I have owned GEM.V for around a year now, with an average cost of 25 cents on a very small position. I could not trade the stock until after the Highland news came out last week, since I had visited the property and knew of information that was not on the public record. Of course, that was very frustrating for me, since I would have been buying aggressively before the uranium news came out last year. But at least now I can trade, so I bougth another 3000 shares this morning.
Normaly I would not consider adding to a position after it has already increased by 400%. I was hoping for some sort of pullback, but I do not think that will happen. If a stock is trading higher on rumour and speculation, then one would expect that it will retrace. But if a stock runs higher on the basis of a significant acquisition, and it is still undervalued, then it can be sustained.
My optimism right now is based on a number of factors:
1) Uranium is as hot as a pistol in the markets, and many uranium juniors corrected last week. So I think some of the froth is out of the sector and its safer to be a buyer now. Uranium prices will not be pulling back anytime soon, and the full extent of the disaster for Cameco at Cigar Lake has not yet been discounted into the price of uranium. I think uranium will hit $100 this year.
2) Most uranium juniors are nothing but a concept. They have nothing whatsoever in asset value to warrant the high market cap that many companies currently trade at. GEM is one of the few juniors that actually has a resource of tens of millions of pounds of uranium. It is a low grade deposit, but it exists, and as the market price of uranium climbs, the value of the deposit will climb. So GEM is going to become a premium stock to own in that group.
3) His Majesty Jim Dines has yet to comment on GEM, but he will get to it eventually, and that alone will probably be worth a buck per share for the Dines or Casey seal of approval on the stock.
4) The historic resource for the uranium was compiled by the former operator of the property, Rio Algom, which was a respected and professional mining company. Therefore the estimates are likely accurate. However GEM has commissioned the consulting firm Roscoe Postle Associates to complete a compliant resource estimate. Once that estimate is released, then institutional money will be willing to buy GEM since they will have a documented resource by a reputable firm to base their projections on.
5) GEM bought the entire uranium asset for next to nothing and has increased the total property position. There is further exploration upside and the entire district was once a leading source of uranium production in Canada.
6) GEM has other assets including gold-copper-diamond projects which are also active and will have the potential for additional discoveries to be announced.
So I am bullish as hell on Pele Mountain right now. By my own estimates, here is the asset value for the Elliot Lake uranium deposits, if the spot price reaches $100 for uranium, a level that would make the deposit economic and certainly a candidate for development or acquisition by a producer:
Estimated tonnage: 27 million tonnes @ 1 pound U308 /tonne
Uranium resource: 28 million pounds
Gross deposit value: $2.8 billion @ $100 spot U308 price
Asset value (conservative) $140 million or $2.15 per share
Asset value (bull market) $250 million or $3.80 per share
Keep in mind that in a raging bull market like the current situation, with a deposit that would be economic at the resource value of $100/pound, the higher asset value multiple I plugged in is still somewhat conservative because I used less than 10% of the gross deposit value.
And keep in mind that the target of $3.80 is more than a triple from the current market price for GEM, and it does not include the asset value of all the other projects.
Usually when I post about a stock, I am not going to trade it. But I already have a small core position of Pele Mountain, and the shares I bought today are for trading. I expect a big pop in the share price within a month, perhaps to the $2 level, and the further gains for GEM as the U308 spot price continues to climb. So I will be taking profits as the stock rises, but I also think GEM is a must-own stock for anyone in the uranium sector.
cheers!
COACH247
Personal disclosure: I own shares, and Pele Mountain is a sponsor of my website and 2007 stock picking contest. I have no promotional relationship with the company. Forum members are advised to do their own DD, this is my opinions I have presented and not a buy recommendation. |
