Most investors read a company's news releases, but don't read between the lines to understand in which direction the company is heading. Too often, a company tries to say everything in the headline and the first paragraph. Why? Because they know, as we do, that most investors scan the headline, a few sentences and perhaps look at some drill intercepts or key technical data (which few really understand). Then, the investor looks at how the share price reacts to the news, rejoicing or complaining on a stock chat board. Often, key phrases or sentences are buried inside the release, sometimes near the bottom. These may give you a clue as to what is really happening with the company.
We pulled up some recent news releases of several uranium companies we have been following to help investors read between the lines. Only a keen, ruthless appraisal of each news release, or a series of their news releases, could give you an accurate interpretation of how well the company is doing. Hopefully, the guidance which follows may help you better understand what is really going with a company's plans.
What do you do about a company that hasn't been issuing a flurry of news releases? Take Strathmore Minerals (TSX: STM; Other OTC: STHJF) as an example. There are developments, but the news stream has been fairly quiet. Have they come to a standstill? No, quite the opposite is true.
We did what any investor should always do in the absence of major news. We picked up the phone and called their investor relations department. During a brief chat with Craig Christy, the company's spokesman, we asked about the company's cash situation. He responded, "We have about C$0.55/share in cash." Based on Thursday's closing price, that comes to more than 30 percent of what the market is valuing STM. That's UP from C$0.37/share earlier this year. STM has plenty of cash and is in excellent financial shape.
We looked through our copy of the Hargreave Hale Report, entitled, "Too Hot to Handle or Just Warming up?" This is a leading British financial institution, based in London. They are a major shareholder in STM, and they have been recommending STM shares. On page 32 of their document, we reviewed a great financial analysis of 33 Canadian and Australian uranium producers and development companies. The bar chart depicted the Uranium Enterprise Value (UREV) per Risk Adjusted pound of U3O8 Reserves and Resources of those thirty-three companies. A horizontal line crossed the chart, showing "fair value" of about US$4 million for each company's UREV per pound adjusted.
It was interesting to study how STM stacked up against many of the most popular uranium companies. Companies, such as Mega Uranium (TSX: MGA) rated at about US$28 million – about 700 percent ABOVE the Hargreave Hale "fair value" analysis. Crosshair Exploration and Mining traded about 500 percent of its fair value. UEX scored about twice above its fair value. Companies such as Uranium Resources, Western Prospector, Paladin Resources and UrAsia Energy scored at or very near their fair value. Strathmore Minerals had the lowest fair value rating – an absolute steal at about 30 percent of its fair value. About 16 companies traded above their fair value, some very much above the Hargreave Hale fair value analysis. It was enlightening to find Strathmore was in the company of producers such as ERA of Australia, IUC, Uranium One and Denison as an undervalued uranium company. In this case, it was the most undervalued of all 33 companies analyzed by the City of London financial institution.
We also found out that, a week ago, Strathmore Minerals president David Miller presented at the invitation-only Raymond James In-Situ Leach Uranium Mini-Conference in Toronto and Montreal on June 7th and 8th. You could visit the Raymond James (Click here: www.raymondjames.ca) website for the webcast of David Miller's presentation, but it has restricted access. Others presenting were Uranium Resources and Energy Metals. We were fortunate to review David Miller's PowerPoint presentation. One word describes Miller's presentation: Wow! It really did pack a punch. We heard Raymond James may be releasing these presentations to the public in the near future.
Sometimes, when there is a lack of news, one can learn to dig around and find a company can be doing quite well. In other instances, one can study the news releases and try piecing together where the company is heading. We hope this guidance helps you become a more sophisticated investor. We neither recommend stocks nor give buying and selling advice. As always, speculating on natural resource companies can be very risky and suitable only for certain investors. One should always check with their registered financial advisor about what is suitable or not for one's investment decisions.
James Finch contributes to StockInterview.com and other publications. Sign up now and get your free copy of our new book, "Investing in the Great Uranium Bull Market: A Practical Investor's Guide to Uranium Stocks." Just visit http://www.stockinterview.com for details.
