A little Gem... er, call that
a BIG Gem
click on images to
June 27, 2007
I've heard it said that the best place to find a new mine is
in the shadow of an old headframe. That makes a lot of sense.
Many mines are shut down, not because they run out of ore, but
because the price of the commodity won't support mining at that
So it is with uranium and I've just returned from visiting a
wonderful energy company in Canada with giant potential. This
is my favorite uranium stock.
The company is Pele Mountain
and the symbol cannot be forgotten. It's GEM and goes
back to when they wanted to focus on diamonds.
has a commanding land position in Elliot Lake, once called the
"uranium capital of the world" during the time Canada
was the leading exporter of uranium. Uranium was discovered in
Elliot Lake in 1953 and the area soon became home to a number
of uranium mines, eventually producing over 270 million pounds
Since that first discovery, the region has gone through a number
of boom and bust cycles. The first, driven by demand for uranium
for nuclear weapons, took place from 1956 to 1966. In 1960 the
area provided a home for 11 mines and 25,000 miners.
In late 1959 the US Atomic Energy Commission made a ruling that
the US would only purchase uranium produced in the US. Employment
in the Elliot Lake uranium mines plummeted 80% by 1964.
The second boom and bust took place between 1967 and 1996 as
demand for the expansion and development of nuclear power caused
prices to rise then crash. In 1978 international uranium prices
rose to over $43 a pound before dropping in the early 1990s after
the incident at TMI caused the nuclear power industry to crash
for years. The last producing mine at Elliot Lake and Ontario
closed in 1996.
The uranium deposit at Elliot Lake has a characteristic, which
makes investing in GEM as close to a slam-dunk as you will ever
get with a uranium company. Pele describes the nature of the
deposit as Elliot Lake as "stratigraphically-bound deposits
that demonstrate remarkable consistency over extensive area."
That term stratigraphically-bound is very important.
I don't want to get any flak from geos on this so cool your jets.
There may be more technically accurate ways of describing deposit
types but in general most mineral deposits are structurally controlled.
There will be a fault or faults in the earth, which provide a
lower pressure region for mineral laden fluids to seep up and
deposit their associated minerals where the temperature or pressure
or chemicals change. So in general when you are looking at a
mineral deposit, which is structurally controlled, you want to
know where the faults are.
U3O8 or yellow cake has an important tendency. Almost anything
dissolves it. Instead of leaching with cyanide or acid as is
the case with gold or copper, often something as benign as hydrogen
peroxide will leech uranium. Literally water. So these deposits
are exceptionally mobile, they can and often have moved around.
Most uranium is found in ancient rocks, often in sedimentary
rocks where the uranium has moved around until it settles in
a bed of sandstone. A flood plain.
The uranium found at Elliot Lake is nothing more than a sedimentary
bed found in different layers. That's called stratigraphically-bound
and is vital to understand why I love Pele Mountain right now.
When I go on a property visit, I want to see the potential.
I am not looking for drill grades: I don't give a damn about
the type of rock. I want to see what the blue sky potential is.
And executives of mining companies hate talk about blue-sky.
After Bre-X, blue-sky is a four-letter word. But to invest in
a company, any intelligent investor will want to have some clue
as to what the potential is.
So I really like it when I can see and measure distance between
holes and can see consistency. I want something that can be measured
by a reasonable person. Namely me.
Remember the term "stratigraphically-bound. . . over extensive
area?" Elliot Lake is one giant deposit. There may have
been 11 mines there before but it's all one ancient giant flood
plain with similar mineralization and grade over the entire deposit.
Here's what that means. Pele Mountain has a 33 million pound
inferred 43-101 resource. Very few of the 450 or so "uranium"
companies out there have any 43-101 resource. Many of them are
no more than area plays bragging about the fact they are WITHIN
265,000 km of Cigar Lake in the Athabasca region. Or worse. There
are perhaps 15 companies with a resource.
I'd guess based on comparisons with other companies with a real
resource, the market should be valuing 33,000 million pounds
for $10 a pound. Which would make Pele worth more like $5 a share.
That was true when uranium was $65 a pound and now it's $136.
Could be worth $20 a pound but in any case GEM is not getting
much for what they already have.
When I was there on site and being briefed by company President
Al Shefsky, he indicated their objective was to develop a world-class
uranium mine at the project. Since the deposit is slightly angled
and comes right to the surface along a 6 km horizon, numerous
faces can be mined at the same time so pretty much they can produce
as much per year as makes economic sense.
With a 33 million pound resource, it simply isn't necessary to
define much more than they already have outlined but if you want
to think about how many millions of pounds of uranium they have,
you can figure out the square acres which make up the 43-101
resource and divide it into the much larger area where historic
drilling has shown the deposit continuing for kilometers beyond
where the 43-101 resource has been outlined. Since it's pretty
much useless information for now, I can tell you they aren't
going to run out of ore anytime soon. We flew over the entire
area and saw where the other mines and mills had been. Pele controls
a lot of uranium.
Many of the other 450 "uranium" companies in the market
place don't discuss processing plants. You can leach your ore
but you must have a secure processing plant nearby which is capable
of doing the final processing into yellowcake. Naturally security
is a prime consideration in uranium mining. No government is
going to allow for the possibility of a terrorist group getting
their hands on a shipment of uranium. So it's vital to ask just
where and how the final processing will be done before investing
in any uranium company. If the company can't answer, don't invest.
Cameco has a uranium refinery only 60 km from Elliot Lake at
Blind River. Pele is as well positioned from a security point
of view of any company I have looked at. And since everyone else
is closed at Elliot Lake, Pele has hired some of the best and
most experienced mining people and geologists from the area.
There will be no learning curve in bringing the professionals
up to speed. They have all been there, done that.
I am a big believer in Peak Oil. To me it looks real obvious
that peak oil actually has passed. Cantarell in Mexico, their
biggest oilfield, has dropped production by 41% and Saudi Arabia
with Ghawar as its biggest producer is an accident waiting to
happen. China and India are coming on line, they watch TV, too,
and they want to live the good life. That requires a lot of energy
and we simply cannot produce the oil and natural gas necessary.
We must turn to nuclear power in a big way.
I've liked Pele for years. Actually they have some nice gold
and diamond properties with good JV partners that I am going
to ignore. Think of them as being nothing but an energy company.
They have a real resource, they are accelerating development
at Elliot Lake and I think they will be in production as fast
as is possible. Al has put together an incredibly talented and
experienced team with the skills needed to develop this project
into one of Canada's leading uranium producers. These prices
and the even higher prices for U3O8 which we know are coming,
are going to suck the metal out of the ground. Those few real
uranium companies that have positioned themselves to take advantage
of the boom are going to make a lot of money for themselves and
I really like Pele. It is my top uranium pick. It's absurdly
underpriced today and there will be a scoping study completed
by the end of September. The market will soon wake up and the
share price will more closely resemble their real value.
We own shares and they are an advertiser. Naturally I am biased
but I think in any comparison with any other "uranium"
company, it will be easy for any investor to see the real value.
They are cheap now but that situation isn't likely to last for
Pele Mountain Resources
GEM-V $.92 Canadian (June 22, 2007)
71.6 million shares
Pele Mountain website