Uranium Resources, Inc. (NASDAQ:URRE): A Potential Big Name Target?

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Everyone is talking about lithium, but no one is talking about uranium. Analysts expect demand for uranium to increase by 30% over the next few years, and this demand increase should boost prices by 50% or more. Back in 2007, uranium sold for more than $130 per pound. It now goes for less than $26 per pound – an 80% drop in less than a decade. This has wreaked havoc in the uranium space, and companies big and small have taken a hit from a market capitalization perspective. As demand picks up, however, we will likely look back on this current period of industry stagnation as an opportunity to get in cheap on some discount assets. We have been on the lookout for companies that fit the bill, and we have settled on Uranium Resources, Inc. (NASDAQ:URRE).

Uranium Resources is headquartered in Colorado, but its primary asset is a development-stage property in Turkey. The company has spent the last half-decade preparing the property for production, and is in the final stages of these preparations.

However, because of the low price of uranium right now, it has had to delay work on its prime real estate. This delay has put pressure on its market capitalization, and therein lies our opportunity. Specifically, pick up shares on the oversell in anticipation of a return to progress on the project, and an eventual production sweep in line with the demand driven increase in the price of uranium.

That’s not all that makes the company attractive right now, however. When an industry collapse is based on a price decline of its core asset, such as has happened here, the majority of its constituent companies get smaller – but the smaller companies shrink faster. Many go bankrupt, but those that don’t become attractive acquisition targets for the bigger players in the space, based on their reduced valuation. If Uranium Resources can get it’s Turkish property back on track, it would become an attractive asset buyout target to a company like Cameco Corporation (USA) (NYSE:CCJ), which with its $3.9 billion dollar valuation is one of the biggest players in this space.

What is needed in order for this to happen? Well, the delay is rooted in a staff layoff that has seen the company reduce its workforce to the tune of 20%. A pre-feasibility study was scheduled to be completed before the end of 2016, but this has now been put back to an as-yet-undetermined date. Management, in its latest earnings conference call, suggested we would get some insight into time frames before the close of the year:

“However, cost reduction efforts have reduced work effort on the Prefeasibility Study.  We are evaluating timing for the restart of the work required and will advise in Q4-2016.”

We regard this update as the next major upside catalyst and we’ll be watching closely for any insight as to when the pre-feasibility study is set to get underway properly, and beyond that, when the company expects to kick off production.

So let’s bring all this together.

We’ve got a company that has around $115 million worth of property and plant on its balance sheet, with no debt, valued at just $13 million at its current share price. It’s not got that much cash on hand, but it’s got an attractive capital structure (8.5 million shares outstanding, 5 million float  low short count, 15% institutional ownership, 26% insider ownership), and plans to get its operations back on track early next year. It is positioned in line with industry expansion, and might make for an attractive asset purchase for a bigger player under current conditions.

Yes, Uranium Resources might be down, but it’s got a lot going for it.

We’re not completely sold just yet, but we’re going to watch this one closely to see where it goes. If management gives a favorable pre-feasibility update come Q4, we could see a sharp upside revaluation.

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Disclosure: We have no position in URRE and have not been compensated for this article.

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