From Bloomberg.com:
Sept. 3 (Bloomberg) -- Uranium Resources Inc. is sitting on as much as $7 billion worth of the radioactive mineral and may become a takeover target after the shares plunged 83 percent this year, along with the fuel's price .
The Lewisville, Texas-based company has proven uranium reserves in the state of about 800,000 pounds, plus an estimated 101.4 million pounds of the material in New Mexico, according to a regulatory filing . The deposits could power the world's 438 active nuclear-generating plants for a year.
David Dreman , 72, who oversees $13.7 billion as chairman of Jersey City, New Jersey-based Dreman Value Management LLC , bought 51,060 shares this year, boosting his stake to 4.5 percent. The company's biggest investor, Zesiger Capital Group LLC, also increased holdings, according to regulatory filings.
``Uranium Resources is one of the cheapest uranium stocks out there right now, given its assets,'' said Mark Roach , who runs Dreman's $1.8 billion DWS Dreman Small Cap Value Fund . An increase in nuclear power's appeal as a clean-energy source may raise the company's profile as an acquisition target, he said.
The shares, which reached a record closing price of $14.02 on Nov. 6, closed at $2.18 in Nasdaq Stock Market composite trading yesterday. They may be worth $20 each, based on past acquisitions of companies with similar reserves, said Peter Homans, a hedge-fund manager with Parkman LP in Boston. The fund owns the shares, he said.
`Meaningful Upside'
Uranium Resources rose $1.02, or 47 percent, to $3.20 at 4:29 p.m. for the biggest gain since Sept. 26, 2003. The stock was the biggest gainer on the Russell 2000 Index today.
``From my perspective, the company has 100 million pounds of proven reserves, which is more than any other American company,'' Homans said. ``The contract price for uranium is somewhere around $70. Multiply that by 100 million and you have a present value of $7 billion. For a stock whose market cap is $100 million, there's meaningful upside.''
Calls and e-mails to Bobby Winters , a managing director at Zesiger in New York, weren't returned. The firm owned 14.2 percent of the shares as of June 30, according to data compiled by Bloomberg.
Uranium Resources trades at half the price of Canadian competitors based on the value of its reserves, analyst Paul Stouse at Rice Voelker LLC of Covington, Louisiana, said in an interview.
Saskatoon, Canada-based Cameco Corp. might acquire the company to strengthen its position as the world's biggest uranium miner, Roach said.
Cameco doesn't comment on acquisition targets before investors are informed, spokesman Gord Struthers said.
``However, we are looking for ways to expand our production and have said we're in a growth mode,'' he said. ``It's a small industry; we've probably talked with every company out there.''
Unexplored Land
Uranium Resources produced 417,000 pounds of the mineral in 2007 and 196,900 through the first half of this year, the company said. By 2014, new and existing mines in Texas may yield as much as 2 million pounds annually, Chief Executive Officer David Clark , 53, said in a presentation June 4.
As much as 9 million pounds may be mined in New Mexico, Clark said.
The company also owns 183,000 acres in New Mexico, 70 percent unexplored, Clark said. As much as 588 million pounds of uranium may be found in the state, he said.
``We plan to become a 10-million-pound-a-year producer,'' Clark said in an interview. ``We have some of the largest reserves in the largest reserve area in the country, in the largest uranium-consuming country in the world.''
Uranium Resources has declined 80 percent since the end of June 2007 as the mineral's price slid by about half from a record $138 a pound. Selling by hedge funds and speculators, who had bet prices would rise with oil, accounted for the drop, said analyst Eric Webb of Roswell, Georgia-based Ux Consulting Co.
Mill Purchase
Dropping prices forced the company to abandon an acquisition of a mill in New Mexico after the deal became too expensive, Clark said. Scrapping the plan was a disappointment to some investors because it delayed production in New Mexico, Homans said.
The company won't meet a forecast of 400,000 pounds of uranium production this year because of aging properties and difficulties extracting the mineral from the Rosita mine in Texas, Clark said in a conference call with investors Aug. 11.
Uranium Resources sold stock at a discount in a private equity offering in May to raise money for exploration and well repair. The sale angered some investors as it diluted the value of their stakes and didn't help save the mill purchase, Homans said.
``The falling price of uranium has taken its toll,'' Clark said in an interview. ``We don't have the same level of interested investors as we had a year ago, but we have seen a rotation to people interested in the long-term fundamentals of the market and those fundamentals remain strong.''
Uranium Demand
Atomic reactors consume about 165 million pounds of uranium worldwide annually. Only 110 million pounds are produced each year, according to the World Nuclear Association , a London-based industry group. The remaining 55 million pounds come from gradually declining sources, including former weapons material. Those stores are forecast to run out by 2013.
The number of reactors may expand to 740 worldwide by 2030 as China and India build new plants and other countries increase their use of atomic energy, the association said.
Primary uranium supplies would have to triple by that date to meet predicted demand, the association said. New producers will be needed or current suppliers will have to add capacity through acquisitions, said Justin Reid , a mining analyst at Cormark Securities Inc. in Toronto.
Navajo Land
Uranium Resources has been unable to extract ore from a section of its 2,200-acre Church Rock property in New Mexico because of a dispute over the authority to issue a mining permit. The U.S. Environmental Protection Agency ruled last year that the Navajo Nation and not the state has jurisdiction, the company said in a statement.
It could begin producing 1 million pounds of uranium a year within the next 18 months if an appeal is successful, the company said. The case will continue if the court sides with the EPA.
The U.S. Court of Appeals for the 10th Circuit in Denver may rule in the next three to six months, Homans said.
``These are just bumps in the road,'' Roach said. ``The company is an asset play and management is doing all of the things it should to build shareholder value. Wait for uranium prices to recover. This will be a stock to own.''
The case is HRI, Inc., v. EPA, 07-9506, U.S. Court of Appeals for the Tenth Circuit (Denver).
Article: http://www.bloomberg.com/apps/news?pid=20601103&sid=ajeLe...
$3.4 (09/03/08)
