interest in the Rea property in the Athabasca Basin - a region which currently supplies 30% of the world’s uranium production. It also holds an option with Waseco Resources to acquire up to a 70% interest in the Quebec Labrador trough, one of the most prospective areas in the world for uranium.

Valuation

Shares in Uramin have already enjoyed an astonishing bull run. At today’s price of 200 pence they have almost trebled since listing on AIM last April at 68.5 pence, and they have quadrupled in the last six months rising from the low of 47 pence last July.

The top 10 producers currently account for more than 80% of world production. In the chart below, taken from a recent presentation, Uramin showed how its planned production for 2010 fits in with these other producers, though it notes that the chart needs to be interpreted with some care as it compares 2005 production for eight of the companies with 2007 planned production for Paladin (as this will be the first full year of production at Langer Heinrich) and 2010 production for Uramin itself. It thus takes no account of any production growth by the other companies. Nonetheless it seems likely that Uramin will be among the top half dozen producers by the end of the decade.

Uramin then compared the enterprise values on 8 January 2007 with the reserves and resources of these companies and demonstrated that the average value per pound attributed by the market was $14-$15 per pound compared to Uramin’s valuation of $2.48 if the resources at all three projects were considered, or $3.72 if just the compliant Trekkopje resources were taken.

Again this comparison has to be treated with some caution both because of the differing stages of project development and as Uramin’s share price has risen 38% since 8 January. Even at the new valuation however it still suggests that Uramin is currently competitively priced.

Investment Risks and Highlights

Uramin lists a comprehensive set of risks on the AIM admission document on its website. Besides the usual risks associated with exploration and mining companies and the political risks of the host countries these include the limited number of customers for uranium, issues accepted with the public acceptance of nuclear energy, and the possible impact of any Black Economic Empowerment legislation in Namibia on the Group’s activities.

Meanwhile factors favouring investment include:

• Uramin is well-funded with cash of $96m and no debt.
• It has an experienced and capable team with some respected names in the industry on the board. The Ghanaian non-executive Chairman, Sir Samuel Jonah, has had a long and successful career in mining. He is director of a number of companies including Anglo American, Amplats and Standard Bank, and is non-executive president of AngloGold Ashanti Ltd. CEO Ian Stalker has over 30 years experience in mining and has been involved in the development of eight mines from start to finish including five mines in Africa.
• The company holds significant resources currently estimated at 236 million pounds of U₃O₈ (though with the exception of Trekkopje these estimates are not yet 43-101 compliant).
• It has three near-term projects which are all near the surface and can be mined by open-pit operations.
• Namibia is mining and uranium-friendly.
• Uramin holds exploration permits in two regions in Canada and in Chad and South Africa. These could provide a pipeline for further projects.
• There could be significant news flow during the year with reports and resource updates expected during each quarter. These will culminate in production from the trial mine at Trekkopje by the end of 2007.

With its current market valuation of £424 million ($833 million) Uramin still appears to be competitively priced relative to its peers.

For more analysis on UraMin see Loparn, who also have got analysis of Energy Fuels (TSX:EFR), Powertech Uranium (TSX:PWE), Uranium Power Corporation (TSX:UPC) and Ur-Energy (TSX:URE).

More information on UraMin in Danish.