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    Tuesday, September 16, 2008


    Strathmore (STM) Minerals Liquidity

    I mostly recently wrote about Strahmore Mineral (STM) here. My valuation hasn't changed but the stock price certainly has. It is now trading around 40c, a price last seen in 2003. This chart is worth looking at to see that this has happened before. Mind you the last time STM traded at 40c long term Uranium was trading at a fraction of $80, about $10 in fact during a bear market.

    The only real, fundamental risk that could justify such a low price is running out of cash. A quick analysis can put that issue to bed:

    Their cash burn rate is between $2m and $4m per year. This is substantially within their control based on how much they spend on exploring, advertising and travel. They have $1M cash on hand (after paying $1m for Chord) and $10m in bonds and bond funds which were unimpaired as of June 30, 2008. They also have about $4m in unlisted investments which could be worth something. They are also due $400,000 from Great Bear upon execution of a deal to buy Chord. If the deal doesn't happen then the cash won't come.

    Let's take the most conservative approach and say $11m cash and REAL cash equivalents. That is at least 3 years worth of cash expenses and it could almost certainly be extended out further.

    They continue to be able to sell equity in properties that they acquired for cash. Real properties with Real Uranium deposits, even if they can't raise equity or debt financing.

    The obvious question is what could have caused such a fall in their share price. I think the obvious answer is that there is not much liquidity in their stock. Only a few hundred thousand shares trade every day and a big player is having to sell. Consider that Sprott had an interest in Strathmore and the press is reporting substantial redemptions. Even if Sprott wanted to increase their Strathmore exposure they would achieve that by selling less than they sell of other things. Buyers are scared to death and probably (like me) spent most of their available cash buying at the terrific prices on the way down to here!

    Risk Reward 5 years : 15:1
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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