That’s a great definition you gave on optionality plays, Maurice. It makes perfect sense for a company with the means, like UEC, to acquire uneconomic deposits for pennies on the dollar with the anticipation of exploiting them at a later date when the uranium price rises sufficiently to make them economic again.
I believe the market is usually forward-looking in that it will value the net present value of these projects based on the prevailing commodity price at the time. This is why it’s so important to understand things like supply-demand fundamentals and inventory levels in whatever commodity we are discussing.
In the case of the Anderson project, you stated that using a 10% discount rate, the after tax NPV with a $65 uranium price would be $101 million. If we were to look at the spot price of uranium today at around $26 per pound, the project would have a negative net present value. Knowing that the Anderson project could potentially generate a NPV of $101 million with a $65 price of uranium leads me to believe that, based on the market cap of the company which is currently $110 million, the market is placing only a fractional value on their multiple in situ deposits, processing facility, Anderson Project, Slick Rock Project, and their excellent management team. So if you were to purchase the shares now, you would get all of those assets and management team for a fraction of what they would be worth if the uranium price went form $26 to $65, which is what it costs the industry to make the stuff.
From a balance sheet point of view, they do have some debt of $20 million to deal with however they do not have to make principle payments on this debt until 2019.
It also appears that they’ve been diluting shareholders on a yearly basis as they wait for a rebound in the uranium price. This dilution doesn’t seem to be excessive but it is something to watch, since we don’t know exactly when and for how long it will take the uranium price to recover.
Overall I think the whole company of UEC could be looked at like a leveraged call option on the price of uranium that only expires when you either lose the patience or have a better time value investment presented to you now rather than later. All in all, it’s a great company and it would be very interesting to break down the value of each and every in situ deposit, processing facility, and the couple of deposits they have PEA’s on to come up with some future valuations based on a higher uranium price.