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Gold/Mining/Energy : Uranium Stocks -- Ignore unavailable to you. Want to Upgrade?

To: AuBug who wrote (10626)	4/23/2007 4:31:56 PM
From: energy_investor	Read Replies (2) \| Respond to of 30238

DJ, You are joking right? Valuing a company based just on lbs in the ground irrespective of how close it is to production doesn't make any sense. URZ is probably just a couple of years away from actually producing yellowcake. At current spot prices they will be able to sell their uranium for a * profit * of above $80 a pound -- yet your methodology would only assign a value of less than $10 per lb. In this case, Mr. Market has got it right! In the case of a company such as WUC, I agree with your approach because all they have at the moment is uranium in the ground. However, if and when they decide to advance their uranium towards actual production I would want to modify their valuation to take account of their increased chances of turning that uranium into cash. Cheers Energy_Investor

To: AuBug who wrote (10626)	4/23/2007 4:35:39 PM
From: jimsioi	Read Replies (1) \| Respond to of 30238

DJEhuty, $17/PITG - double reasonable valuation?? I read the PDN bought Summitt for a price in excess of $20/ PTIG. If the uranium is readily mineable I have a hard time seeing $17 as unreasonable. Tell us more why you think it is, please.

To: AuBug who wrote (10626)	4/24/2007 5:38:23 PM
From: energy_investor	Respond to of 30238

DJ, Here's another way of looking at the NPV calculation for URZ. Assume for simplicity that the spot price is $100 per Lb and production costs are $25 per Lb all as of time t=0 . Further assume that the spot will increase at a rate of r per year, the cost of production will increase at a rate of j per year, and the discount rate is i per year. Assume for simplicity that URZ will start to produce at time t=3 at a rate of 1 MM lbs a year and will produce at this rate until all 16MM lbs recoverable have been recovered. Then the NPV of the cash flows in $MM ( assuming for simplicity all transactions each year take place a the end of the year) is: 1/(1+i)^3 [ 1/(1+i) {$100(i+r)^4 - $25(1+j)^4 } + 1/(1+i)^2 { $100* ( 1+r) ^5 -$25(1+j)^5 } +....... .+ ............ (1/1+i)^16 { $100(1+r)^19 - $25(1+j)^19 } ] This is a standard NPV calc. As you can see it doesn't assume that all the uranium will suddenly appear out if the ground. However, if you set i= r = j all the terms involving these cancel out and you end up with the sum of 16 terms, each of which is $100 - $25 or $75 . I have run these calcs through a spreadsheet with a variety of assumptions regarding i. r and j . I arrived at a range of results, and the $1.2bn obtained by the simple approach lies well within what I believe to be a reasonable range. Now the question is why doesn't the market currently assign a value of $1.2 to URZ? The answer is risk. There is a risk that they will not be able to produce as planned, that the sales price of uranium or their costs will not be as assumed over the course of production and so forth, and of course a time risk in that production is still several years away. The market is discounting URZ because of unknowns. This makes sense to me, which is why I say that Mr. Market is acting rationally (If the market currently valued URZ at $1.2bn given the unknowns, I would be selling it!) I have bought URZ not because I think it is currently worth $1.2bn, but because I think there is a good chance it * could* become worth somewhere around that figure in a few years. I am taking a calculated risk. As I said, I wouldn't use NPV for other than companies reasonably near to production or actually producing since the unknowns tend to swamp the other variables. Cheers Energy_Investor