May 21, 2024


Business – Your Game

Investment Manager Warns about Investing in Uranium Projects

Although the junior mining sector began crumbling in May, savvy investor Mike Halvorson, president of Halcorp Capital, still ended up having a very busy summer. Welcome to the world of a substantial investor in mining stocks, who gets in early and then enjoys sizeable profits as, one by one, his companies become takeover targets. “I’ve been fortunate,” the humble Halvorson told us, “I’ve gotten associated with top explorationists, the people who do know a quality project.” And because they have credibility, quality projects come to those geologists. Halvorson claims his wealth-building strategy comes from investing in the projects of these credible geologists.

On May 3rd, Glamis Gold acquired Western Silver. “I recognized the project and the main geologist behind it, Tom Patton,” Halvorson explained. “I was a director of Western Silver. I didn’t stay associated for the whole run, but I was there for the best part of it.” August has been his busiest month. As a director of NovaGold, Barrick Gold recently announced a hostile takeover of this company, and which is now being disputed. In mid August, Yamana Gold made a bid to take over the shares of Viceroy Exploration, which has proven and probable gold reserves in excess of seven million ounces in Argentina.

So how does someone emulate Mike Halvorson’s success in picking major winners in the mining sector? “The average investor is going to have a tough time,” he commiserated during our phone conversation. “If I were an average investor, I would rely on some sort of advisory service, or two or three, to help me pick my stocks.” We both agreed some of the uranium projects weren’t going to make it. “So many of these uranium projects will never see a shovel to the ground, they will never see anything close to production,” he cautioned.

But many advisory services look out for themselves first, then their subscribers, maybe if at all. He advised us to avoid the self-serving ones. “I have a long record with a couple of guys that are honest and have good abilities,” Halvorson said. He subscribes to Bob Bishop’s Gold Mining Stock Report. “I like Bob,” Halvorson told us. “He covers people. He knows a lot of individuals in the industry. One of the gifts, a guy like Bishop has, is he doesn’t try to fit the same model over every company, like a lot of analysts do. He just tries to figure out whether the stock is going up. What makes Bob Bishop better at picking stocks than most of the guys is that he doesn’t walk around with a model. He walks around with instincts and the ability to judge the people involved. He has a great network to check facts out with.”

“I guess for the average person, if they don’t rely on an advisory service, they should go to the (resource) conferences,” Halvorson recommended. Such conferences occur throughout the year. One resource conference takes place this week in Las Vegas. Another popular resource show will be held later in September in Toronto.

Valuing Uranium Mining Stocks

“The (uranium) companies are so new,” Halvorson said. “Some of them aren’t really that acquainted with their own assets, let alone the assets of other companies. It’s not like the oil and gas business where you’ve got … in western Canada, there are a dozen or fifteen blue-chip engineering firms that provide reserve and reservoir evaluations. If you see one of those engineering reports, you can really put a market value on those assets.”

Not so in the uranium business. With uranium assets, Halvorson explained, “A lot it is historical work, some of them are National Instrument 43-101 and some aren’t.” But he warned that despite the regulatory insistence that companies file independent geological documents confirming their resources, “You have to be careful if you run out and buy some 43-101 resources.” He added, “I’m not sure that one would solely base investment decisions on them.”

For example, he described how it might be possible that a company could only solution mine (ISR uranium recovery) the resource. What happens if after doing the tests, the company discovers solution mining won’t work? “That is something that will concern me,” he told us. “I think there are an awful lot of projects out there that are being called ‘good projects’ by companies that have them. And I don’t think these people have a clue as to what is required for solution mining.”

If so, then what should investors be looking for in uranium mining stocks? “At this stage, I would try to look at undervalued companies because that’s the least risk,” Halvorson advised. “I don’t think I would look at the market leaders, per se. Companies like Cameco and Denison are awfully pricey. International Uranium is pricey in my opinion.” So where would Halvorson look today? “I would look at the undervalued ones, the ones that have projects, but for some reason maybe not as much traction in the market,” he suggested. “I think ultimately the market will recognize those values or they’ll get taken over at premiums.”

Two of Halvorson’s favorites came from his network. “I originally got involved in Strathmore Minerals because I knew they had some good properties and some very good consultants and contacts in the business,” he explained. “And, they have David Miller, who really knows the business inside out. Talking to him, I got comfortable with those U.S. assets. So, I literally backed the truck up and bought lots of stock.” Halvorson subsequently became a director of Strathmore Minerals.

Another Halvorson favors is Kilgore Minerals. “With Kilgore, it is because Norm Burmeister had such a good track record with Silver Standard and Bull Run,” Halvorson said. “Norm is the kind of guy who has a great appreciation for an economic play. I got involved with Kilgore fairly early on and was semi-responsible for the stock moving out of the 30 – 50 cent range. Norm has a huge gold property. We both laughed about Kilgore’s major downside, and he added, “There’s a company that if it was aggressively promoted, would probably be trading at maybe three times where it’s at. Their gold property is probably worth what they trade for.”

Halvorson discussed his other uranium holdings, “I was a fairly substantial shareholder of UR-Energy, but you can’t own all your stocks all the time. They had a very good market so I left.” He noted those were his three substantial holdings and that he also has minor holdings elsewhere. One of those holdings, Santoy Resources, comes from his association with Ron Netolitzky, who is also a director of Viceroy. “There’s not anybody who’s got a better track record than Ron of recognizing an economic deposit early,” Halvorson said of his long-time acquaintance. “Ron worked in the uranium field in the 1970s and 1980s, as well as the gold sector, so he knows all about uranium exploration.”

Of the sector, Halvorson believes there is more consolidation ahead with the quality uranium companies. “Some of these guys have got pretty rich valuations, such as SXR Uranium One with their pricey currency and extremely strong market support from Europe and Canada,” he told us. “Because of their market cap, they’re big enough that they can use their currency and do acquisitions.” He spoke highly of SXR Uranium One, “I’ve been to their main project in South Africa. They’re building it. It’s happening. They will be mining. And they are miners.”

And that’s the big difference, going back to his comment about some projects which will never see a shovel in the ground. “How do you compare Denison to some of these other companies?” he asked. “That’s part of the difference. Denison looks like it’s priced through the stratosphere, but they are mining. I think if Strathmore Minerals, which is sort of undervalued right now, if we could get Church Rock producing, I think there would be a huge revaluation.”

He sees a bright future ahead for the mining sector, and believes investors can do well if they study companies before investing in them and get the right advice. “For people coming new to the market, I would look for undervalued stocks,” Halvorson advised. “I would probably take a portfolio approach. I wouldn’t buy just one. I would buy several.”

Halvorson expects more consolidation in the uranium sector. “As the companies get more comfortable with everybody else’s share price, and also getting more comfortable with other people’s assets, then you will see people saying, ‘We can use our shares as currency because we’re trading at roughly our Net Asset Value (NAV), but this company is trading at a discount of 30 percent to their NAV. So, if we can do a transaction with them, it’s going to be accretive.'”

That’s not the case right now, though. “You’ll hear companies talking about this wonderful asset they’ve got,” he said. “Then, I’ll go ask somebody I know in the business about the play, and he might say, ‘Oh god, I don’t like that.’ Right now, I don’t think people have any way of judging a lot of these properties. If you remember the analogy I used in the oil and gas business, where you have companies trading properties all the time, it’s because people can rely on engineering.”

Right now, a lot depends upon the underlying commodity. Rising spot uranium prices have helped a large number of the uranium ‘development’ companies, such as Strathmore Minerals, UR-Energy, Uranerz Energy and Energy Metals, move higher. Most recently, according to TradeTech LLC, the spot uranium price reached a new high at $52/pound. Many of the U.S. uranium projects became economic above $30 and $40/pound, which offers investors more opportunity for profit. “I think I’m going to make a lot of money in the resource sector over the coming years,” Halvorson said with excitement in his voice. “But you have to be nimble. If you buy high and just hold, you might just get your money back at the end of the day. If you like the sector and trade around core positions, I think it’s going to be one of the most attractive sectors out there.”

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