“10-Bagger Pick #1” — Small Mining Outfit Turning Trash into Uranium

By Travis Johnson, Stock Gumshoe, June 21, 2010

Today we’re taking a look at a stock that’s getting a fair amount of attention from Andy Obermueller as he throws out the lure to catch subscribers for his new Fast-Track Millionaire newsletter. His pick of iCad (ICAD) a week or two ago has shown a big price spike (though that could evaporate as interest cools, of course), so I thought folks might like to know about another tiny company he’s teasing now.

And I do mean tiny — this is a company with a market cap of $8 million, so just from Andy writing about it and me mentioning it today it will probably go up, even if we both said mean things about them.

Here’s how he teases it in his recent ad:

“10-Bagger Pick #1 — A tiny $8 million company that has discovered $12.2 billion of uranium where no one else was looking….

“It’s a small mining outfit that is literally turning trash into treasure. I think this company is going to make a killing. Here’s why…

“It has discovered an ingenious way to extract uranium from coal ash.

“I didn’t even know this myself, but coal contains trace amounts of uranium. About 50 parts per million. The uranium stays in the ash after the coal is burned.

“This tiny Canadian outfit claims it can extract uranium from coal ash for $35 a pound. The spot price of uranium is about $45 a pound.

“So we’re looking at a fat $10 per pound profit.

“Not only does it have a patented extraction process, it also has a customer: China. It has signed a deal with the China National Nuclear Corporation to extract uranium from a coal dump.

“And let’s be clear: China doesn’t care what the uranium costs, only that it has access to it. China has 21 new nuclear power plants under construction. And they won’t produce a single watt without uranium.

“Luckily for China, it has 2.7 billion tons of coal ash. Which means they are sitting on 270 million pounds of uranium that only this company can extract for them.

“At a margin of $10 per pound, that’s $2.7 billion in profits. You don’t think that will make this penny stock take off like a rocket?

“The nice thing about this pick is that it already has a solid gold mining business. So that takes a lot of the risk out of this small stock. Its uranium recovery project is a bonus.

“I think this stock has ’10 to 1′ written all over it. It’s a true swing-for-the-fences play.

“It’s trading at just under 10 cents a share. At that price you can buy a ton of the stock and have some fun.”

Well, I’d be the last to tell you not to “have some fun” or “swing for the fences” … as long as we all remember that the big home run hitters also set strike-out records, and having fun often ends up making you feel worse the next morning.

So who is this? This stock must be Sparton Resources (SRI in Toronto, SPNRF on the pink sheets).

And yes, it really is an $8 million stock — absolutely teensy — so it probably won’t surprise you to hear that, on the back of this first round of Andy’s teasing and touting, the shares are already up 10%+ on more than ten times their normal trading volume. As I type, the shares are up to about 12 cents, but they were “just under ten cents” a week or so ago and hovered around that price for most of May and June, after hitting 20 cents over the Winter.

And yes, being an $8 million stock means that they aren’t really doing much yet and have many projects in the early stages — though they do seem to be going through a “refocusing” to give most of their attention to the most promising near-term projects, it appears. Here’s how they describe their status, from a recent press release:

“Sparton is currently rationalizing its global portfolio of projects. Consideration has been given to both commodity and market conditions and management’s time limitations.

“The primary focus in China is to improve cash-flow at the producing Huajun germanium operations, and complete the evaluation of the Guojiaping Exploration Licence which contains a large, shale hosted vanadium deposit with associated uranium mineralization. At Lincang, the secondary uranium recovery program will advance through finishing a bulk sample test and completion of a final feasibility study.

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“Sparton is extremely well positioned to capitalize on its favourable standing in the Chinese mining industry with additional opportunities being evaluated on an ongoing basis. All of these projects have a positive environmental footprint and are receiving strong support from all levels of PRC government.

“Domestically, Sparton continues to explore its Marmion Gold Project, which is contiguous to the claim holdings of Brett Resources Inc. (“Brett”), and is located approximately 25 km north of the town of Atikokan in northwestern Ontario.

“Brett management recently announced its intention to recommend a friendly take over by Osisko Mining Corporation with a view to fund and advance its Hammond Reef deposit, now reported to contain 6.7 million ounces of gold. The Atikokan area is now being recognized as having excellent exploration potential. Sparton is also continuing its non conventional uranium and germanium recovery evaluations in western Canada.”

The company has a page explaining their coal ash uranium recovery program here, it sounds as though they’re still testing extraction from a specific coal source that has “anomalously high” uranium content. They also have some early gold exploration projects, some rare earth potential, and some other possible projects in their pipeline. As you might expect from a company of this size, almost every press release they put out contains terms like “financing,” “encouraging,” “preliminary,” “evaluate,” or “potential.” Perhaps it goes without saying, but words like “revenue” and “income” do not play a large role in their releases, at least not yet.

So what do you think? Feel like a little lottery ticket fun with an $8 million stock that’s just getting this unexpected level of attention, or would you rather wait a while, see if the attention cools off, and check back on how their “encouraging” projects are going? Or is this a little too crazy for you whether it’s at eight cents or 15? Let us know with a comment below!