The moral of the story, between Bear Stearns, Uranium One and Xemplar, just to keep it to a triangle, is that investors need to be very careful about what they listen to, and perhaps even more careful as to where it's coming from. The so-called "theory" of investment analysis, using "fundamentals," has not looked this shaky for years. May the bloodletting continue, and the scoundrels rejoice.
Author: Barry Sergeant
Posted: Thursday , 03 Apr 2008
JOHANNESBURG -
Way less than one year of experience for two listed stocks, Uranium One (UUU, C$3.44 a share) and Xemplar (XE CN, C$1.70) provides yet another clod of heavy duty evidence that the rules of investment analysis needs to be re-written, if such was ever indeed written in the first place. The two stocks have created a taint that has washed over most, if not all, other uranium stocks, leaving the global listed uranium stock sector the most heavily sold off in the resources arena.
The common overlapping factor is human beings, the ones who tell the tall stories no matter where they are. At Uranium One it was erstwhile CEO Neal Froneman who for more than two years had almost on a daily basis advised shareholders and new investors and anyone else who would listen that Uranium One's cash cost for uranium at Dominion, its flagship operation, in South Africa, would be around $18/lb.
With the first estimate for 2008 of Dominion's production at 2.8m lbs, cash flow profits of about $200m for the year was the suggestion. The initial estimates for 2008 uranium production were slashed in October 2007 to 1.7m lbs and in February this year to 0.55m lbs, an 80% retrenchment from the initial figure.
Froneman quit Uranium One very suddenly on 21 February. Since then interim CEO Jean Nortier has resolutely refused to answer a plethora of straight questions on Dominion, including industry information that costs there are running at more than $100/lb, suggesting serious daily "cash burn". Nortier has been heavily criticised by professional investment analysts for adopting a policy of opacity. Uranium One's stock has recently traded more than 80% off its 12-month, and record, highs.
Xemplar, a uranium exploration stock focused on Namibia, was traded at record levels at the end of December 2007, as the company awaited assay results from 13 drill cores from its Warmblad prospect in Namibia. On 18 December 2007, Xemplar said it "believes it has effectively discovered a new uranium province in the Warmbad area".
A note after a site visit from Cannacord, an investment dealer, discussed six distinct mineralised radiometric alaskite bodies, about 12km apart, within an area covering 40km by 12km. In the first week of 2008, a recent addition to the UK broking scene, Fairfax, rated Warmblad as a "world class uranium opportunity". Fairfax anticipated that "a major such as Rio Tinto (RTP LN, £54.30), Areva or a Chinese" [entity] could be lining up to swallow Xemplar.
Ahead of even the first drill results from Warmbad, Fairfax spewed a potential valuation on Warmbad of US$2-7bn, based on a potential 20bn tons of uranium oxide. These dreamy numbers dwarf Namibia's monster Rössing uranium mine, long owned and operated by Rio Tinto. On the Fairfax numbers, Warmblad ranked as the biggest of its kind in the world by a factor of five to ten. Xemplar finally published its first drill results on 8 February. The stock recently traded, like Uranium One's, more than 80% off its peak levels.
The moral of the story, between Bear Stearns, Uranium One and Xemplar, just to keep it to a triangle, is that investors need to be very careful about what they listen to, and perhaps even more careful as to where it's coming from. The so-called "theory" of investment analysis, using "fundamentals," has not looked this shaky for years. May the bloodletting continue, and the scoundrels rejoice.
http://www.mineweb.com/mineweb/view/mineweb/en/page38?oid=50236&sn=Detail
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