TER: Do you see certain geographical areas for uranium exploration being better for investors, like Canada's Athabasca Basin? Western U.S.? Other global?

MM: The interplay between the variables— capital expenditures (capex), cash cost of extraction, size of the deposit, average deposit grade, sovereign risks, etc. make it incorrect to make geographically mutually exclusive choices. Unfortunately, it is not so simple. However, each region has its idiosyncrasies. African and East European countries have various and changing sovereign risks (at the moment Niger has heightened sovereign risks); Canada's Athabasca basin has cost issues from deposit depth (and potentially flooding—see Cigar Lake); the Western U.S. has an element of permitting risk, and the lower hanging fruit/larger deposits are largely done.

Namibia, with its larger potential size bulk deposits and sovereign desire to develop mines, is attractively leveraged from a risk/reward standpoint. One could say Australia, with the largest uranium resources in the world (approximately 40%) has some of the best combination of factors—but it is a difficult market for foreign investors to access, handle additional share price volatility, and become educated on. Even for non-Australian projects (i.e., Namibia), Australian-listed companies are some of the best opportunities. In time, more of the Australian companies will offer dual-listed shares in Canada.

There are major stock market/business culture differences among countries as well. For example, having come from the U.S., I can vouch for shell-shocked surprises in share float size differences. Relative to market cap, Canadian share floats on explorers may be something like 10 times what a U.S. investor may be used to. (Caveat: there is no U.S. close sector comp, a rough approximation based on ~20Yrs U.S. experience.) The U.S. also had a bad end to the 1970s resource stock bull market biasing U.S. investors against the dreaded "penny stock." Most of the rest of the world has no idea how biased and derogatory the "penny stock" label is in the U.S.

For most in the U.S. foreign uranium stock share prices and share floats optically make them a ‘non-starter.' A bias I find unfair based on a relative risk/reward basis (aka "Treynor ratio.") Canadian investors would do well to keep in mind share floats here vs. the U.S. when they balk at the proportionately larger Australian mining company share counts. While I do shy away from the really larger share counts (or hold my nose/ be very precise on price if I really want the stock), it is relative.

What typical Canadian share floats are to U.S. investors, Australian floats are to Canadian investors. Not only is it driven by country industry norms, but it is also driven by the relative size of the investor base. When there are far less investors trading shares in Australia than the U.S., Aussie companies are more inclined to issuing shares to increase trading volume. While that may not be our preference an investor is well served to realize the norms exist, they are relative, there are some reasons for them, and they should not always be a categorical deciding factor.

As a rule, keep in mind that the larger the share float, the more the company's shares will tend to track the sector. Thus large float companies are more difficult to get ahead of the company's prospects—so timing the buy with some ebb and flow of the share price becomes more important. The best times to buy those stocks are more challenging as you have to be very contrarian; the cheapest share prices are when the sector is very oversold and seemingly you are alone in buying the shares.
TER: From an individual investor's point of view, provide your perspectives on investing in juniors compared to seniors.

MM: Investors need to be aware of the lifecycle of the company's property portfolio. What stage(s) the projects and/or exploration is at. Aside from the price of uranium (systemic risk), the smaller and/or more early project stage the company, the more company risk (unsystemic risk) will affect the share prices. Technically, you would call that volatility the stock's "sector beta." That is, the stock's volatility relative to the sector.

Sector beta encompasses many company factors (e.g. management, financing, cost of production, etc.) but in general, a company's sector beta is reduced proportionate to the visibility of the cash flows (how soon, and to what degree the company is producing uranium).

Often investors wrongly perceive the risk of their investment as category wide (systemic risk), when in a larger measure the company's sector beta is the greater stock volatility factor. When an investor wants a stock from the sector, the investment(s) chosen should be with recognition of the company's sector beta; again, which is based on the stage of the company's land package—production at one end of a continuum vs. exploration at the other end.

Someone who is conservative may best have sector exposure via a major (i.e., Cameco Corp. (TSX:CCO)), which has an advanced property portfolio with significant production, and projects ramping toward various stages of development. Keep in mind many of the producers have longer-term uranium pricing contracts; so if an investor wants to be in the sector because they feel uranium is going up in price, a major producer will slowly only adjust sales and earnings to the new spot market prices ("repricing"), depending on the company's order book/strategies.

Most of us break the sector down into Producers (what I call "Tier 1"), Developers ("Tier 2"), and Explorers ("Tier 3"). A typical, modest sector knowledge investor may be best served by having a Tier 2 company. Several of the Tier 2 companies (i.e., Mega Uranium Ltd. (TSX:MGA) offer diverse portfolios of developing projects (Lake Maitland in the MGA's case) with plenty of early-stage exploration for the future.

A more advanced and therefore typically less volatile (lower sector beta) Tier 2 company would be Denison Mines Inc. (TSX:DML) (NYSE.A:DNN). To my thinking, perhaps the best width (geographically diverse) and depth (development to production) prospective uranium portfolio is Aussie company Toro Energy Ltd. (ASX:TOE). TOE also has world-class management to execute on its portfolio. (The story is tempered by TOE's huge share float.)

For someone more experienced perhaps a diversified Tier 2 and Tier 3 portfolio is suitable. Obviously, keep in mind the risk increases significantly as one moves earlier in project lifecycles.

I concentrate on advancing Tier 3 companies; but keep in mind, I spend significant time following the sector and companies. I would note, given recent market conditions, many of the Tier 3 Explorers are simply not exploring—but they are burning company capital in wages and salaries to the detriment of the future exploration budget. While I can appreciate some companies really do need to wait for a better financing time—implicitly for a worthy project—I would not recommend investors own a company that is burning capital but not really exploring.

By "really exploring," I do not mean picking up rocks ("grab samples"), I mean the company has near-term drilling plans. Many of those exploration companies standing pat may not be around in the future. In any event, this is not the market environment for investors in exploration companies to own shares in companies where management seems to be paying themselves first.

TER: What favorite uranium companies, seniors or juniors, are you following?

MM: One of my favorites is Strathmore Minerals Corp. (TSX.V:STM) (OTC:STHJF). There is simply no way to overlook 159.658mlbs of STM's 43-101 and Historical (non-43-101 compliant) uranium resources. Most explorers and many developers should be so lucky. On an EV/Lb basis, the company is one of the cheapest in the world. (I have one of, if not the largest, compliant uranium database in the world.) If you exclude companies whose projects have little chance of producing I would say STM is definitely the cheapest in the world.

Many of STM's projects are lower cost and simpler technologically, in situ leaching ("ISL") projects. STM owns significant and diverse land packages in the premier historical uranium producing districts in the U.S. While the "Church Rock" project in New Mexico (with 14.8mlbs) may not produce owing to the current Navaho opposition (the adjacent, also called "Church Rock" project by Uranium Resources Inc. (NASDAQ:URRE), is in litigation and negotiation with the Navaho tribe.), in time I expect STM's other roughly 145mlbs of uranium to get produced. Moreover, when modern geological exploration techniques and drilling are applied to STM's older projects they have been able to expand the historical uranium resources.

I expect that to continue. While I have had some concern about STM's ability to execute (cut expenses, marketing) the company President David Miller is very capable and seasoned; and STM has Japanese trading giant Summitomo Corp. ("Summi") as a $50mil JV partner on its more difficult/expensive "Gas Hills" NM project. In short, I expect Mr. Miller can, and Summi will, be able to carry the ball and get the projects developed. At the end of the day if STM cannot monetize these lbs someone will—note, STM's market cap is $11 million less than the $50 million Summi is paying for only roughly 12.5mlbs of STM's 160mlbs in projects. If it were politically viable (it is not), Summi would do better to buy the company, recapture the other 40% of the JV, and gain roughly 145mlbs in resources!

Another favorite, which I have let the cat out of the bag a bit, is Pitchstone Exploration Ltd. (TSX.V:PXP). In my opinion, perhaps the best-kept uranium exploration secret in Canada has been PXP's greenfield Namibian project. I would say that is because the project and its potential not only flew under investor's radar—but management's as well! PXP has a 55% interest in two properties from Manica Minerals Ltd. through Manica's wholly owned subsidiary Cheetah Minerals Exploration Ltd.

The two properties are large; Kaoko and Dome projects total approximately 300,000 ha. It is important to note approximately 70% of these projects are under desert sand overburden which render airborne radiometrics useless. While this will require more ‘blind drilling' from widely spaced drilling "fences" based upon gravity surveys, it does not rule out the prospects merits. After all, Extract's new Namibian world-class "Rossing South" development project was a self-described "blind target" as well.

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