What MORE Could You Want?

As the uranium bull market plows ahead, we are having more and more trouble finding the best companies to invest in. The pickings were good early on, but now it seems that reality has set in and we must do 5x more research in order to be sure that a company is investable, not to mention discover 10 junk companies to each keeper. We expect our recommendation of new companies to dwindle from here on out, but we shall keep to our guns and stick with what we know (our current picks) and hopefully diversify into new companies.

As you may have grown accustomed to, we from time to time point out some of our picks we feel are undervalued (as we have done numerous times with Pitchstone, SXR, URE, and Oilsands Quest). This may seem boring, yet look at each of those calls and notice that there was plenty of money made on each one! So today we present to you what we believe to be "The Most Undervalued Uranium Stock".

Investors meet Strathmore Minerals, a company we have highlighted recently in an interview with David Miller, the company's President and COO. You may laugh at our pronouncing this "The Most Undervalued Uranium Stock" however you would be terribly wrong if you thought otherwise. To our knowledge there is not a single uranium company out there with reserve ratios that can rival Strathmore. Based on our calculations the company has roughly 223.8 million lbs. of uranium reserves. This is impressive and right away puts Strathmore into an elite group within the uranium sector: The Reserve Holders. Now with 70,165,964 total shares outstanding at this time, Strathmore shareholders enjoy (I use this very lightly as I will explain why shortly) a valuation sported by...count them...no other shareholders! Each share of Strathmore currently entitles the owner to roughly 3.2 pounds of uranium. Owning shares of Strathmore is something between a dream come true and a nightmare. Some might say it is a valuation trap, but we believe otherwise. Soon investors will realize the hidden potential within Strathmore, and the smart investors will move from uranium metal funds into Strathmore because it is valued much lower and offers exponential returns.

Last we checked the uranium metal tracking fund in Toronto was trading at a 30% premium to its Net Asset Value, and its only assets are the lbs. of uranium that it possess to back its shares up! Strathmore shares finished at C$3.29 which values their reserves at a paltry C$1.03, which can be converted to American Dollars at about $0.93! So, in short each pound of uranium which is trading at $72 is currently valued at $0.93 in Strathmore stock. Attention Wal-Mart shoppers, we have a sale on Strathmore Minerals stock at unbelievable discounts!!!!!!

Now all that may seem as though we are blowing hot air, because they do not have a mine in place to extract the minerals, but they are getting close. Also of important note, the company has cheaply extractable reserves in New Mexico which will cost them around $14 to mine at some large deposits. That would leave Strathmore with profits of nearly $58 of operating profit per lb. of uranium mined at this deposit, and investors are telling us this uranium is worth a mere C$1, it is laughable and an insult that I cannot even sell a share if I wanted to for an American Dollar!

Why the undervaluation you ask? Simple, most junior mining stocks eventually become pump-and-dumpers. Investors feel that they need to get in and out of mining stocks so as not to be the one left holding the bag, so they look for stocks with news flow. Sadly this usually means that investors are going to invest in companies who are going to be drilling for uranium, and should that company hit something...well the investor sticks with the shares. However, Strathmore is special. They really have not taken any exploration drilling underway on their big projects as they have historical deposits with the drill logs/core logs to go along with them. Other companies have felt the need to drill out their historical reserves to make sure that they are really there because their projects do not possess the pedigree Strathmore's do. Strathmore is lucky enough to possess the projects formerly owned by Kerr McGee, and they were even luckier to grab the historical data to go along with the projects. So the lack of a need to drill out their properties has caused a lack of following among investors for Strathmore. It very well could be the first and last hidden gem discovered in our very own portfolio.

Sprott Asset Management owns nearly 20% of the shares outstanding with Strathmore Minerals management owning another 10%. Add this with the fact that the company's shares trade at a low multiple in respect to its uranium holdings (lbs. in the ground) as well as in respect to its peers, and there is the potential for a blast off that could mirror that of Forsys Metals, if not leave it in the dust! Forsys lagged behind the rest of the uranium pack for a while (as Strathmore has done over the past few months) but when investors warmed to it, the stock shot off and to this point still has not looked back.

At this time we are going to double our holdings in Strathmore Minerals (STM.V) at C$3.29 as we think the risk reward scenario is very enticing. We also think that this stock has less room to fall in a downturn in respect to its peers, but all the room to move upward when compared to the same companies.

The Surest Thing in Oil Sands Exploration

Our belief in BQI has not faltered since we first brought this to our readers' attention nearly a year ago. Although gains are quite small in theinvestar's portfolio, all indications are that this is the next Suncor...that is if Oilsands Quest does not eat their lunch first! Although that is pure speculation, you have to look at the industry now and take a picture. Now we love to think of ourselves as a step ahead of the heard, and our history indicates that we have been in many cases. So let us look at that picture of the oil and oil sands industry as it stands now, and let us visualize as to what it will look like in the next 10 years.

It now appears that BQI has that one project that is the company maker. What is so scary is the sheer size of it, and although they must relinquish a large part of it, the project will still be one of the largest oil sands projects in Canada, if not the world! To think that the company may have doubled (or laid the groundwork to triple or quadruple reserves this drilling season) their proven reserves today is mind boggling. To put this in perspective, the company could achieve a growth rate associated with the internet stocks of the world while also becoming one of North America's largest and premier oilsands/oil plays.

If you remember in our last article, we mentioned that our mentor thought that oil would see $48 before it bottomed out, because (and we are paraphrasing here) the first bottom is seldom the last bottom. Well with oil's fall to just above $50 today, it has gotten halfway to the point where he thinks is the potential bottom. With the dramatic fall today, oil also held back BQI from the large gains expected and realized in past drilling seasons. Although in the short-term the stock had a negative reaction to the news, it is the long run we are truly concerned about because the market is hardly right over the long-term (it is always right when setting prices at the time, however there are times when the market briefly undervalues securities in regards to their future potential value). Once again we must reiterate that we fully believe that BQI is going to go to $10 and potentially higher (the price we have highlighted is $20 for a watermark high THIS YEAR).

Getting back on topic for what we see in the future, the latest press release said that the company had now discovered and established a deposit on 13.6% of the company's land. What's more is that they actually increased their already unbelievable success rate to 87% from last year's 80%. This means either last year they were not exactly sure about the geology of the area, or that there are more areas within their property with richer bitumen deposits. Either way it appears to us that BQI is going to ultimately discover bitumen on ATLEAST 30% of their lands and most likely experience a 75% success drill rate in the future.

There is a very distinct possibility that BQI could possess bitumen reserves greater than their current peers before selling JV partnerships. If they come anywhere near where we believe that their project will progress to, we would not at all be surprised if Suncor were to sign on in order to jump on this great opportunity (and get knowledge of this area to bid on future Saskatchewan bitumen concessions) and BQI to get access to valuable industry knowledge when it comes to mining from the industry leader. Some may not believe these words we write, but remember the old saying, "if you can't beat 'em...join 'em." Everyone missed this opportunity, which in hindsight appears to have been a no-brainer, so look for intense bidding for the JV agreements up for sale/negotiation this summer.

Also at this time we would like to entice our readers to take a second look at Strathmore Minerals. We believe that their historical resources may be under reported meaning that the company could have the best valuation in the uranium industry right now for pounds per share. They could also be another company adding JV partnerships soon, and with the dramatic increase in uranium prices this last year, this deal, or these potential deals could be worth more than anyone is expecting. If this company was valued at $5 per pound in the ground, each share would be worth $10 per share! Apply the price being paid for some companies at this time who possess smaller deposits, and the stock could sell for as much as $20! This is with the company not needing to drill a single hole, but rather permit their existing projects. We believe that this is a great story, and see large future gains. There should be more on this subject later, at which point we shall notify you.

We are holding strong in our shares of BQI and will not sell at this time. We shall not be "played" by the market, but shall await until everyone realizes what the company has to offer. Our bet is that the stock will shortly begin to act accordingly and rise from this solid base that it has built over the past summer. Should China or India move in to sign a JV agreement this summer, the stock is going to blast off and the company will have instant credibility. With those events playing out, many will be wondering why they did not see this at the time, and the reason shall simply be that they were scared off by 'Ol Mr. Market'.

Markets' Reactions

Everything happens for a reason, and although at first glance you may not understand as to the reason, or reasoning behind the action, there is always a reason. "Every action has an inversly related action," is a favorite among high school science teachers, but this past night we were introduced to a new one.

"When it comes to commodity, currency, and equity markets, the first bottom is never the last," was the statement last night from our mentor, Mark A. Smith. He was using this thought to explain that he believes that oil has not bottomed, but still has further to go. His argument has logic as he pointed out that oil has fallen below $60 and then $55 (which we must point out was everyone's pick for oil's support level...even OPEC's which could be a further indicator of this commodity's potential to fall further) and then even further to $52! So where is it going?

Well he seems to believe that oil is going below $50 and will settle at or near the $48 level. Simply put he believes that oil has fallen this far based on traders' beliefs that oil could not fall below $55, so they held waiting for a jump. That jump never came and we saw many people running for the exits as oil fell over $2 in one day (some of this was nervous selling, but we suspect much of it was due to margin call selling). In our experience, many possitions do not see a bottom or top at nice round numbers such as 40 or 50, but rather at numbers like 41 or heck even 48.

Personally I can buy that oil is going to $48, because I believe that the price of oil HAS to go lower in order to whip the suppliers in-line. OPEC members have been cheating on their quotas (the ones that actually have the extra capacity to do so) and oversupplying the world's markets. Last year's surge in oil prices were not a result of demand surpassing supply, but rather the world's supply chain being drained and then forced to be quickly refilled as a result of the Hurricanes in the US Gulf. That is all, and prices will not exceed $70 any time soon, and most likely not in 2007. Should OPEC further ignore this supply/demand situation, oil could have much further south to head before it perks up again, however we hope that this is not the case.

So how is an oil investor to play this market? Well if you cannot grow your business through price increases in the commodity, you must increase it through your amount supplied. In amazing, and unpredictable super-spikes, anyone can make money...LOTS OF MONEY THAT IS (even if your output is decreasing, it is possible to increase profits so long as your increases in the product you sell rises faster than the decline in your production). However, when those markets begin to slow, or even turn negative, you must begin to invest in the true growth companies...ones adding to their output. We like BQI and LUPE.ST as our two favorite oil plays, although only one is a true oil play and that would be Lundin. Oilsands Quest is our oil sands play, which we admittedly like much more than Lundin. The reasoning behind this is due to Lundin's exposure to Sudan and America's seemingly increasing military activeness on the African continent. It is no secret that America is not happy with Sudan, and it can be argued that the American populace is even unhappier with the way Sudan has handled the Darfur situation. Our opinion is that it is a Sudanese situation, that must be dealt with between the opposing sides in Sudan. Although it is Islamic militiamen with supposedly no ties to the Sudan government, it is the current Sudanese government that shall pay the price if America decides to get involved. We find it quite strange we should ask a third world country to be able to control people within their borders, as well as those sneaking within their borders (who are the men causing these atrocities) when we cannot control our very own borders to the South. If the government was overthrown by the US, then big problems could follow for Lundin as their prized property is in Sudan and protected by Federal troops.

Both stocks possess a lot of risk, however we believe both have great management teams as well as great properties. Lundin shall come out of this downturn and move higher, but the one wild card is America's Democratic Party...Darfur is the type of situation the party loves to dedicate troops and military energy to, however the odds of this at this moment are very slim as the Democrats simply want to keep troops as close to home as possible and the American people would not tolerate overthrowing another regime at the moment.

BQI will be the highest rising oil/oil sands stock this year and we see the possibility of it rising all the way to $20. That is the best case scenario, but at $12 we still think that it can be one of the best, if not the best performer in this sector. At this point the stock has formed the base needed to run, and we are seeing that in its recent activity (notice that the volatility has increased and larger jumps and falls are becoming the norm). Take note also that the stock seems to be able to rise as oil, the commodity in which it hopes to someday sell, has fallen dramatically. Over this time oil has fallen by over $10 and BQI has risen nearly 10% (our period begins on 12/14/06). Once we bottom out with the price of oil, it will only be another catalyst in the rise of BQI's share price. BQI is up over 40% (up $1.50 from $3.50 on October 12, 2006 to around $5 now). These are only the early gains for those who were brave enough to purchase as the stock kept falling to lower and lower prices, but many shall reap the rewards for doing so.

We feel the need to point out that terrorism seems to be here for good. Many have realized, as the early American Revolutionaries did, that the only way to beat a world superpower is to fight it on a scale that it cannot compete on. This is a rude awakening for America as another Embassy was bombed today (early this morning) in what is being attributed as an act of terrorism. America is going to have to wake up and realize that they cannot protect each and every interest they have abroad and then begin an era where they place strategic assets closer to home or in friendly, more civilized nations, and that will be potentially a changing moment in time. Until then, we shall continue to invest in companies that will enable America to stand the test of terrorism (not time because all 'Golden Eras' eventually come to an end) before the masses realize this.

Oilsands Quest is one such company, as it will provide oil from one of the world's most stable countries to America. A premium will eventually be paid for these assets by either the Americans, Chinese, or Indians due to the changing geopolitical climate in our world today. What price we do not know, but if 2007 becomes a terror filled year in the Middle East, Africa, and Asia Minor, then these assets could be worth dramatically more when BQI begins to take on JV partners in the latter half of 2007. World events could force the large multinational oil companies into the bidding which could force the final price tag up dramatically.

As we close, we would like to point out that although there is no plan for how the JV projects shall be broken down, we believe that they will be there. The bitumen has not yet totally been discovered on a scale to supply the proposed projects, but we absolutely believe that the resource is there. We fully expect that this season's drilling results will mirror those of the past year's, and the stock price shall appreciate further than previously seen. To take from our mentor's words, and to add our own twist to it, "the first top in Oilsands Quest shares shall not be the last" for this year, so please hold through the first spike (although no on ever lost money by taking profits). As we have outlined in the above article, BQI will do its part to rise, which will be coupled with the rise in oil from its eventual lows and the rise in value of its oil sands leases due to geopolitical tensions throughout the world. Our price target is $10, even if oil falls to as low as $32 we shall stand by it, but if the stars align the stock could leap to $20 when all is said and done within this next year.

One Step Back, Two Steps Forward

SXRuraniumone stock has been hammered this week as Rio Tinto backed out of a deal to sell its remaining American assetts to SXR. This transaction would have potentially given control to half of all the US uranium mills currently permitted. Now SXR is left with the possibility of purchasing one and receiving some land in anther separate deal which they have extended. We are scratching our heads as to why the drop has been this profound, and are left to guess that people just do not understand how monumental this is.

Let's review: One of the world's largest miners who had decided to sell their uranium assets in a country where most of the world's demand comes from changed their mind. They stated that there had been a dramatic change in the uranium market and would like to further explore their options. I highly doubt that Rio is going to reconsider selling at a higher price, because it would take billions of dollars to grab their attention. This company has, in our opinion, realized that uranium is going to be the comodity of the future and therefor they must not sell at what will be perceived as dirt cheap prices in the future. Rio is going to stay the course with their properties, and if they should decide to divest them, it will in the form of a merger (they merge their assets into an existing company, and take a large number of shares in exchange).

Honestly, I believe that not only will Rio stay the course with their properties and keep them in-house, but they are going to stay have to play catch-up with everyone else. Luckily for them, if they start now it will be more expensive than had they started last year or the year before, but it will surely beat the prices that shall be paid later on in what we expect to be a magnificent bull market. This company will not be phased by a few billion dollars and would probably even be interested in buying Cameco if it were not for their ultimate poison pill (it requires that Cameco, or the controlling company to keep the headquarters in Saskatoon , Saskatchewan). Usually when a big company enters into (in this case stays in) a new field by starting slowly, it gives a boost to the potential takeout targets. Not so here, and we feel that the companies with great properties around their mill and project areas could be the first to be taken out. Mining is a funny business, because no matter how big and great your company is, if you miss the writing on the wall and do not claim the land needed to explore, then your only option is to buy from outside because you sure cannot grow organically!

This is one of those great buying opportunities in SXR, as it is an oversold security at this point. We would like to believe that we saw the bottom today shortly after we increased our position by 50% in the company because it had a very nice rebound. This stock is going to be a $30 stock this year and adding to any holdings in this area will be key due to Dominion opening up very soon. Keep in mind that SXR has a wild card in Pitchstone (who we believe to have some of the best uranium properties in the Athabascan Basin) and could increase dramatically should uranium be hit this drilling season. The stock has too many good events coming up in the next year to keep it weighted down, and we fully expect it to shed those extra pounds and begin racing ahead (we hope to do this after every holiday season as well, it just appears that SXR may do it before we have even had a chance to start!).

Overall, the uraniums should spend the next week or two trading in a 10% up/down range, then resume their movement in one direction or another. We fully expect to see strength across the board until at March and hopefully through April. Most likely this run will end sometime in early May, at which time we shall inform you as to our decision to move some money around as stated in the end of year newsletter sent out earlier this week.

We have also added news links to our website (theinvestar.com) and begun to archive our articles there as well. Within the month we will begin posting interviews with key figures at many of the companies that are popular among retail investors. As drilling season has begun, it is of utmost importance to remember to keep patient and hold through the storms, because smooth sailing should be just ahead.

The Way We See It...

The final quarter of this year has been quite impressive from an investors standpoint, as many of the uranium stocks have nearly doubled in price and many are trading near their highs for the year as well. It seems that we rushed everyone into the Labrador Exploration companies right before they were 'discovered' by everyone else (we realize that one was recommended by another newsletter writer, but a gain is nevertheless a gain!). We will be paying close attention to the rest of the world's uranium mining districts to find which area will have the next spike upwards, and at that time will notify you, most likely in the same format as last time.

We have an end of year newsletter due out soon, and we will be sure to notify everyone when that is ready (we expect it to be out by January 10). This will cover the past year and our expectations for the year to come (a very broad market commentary). At this time it looks highly unlikely that we shall have any new picks by that time, however shall a buying opportunity emerge, we will quickly jump at the opportunity.

Looking at what happened today on the Toronto, we see that there is the possibility that investors will begin to 'bargain hunt' among the uranium stocks that have not experienced the dramatic run-up as their peers. We believe that these companies are not of the same quality as some of our favorites, but realize that they are probably better than the garbage that will eventually be offered to investors through IPOs in the future. This trend of bottom fishing has begun in earnest, and shall escalate as investors strive to leave no stone unturned in their quest to find the next big discovery. Our advice is that you should follow the established explorers around and discover the hidden gems within their exploration groups. Think of this as a sort of derivatives play in which you buy the cheaper security for the same total price and hopefully get a larger proportional share of the company you invest in. Please remember that we like to invest in companies that have low share floats and many promising projects.

Please do not think that this is a new idea that we are just presenting to you, because it is not. This has been one of the fundamental rules that we have been investing by since we began this foray into the uranium miners. We chose Pitchstone over Triex because Pitchstone was one of those half off sales (compared to Triex on market cap at the time) and had what seemed to be two times the number of properties for exploration, not to mention the quality of the properties. It must be noted that both of these companies own a project together, and split it down the middle...but one was worth two times the amount of the other at the time! It was one of those strange situations when the best company was undervalued even though it had better properties and was not spending a penny on the majority of its exploration stage projects.

The trend carries on, think Santoy, Monster Copper, and Silver Spruce. That was the order we believed them to be worth from greatest to least, and amazingly that is the order in which investors have discovered them. If you simply scratch the surface on the CMB (Central Mineral Belt) in Labrador you would have discovered Santoy and realized that it was more than a one trick pony (most investors would have been perfectly happy with this discovery). However if you would have taken the discovery process to the next stage you would most surely have found Monster Copper and realized that maybe this was an interesting play as they had half the properties that Santoy possessed in the CMB and were not paying a dime on the exploration costs, in fact they were getting paid to let Santoy explore the land! This admittedly made us quite smug with ourselves, but we were still intrigued by Silver Spruce, and kept watching it. The more we watched it, the more we realized that it tracked the rest of the CMB pretty well, but their was a bit of a lag. This figured perfectly into our plan and thus the recommendation. Silver Spruce was that small Las Vegas style bet we placed knowing that when investors found the CMB that it would rise regardless due to its properties held there. So far it has lagged behind Santoy and Monster as its projects have not been blessed by a certain newsletter writer, but we believe that they will have their day as they play catch-up.

Our returns from this trade stand at (as of January 1, 2007):

Santoy Resources: 120%
Monster Copper: 61.54%
Silver Spruce Resources: 27.27%

These were our recommendations on November 3, 2006 and in two months these are the rewards reaped from our work. We believe that this is a taste of what the future holds in beating the herd into the best of what the uranium mining industry has to offer.

For those of you willing to do your research, we have been very intrigued with some of the small partners of Energy Metals. Many of them possess the small floats desired as well as projects with actual historic deposits. These small companies will be gobbled up first and when they are partnered with large companies there is always the possibility of getting taken out. These companies may be where the next run is, but as stated earlier we are not sure when or who we shall will recommend what we perceive as the next group to push forward.

We hope that the new year ushers in the same type of gains as experienced this year by all those investing in uranium. We hope that this Holiday Season was as good for our readers and their families as it was for ours and wish the best of luck to all in their future endeavors.