“Birch Basin: America’s secret energy discovery” Revealed

Sleuthing out Frank Curzio's Phase 1 teaser pick

By Travis Johnson, Stock Gumshoe, March 20, 2014

There’s been a quick burst of interest from Gumshoe readers about Frank Curzio’s latest teaser pitch … and like a fuzzy little puppy, I aim only to please, so we’ll get an answer for you as quickly as we can.

OK, not all that quick — we do have our customary blatheration and hemming and hawing to get through first … but have no fear, answers await for the patient mind (or paid members can just jump to the quick take box, of course, and don’t worry — you won’t hurt my feelings).

The pitch is for Curzio’s Phase 1 Investor, which I think he has now helmed for as long as anyone — this is Stansberry’s big “upgrade” letter for small caps and illiquid ideas, it often ends up focusing on mining, tech and biotech stocks, and it always gets a lot of attention from Gumshoe readers because they market it very heavily … but they also charge $5,000 for it, so most individual investors wouldn’t (and shouldn’t) even think about subscribing. But that high price tag sure makes everyone think that the ideas are better, no?

And, as usual, the letter is “on sale” for the first 250 folks who want to snap it up at $4,000 — so they must not be feeling that aggressive, since the usual “sale” price is $3,000 (yes, $4,000 times 250 folks is a million smackers — so that would be a nice payday even for a big publisher like Stansberry … after all, it doesn’t cost any more to send this research to a few hundred more people. Unlike some high-priced letters, I’ve never heard of Phase 1 having a hard “cap” on the number of subscribers).

Curzio says he’s going to have a call for his subscribers with the CEO today, March 20, but this stock ha already been recommended to his subscribers and the report has been out, so I don’t know that today’s call will have an impact on the stock price.

Here’s what captured investors’ imagination in his ad:

“America’s secret energy discovery

“2,500 miles from Wall Street is one of the biggest and least-known energy discoveries in the world right now.

“To get there you fly 7 hours to a small town which has a population of just 2,600. From there you drive 100 miles north on a trail only 97% of which is paved.

“There you’ll find yourself surrounded by a forest of white birch trees… and standing on a site that could soon become the biggest energy story of 2014.

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“I call it the ‘Birch Basin.’

“And while this region is often known for its beauty, most have no idea that it’s also the world’s #1 producer of a rare commodity in HUGE demand right now.”

So what is it? Well, Curzio never actually says in the ad — but that can’t stop your intrepid Gumshoe, the remaining chatter about rising demand, low mine production, and the expiration of a critical supply agreement this year clearly tells us that he’s talking about Uranium.

And the “Birch Basin” he’s talking about is clearly Athabasca basin, in northern Saskatchewan — so it is a “secret” American discovery, I guess, but it’s North America, not the United States. That basin is where most of the incredibly high grade uranium deposits in the world have been found, and is the foundation for the biggest “blue chip” stock in the uranium sector, Cameco (CCJ).

(I currently own some call options on CCJ, just FYI).

So what’s the company? Well, there are several companies digging around in Athabasca looking for or defining or producing uranium deposits, so let’s check the clues to make sure we know which one he’s talking about:

“This small company’s mining site is sitting on what has been called the last un-mined, high-grade, easily accessible deposit of this commodity known to man….

“Small miner has HUGE deposit

“You see, most major producers of this commodity are in the Southeast Pacific and Europe, but produce an average grade well below 0.5%.

“For example, the world’s top producer in 2009 holds an average grade of only 0.08%.

“But deposits in the ‘Birch Basin’ have an astounding 2% average grade… which is 10 times higher than the global average….

“One blue-chip producer, for example, also has a prominent mine that has proven reserves of 114.9 million pounds… within 233 thousand tons of rock. That works out to an average grade of about 22%… over 100 times higher than the global average….

“The company I’ve found has also reported monster-size deposits with grades in some cases over 20%… and yet, the stock is about 1/20th the size of its blue-chip neighbor… and almost completely unnoticed by Wall Street right now.”

So that’s pretty good, but only really tells us that it’s somewhere near Cameco, and it has a market cap somewhere in the neighborhood of $500 million (that’s 1/20th the size of CCJ, which is a $10 billion company). Any more clues?

Well, a wee bit:

“… the resource company I’ve found will be able to produce this commodity way, way below the current price. And despite their small size, they control key deposits in the region… including 77,000 acres with direct access to a nearby road.

“So far, only 57% of their site has been tested, but they’ve had an incredible 96% hit rate….

“Based on these findings, this small firm’s deposit could be bigger and have a higher grade than even the richest mine in the entire basin.”

And that’s about it. So who is Curzio teasing?

Thinkolator sez that he’s pitching Fission Uranium (FCU in Toronto, FCUUF on the pink sheets), a stock that I’m pretty sure I’ve heard him talk about before. The current and probably not very well understood Fission Uranium was created when they merged with their partner Alpha Minerals a few months ago and both companies spun off their secondary and exploration assets — it is now focused entirely on its big potential uranium mine in Athabasca (the “birch basin”) called Patterson Lake South.

And yes, Patterson Lake is a resource that is very high grade and is being aggressively explored and defined — they’ve been drilling all winter and have been announcing pretty impressive-sounding results (to this non-expert).

And it is a big land area — their land position is indeed 77,000 acres, so that’s a match (though they report it as hectares — presumably Curzio and his copywriters translated the 31,000+ hectares number to acres to throw off the Mighty Mighty Thinkolator).

Fission does stand out as one of the more appealing small uranium names, it has run up quite a bit but if uranium prices rise as so many folks seem to expect this year then it might be hard to beat a high-grade, easily mined asset like this one (it’s not very deep, and it’s in an area with plenty of infrastructure and people). Frankly, if spot prices remain low for much longer it might well be that the stock is bought out by a large player (BHP Billiton and Rio Tinto are both major uranium producers, too) or by a Chinese miner, but the CEO has noted that selling the project is much more likely once uranium prices climb substantially … and once they’ve further defined the resource.

Really, it seems quite silly that uranium is still down around $35 a pound — annual demand for uranium is still high, largely on the back of Chinese and Indian reactor construction but also because of the oft-cited end of the US-Russian warhead recycling partnership, and the Japanese have finally, gradually, begun to talk more about re-starting some of their nuclear reactors (it was the Fukushima disaster that crushed uranium prices most recently, when Japan shut down all of their reactors).

I expect uranium to go up in price, and I think nuclear energy is a critical baseload clean energy source that we should be investing in much more heavily … but despite the fact that everyone seems to expect it, and many folks were predicting that spot prices for uranium would spike in January after the demise of the “Megatons to Megawatts” program (that’s where much of our uranium fuel came from in recent years, recycling Soviet warheads), the price has been flat or trending down in recent months. Most countries are not shutting down their older reactors, even the ones that probably should be shut down, so although much of the West is resisting investment in new, safer reactors the uranium growth story remains fairly strong into the future largely because of China and the many reactors they’re building (China, after all, does not have to worry about NIMBY complaints regarding nuclear waste disposal … and they do definitely have to worry about cleaning up their air and cutting their coal use substantially).

Many of the world’s uranium mines and prospective projects can’t make much of a profit under $40 or $50, particularly the big undergound or low-grade mines, so there’s a lot to like about a big, shallow, high-grade deposit that could presumably be mined as a cheap and less troublesome open pit (underground mining in Athabasca is scaring investors a bit, particularly since Cameco’s huge Cigar Lake project hit so many delays and flooding problems and took a decade longer than expected to get up to speed).

This is one that our mining columnist Myron Martin also brought to the attention of the Irregulars a couple times over the past year, though it wasn’t one of his favorites (he says he tends to like the smaller ones that haven’t spiked on a discovery yet, and this had spiked as of last summer … though it spiked a few more times since), and others have certainly noticed it as well — you don’t start to develop the highest grade new uranium discovery in decades without catching the attention of resource investors.

So it’s not a completely unknown junior, but it should have more upside leverage to uranium prices (and possible takeover premium, eventually) than the more established miners. I find it particularly interesting that they’re clearly trying to build up the deposit so that it can be bought, built and managed by someone else, which means that they might time things well if we get a little uranium bull market for a couple years.

Still a speculative junior miner even at a $500 million market cap, and I imagine it will be volatile, but the deposit keeps growing as they drill (good drilling has helped the stock jump 30% over the last month) and it is a big and high-grade resource, and it looks like they’ve got enough cash to do what they need to do, so if you like uranium you could certainly do worse.


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Myron
Myron
March 20, 2014 3:48 pm

The Athabasca Basin is in Saskatchewn Canada. Cameco is a Saskatchewan company.

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gumshoegabby
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gumshoegabby
March 20, 2014 9:17 pm

You’re both right. It’s in, Saskatchew and Albertan, Canada.

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vivian lewis
March 20, 2014 3:53 pm

I own Cameco outright and it is in our Global-Investing.com portfolio. I agree with the

The newsletter portfolio owns Cameco, CCJ, outright so I am delighted that the Wellington-boot (Britspeak for gumshoe) is also in it. And thanks to Myron I also
own a USA uranium producer not in my http://www.global-investing.com list, Uranz. So of course I agree with Travis that it is quite ridiculous that the price of uranium remains
in the post-Takashima dump. But I would rather own shares in a company that is actually in production rather than one which gains from being alongside a road.

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Bob Norikane
Irregular
March 20, 2014 4:11 pm

The reason U308 is still stubbornly low is that the Japanese had one of the world’s biggest nuke fleets. They shut down all 50 of their reactors. Since they don’t have any U308 mines in Japan, they had long term contracts to deliver U308. The various Japanese utilities that were the operators are continuing to receive U308 while they are paying thru the nose for LNG to try to replace all that electrical generation. So they have plentiful supplies of U308 and dwindling cash reserves. They have had to sell the unused U308 into the cash market. This has depressed the prices and disincented many utilities that need fuel from entering into higher priced, long term contracts, when they can buy all they want on the spot market in the mid to low $30’s.

The situation won’t change until the Japanese approve the restart of at least a few of the 50 plants. That will provide a psychological boost for the U308 mining industry, even though the Japanese will still have excess U308 for a long time. I think it is unlikely they will restart all 50 of their plants. These are old designs and many are located in similar vulnerable geographies like Fukushima. Too bad the Japanese government doesn’t help their utilities build state of the art new nuke plants that won’t have the problems of Fukushima.

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JJ
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JJ
March 22, 2014 11:01 am
Reply to  Bob Norikane

Thanks for a great comment. Very interesting stuff…

George
Member
George
March 20, 2014 4:29 pm

Well if Japan wants to upgrade, they may just go to thorium, since India is getting close to making a functioning reactor. Way safer and more abundant.

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Dave
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Dave
March 20, 2014 6:00 pm
Reply to  George

I like the industry, and if Uranium is in abundant supply right now, I like it more (this from a guy who spent most of his working life drilling for oil and gas) but I like UEX (Motley Fool’s idea) in the Athabasca Basin better for Uranium and Lightbridge (LTBR) as the only likely Thorium play… FWIW

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MTJK
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MTJK
March 20, 2014 8:03 pm

Can also recommend that if we as speculators/investors have a strong look at “Bushveld Minerals” (BMN) which in my opinion over the short term is going to demonstrate a lot of highs and lows , really need to ;look at the fundamentals, the research of what has not been covered by all investors? Then correctly assess and look at the longer picture and this includes a MOU from a major Chinese company
As a strong investor of a large number of companies, please do you homework and assess the outlook for thrs companies and assess how it may benefit the companies who are already invested..

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frankw17
Irregular
March 20, 2014 8:44 pm

Myron, since this is your “cup of tea”, do you own FCUUF, or would you consider buying it?
Frank

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dcinvest
March 20, 2014 10:06 pm