Hi Mr. Metals and Ron!
Just to be fair!
MARCH 1998 FEATURE REVIEW:
STRATHMORE RESOURCES (SMR,V)
CATEGORY: Junior Uranium Resource Company
Pre-financing
Shares Issued and Outstanding 12,726,083
Shares Fully Diluted Approximately 16,500,000
Cash $1,000,000
After Financing (near term)
Shares Issued and Outstanding 15,726,083
Shares Fully Diluted Approximately 22,500,000
Cash $2.5 million
CONTACT: Bob Hemmerling 1-800-647-3303
"there is a consilience of broad fundamental and technical evidence strongly suggesting that we
are
early in a new multi-year secular bull market in this commodity..."
Dr. Ken Friedman, Vancouver Uranium Forum, January 25, 1998
QUICK FACTS
Many analysts are of the opinion that we are in the early stages of new multi-year bull market for
uranium. Strathmore is positioning itself to take advantage of this opportunity by adopting a
strategy
which focuses on uranium management expertise and the acquisition of prospective uranium
properties for pennies a pound. The technical knowledge and uranium mining experience which
the
SMR management team has is rarely found with a junior resource company. These combined
management skills allow Strathmore to identify,acquire, and to later bring into production the
properties which meet their criteria, all at reasonable costs.
At the end of 1997, Strathmore had 16 uranium properties in the western U.S. which collectively
account for 38,045,000 pounds of proven resources with the potential for another 83,500,000
pounds. Most of these properties are estimated to have production costs (all-in costs) ranging
from
$12 to $16 per pound. The bullish forecasts of a number of analysts are calling for prices to go
up
this year. By 1999, I've seen reports which range from $17.50 to $40. This would make the in
ground value of these properties very attractive.
Just considering the 38,045,000 of proven resources, if the all-in cost was $16 for all the
properties,
and the spot price was $17.50, the deposits could be valued at over $57million. For every $1 the
spot price goes up, you could presumably add another $38 million or so to the properties value.
Over the coming months, Strathmore will continue to work its strategy of acquiring low cost
uranium
properties which have a high appreciation potential.
THE URANIUM MARKET
If there ever was a time to bottom fish Uranium plays this is probably it. Many analysts are
encouraging their clients take positions in the few publicly traded uranium companies available
to
investors. For many years U308 had been ignored by the investment community but now many
investors are preparing for what many claim will be the strongest run on the uranium spot price
since
the 1970's.
The strong endorsements are due to the solid market fundamentals which represent a classic
commodity squeeze whereby the demand is quickly depleting inventories and the supply is in a
significant shortfall position.
The rate of growth demand forecasted in the late 1970's fell short of expectations. As a result,
production exceeded supply for several years which resulted in a huge build up of inventories.
The
price of uranium however stayed very strong and peaked in 1979 as the analysts still believed
demand would grow at a faster rate, 5% per year or more. The decline in demand growth
resulted
in accumulated inventories that would keep the supply of uranium at a high level for a longer
time
then expected and prices dropped from a high of over $40 U.S. in 1979 to a low of $7 U.S. in
1994.
The Supply/Demand Picture is Changing Dramatically:
Year Total Supply Western World Balance from Years of Inventory Consumption Inventories
1996 40,587 63,000 22,413 1.26
1997E 50,379 63,000 12,621 1.06
1998F 55,837 63,000 7,163 .95
2003 65,000 64,405 595 .84
For a number of years now, Increasing strong demand has been depleting inventories at a rapid
rate.
Analysts are predicting demand will out weigh supply for at least six more years. Under this
forecast, the uranium spot price should move up as inventory levels continue to deplete.
OUTLOOK
Utility Companies are signing Longer Contracts at Higher Prices to Secure Supplies...
Utilities have recognized the inevitable price rises and in 1996 contracts with suppliers tied up
90%
of last year's demand while extending the life of the contracts from three to five years to five to
seven. Also, these contract prices have allegedly risen to $20 or more.
Demand for Uranium Will Increase Significantly Over the Next Few Years...
Presently, uranium accounts for about 17% of the world's power generated from 439 plants.
Incredibly, the world's major air polluter, coal, dominates the supply by generating 42% of the
global power needs. Many third world country's, particular in the Far East, are now realizing that
uranium is a cheap and clean power source. We can expect a significant number of the roughly
100
new power plants to be constructed in this area of the world over the next several years.
Uranium Supplies Should be tight for many Years...
Many former producing mines were shut down in the 1980's as they became uneconomic to run
with the falling prices. With the forecasted spot price increasing, many mines will re-open but not
overnight. Restarting an old mine could take up to two years with governmental requirements
needing approval not to mention the re-engineering of the mine to bring production on line. For a
newly discovered mine the process can take up to six years before they see production.
MANAGEMENT
Strathmore's management team is highly experienced and accomplished in the uranium business
with
a collective experience base of several decades. This pooled knowledge allows Strathmore to
quickly and professionally assess opportunities, such as the Macusani uranium district
opportunity in
Peru. Some of the key players include:
Well known mining analyst Dr. Ken Friedman became SMR's president and CEO in December of
1996. Ken is acutely aware of the excellent potential a junior uranium player has given a good
management team and potentially lucrative properties. His previous experience has included,
Metals
and Mining Analyst for Boettcher & Co., Natural Resources Analyst for Kemper Securities, and
Director of Research for Dickinson & Co., he has been quoted in financial publications such as
the
The Wall Street Journal and Barron's.
The chairman of the company's Executive Advisory Board is Ray Larson. Larson, founded
Uranium
Resources in 1977 and was the president and CEO until 1994. Uranium Resources pioneered
the
development of in-situ mining, a low cost method of extracting uranium which may be used with
some of Strathmore's properties.
Bill McKnight worked closely with Ray Larson for several years. Bill has a world-wide reputation
as one of the leading experts on in-situ leach, a low-cost environmentally friendly means of
extracting uranium from certain types of deposits.
David Miller is Strathmore's head geologist. He has spent 20 years with Cogema, the second
largest
uranium supplier in the world which produces 15% of the world's U3O8 needs. Miller is well
experienced in the exploration and production of uranium including refractory in-situ leach.
Strathmore's chief geologist in Peru is Guido Arroyo, who was also the chief geologist for the
Peruvian Nuclear Institute, IPEN. Arroyo is well regarded by his colleagues and has presented
papers at European uranium symposia.
THE PROPERTIES
The largest historical Western World producer of uranium is the United States which accounted
for
nearly 1 billion pounds of total production. During uranium's previous golden years, when
exploration was booming, 5 billion pounds of uranium was discovered of which 4 billion is still in
the
ground.
Consequently, Strathmore has been concentrating its efforts in the western U.S. where previous
companies had drill proven millions of pounds of U308. In fact more than 2,000 drill holes were
done by others on Strathmore's properties. It is very expensive to get drill proven results and a
key
benefit for SMR is that they don't have to spend a dime in exploration costs to acquire these
reserves. From the data these other companies had collected, Strathmore's management can
reasonably estimate the cost of production which for most properties is between $12 and $16 per
pound.
In the future, the company may do some low-risk development drilling to convert their potential
resource in to a drill-indicated resource. Initial environmental permitting will be done in Peru,
where
such costs are about 10% of what they would be in North America.
It is interesting to note that Ken Friedman has stated that the average world-wide all-in cost of
present production is $20 per pound. This gives further credence to the prediction of higher spot
prices will soon be seen.
The average cost of acquiring SMR's portfolio of properties has been under 1 cent per pound.
Annual holding costs are half of that. The company's short term goal is to have a proven uranium
resource totaling at least 50 million pounds.
Although not economic at today's spot price of $11.50/lb., most of these properties are amenable
to
either in-situ leaching or to open pit heap leach technologies, or have a sufficiently high grade to
make them moderate cost producers.
Strathmore's Uranium Ore Reserves at the end of 1997
State Pounds U3O8 Additional Total Potential No. of Drill Holes Resources Potential
Wyoming 17,245,000 18,000,000 35,245,000 1,915
Utah 3,800,000 21,500,000 25,300,000
Arizona 4,000,000 4,000,000
Oregon 17,000,000 40,000,000 57,000,000 200
Total 38,045,000 83,500,000 121,545,000 2,115
Uranium Property Valuations
Year Purchaser Property Reserves(lbs) Price($M) Price/lb
1988 Rio Algom Smith Ranch 30 million $45 $1.51
1993 Uranerz Crowe Butte-22% 4.62 million $5.2 $1.13
1994 Cameco Crowe Butte-31% 6.46 million $7 $1.08
1996 Power Res. Gas Hills-25% 4 million $5.419 $1.35
1996 Uranium Res. Alta Mesa 5 million $6+10NSR $1.20
1997 Cameco Power Res. 80 million $106 million $1.13
1997 Strathmore Various 38 million $200,000 $0.005
In addition, the Company has established a Peruvian subsidiary, Peruran S.A. Peruran has
acquired
mineral rights to roughly 40 square kilometers in southern Peru. Upon completing specific
additional
acquisitions, Strathmore Resources Ltd. will make a comprehensive announcement of its
position in
Peru.
MACUSANI DISTRICT OF PERU
Near the end of last year, a friend of Dr. Friedman's informed him that the Peruvian government
was
releasing the Macusani uranium district from their national reserve. Strathmore management flew
down right away and discovered that the potential of the Macusani was excellent and this verified
The International Atomic Energy Agency's estimates that the district had between 50 and 140
million pounds of uranium oxide.
They quickly incorporated a wholly owned Peruvian subsidiary and hired Guido Arroyo, the
former
chief geologist for the Peruvian Nuclear Institute, IPEN. They applied for and received 40 square
Kilometers of concessions well placed in the Macusani district. This was all done in less than two
weeks! Do you think a big uranium player like Cameco would move that fast? Hardly!
The Macusani concessions are rather unique geologically in that the property has outcroppings
of
uranium mineral autunite which is found in small fractures in many areas of the district. Autunite
contains 51% uranium by weight and converts into 60-65% U308. Having pure autunite ore
opens
up the possibility of starting up a small scale uranium mining operation using local mineros. This
program could generate a cash flow to fund further exploration and acquisitions in the Macusani
district.
Though starting a cash flow from a small scale uranium operation is not a priority for Strathmore,
their geologist believes it is reasonable to assume that local gold miners who are currently
making $5
to $10 a day would probably be more interested in mining Autunite. The assumption is that the
local
miners could probably earn $40 day mining 20 kilos of autunite.
A small scale operation of this kind would assist in a cost-efficient exploration of the property.
This
is what Strathmore is really interested in doing. Locating a large low-grade multi-million pound
deposit is a high priority for the company and while a cash flow would be nice, the main objective
has and will continue to be, to increase their uranium inventories at a low cost to take advantage
of
the future bull market.
I had a discussion with Ken Friedman about this scenario and they believe it is possible that 50
miners could collectively produce 1 metric ton a day of autunite. This would be equivalent to
1320
pounds of yellowcake (U308) per day, given a spot price of $11.50, the gross cash flow could be
$15,180/day less $2,640 for the miners.
To facilitate this possibility, a uranium buying station will be set up, similar to the gold buying
stations
found throughout the region. Again, it should be noted the above numbers are only possibilities.
Since no one has ever tried this before there is no precedent upon which to base these
projections.
THE AURORA PROPERTY IN OREGON
Considering all the properties in Strathmore's portfolio, the Aurora property is likely to be the
company's highest priority for US production. As such, I will run over this property with you so
you
can review what its potential may be. Permitting is expected to start this summer.
In early February, Strathmore announced that it had consummated an option to purchase the
360
acre Aurora property in Oregon. This is a large low grade, heap leachable property which had
been
previously drilled by Placer Amax Corp. Their drilling data had proven a uranium resource of 17
million pounds. Strathmore has also staked an additional 2,700 acres surrounding the Aurora
property which has additional potential. Since this property is heap leachable, it is possible to
mine
the uranium at a moderate cost.
This acquisition has increased Strathmore's drill indicated uranium resources in the western U.S.
to
40 million pounds, a 74% increase! That's a rather significant number though in order to grasp
the
significance of what this means in a bigger picture, what Strathmore has done is purchase
uranium
deposits for pennies a pound without spending a cent on drilling!
For example, the terms of the Aurora property are $15,000 per year for six years with a 2%
royalty
once production starts which will be capped at $1.1 million. Using the January 1998 Bear
Stearns
uranium forecasted price of $17.50 for 1999 and SMR's estimated all-in costs come in high at
$16/lb, by 1999 SMR will have spent $30,000 to hold their option and if we hypothetically
assume
that the net value of the uranium is $1.50/lb and we have 17 million pounds all of a sudden they
have
$25.5 million worth of in ground resources based on this illustration. Now for every dollar
uranium
goes up...you get the picture.
This is a brilliant strategy! Strathmore is continuing to acquire more properties in order to
capitalize
on the forecasted increased uranium prices.
CONCLUSION
I have been following the progress of Strathmore since August of 1996 when Strathmore was
trading for about the same share price as it is today. Early shareholders of SMR were richly
rewarded for their speculation as share prices more than quadrupled in only a matter of a few
months leaving many investors with free shares after taking some profits.
Post Bre-X, and the general resource market apathy of late had many shareholders unload their
positions, perhaps by necessity, which forced Strathmore shares to endure an eleven month
downtrend. This, in the face of what many analysts predict will soon be a classic commodity
squeeze for uranium supplies, driving the prices significantly higher, seems odd. Yet, despite
what
the gurus tell us, most people will participate in such speculations long after the party has started
and
prices are already up significantly.
Technically, Strathmore turned the corner in early February having broken out of its downtrend
line
and bottom fishers once again are taking positions. At roughly the same share price as it was in
August, 1996, Strathmore is certainly a much stronger company today.
Strathmore's management team could rival that of any large producing uranium company. With
the
expertise in place to further acquire prospective low cost properties and to bring them to the
potential production stage, SMR seems set to maximize the company's potential during the
upcoming uranium bull market.
I still haven't done any DD on Anaconda! ( How many shares do they
have out?)
Blaine |
