In 2012, the share price of URU Metals (LON:URU) was 40p. But as with many other mineral companies over the recent past, the company has felt the effects of a persistently weakened commodities sector. The once lofty share price has now sunk to just 0.80p, but the big question is; can this share rise from the ashes once again and bring considerable gains to investors?
Although URU Metals has interests in various mineral ventures, its main strategy is focused on the production of nickel. The company owns 100% of The Zebediela Nickel Sulphide Project in South Africa and has additional nickel related interests in the country as well (URU Metals it also owns 50% of the Burgersfort nickel project) If the Zebediela project was to become operational, the company has suggested that it would be the 12th largest mine for Nickel in the world.
Let’s take a look at some of the company’s stats on paper:
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- $1.8 million of cash as at September 2017 last year
- Has no debt
- Market Capitalization of £6.26M
- Annual cash burn rate of about $1.6M ((~$2.6mn cash as at Mar 2017 – ~1.8mn cash at Sep 2017 ) * 2)
In addition to the above, the company owns a 9.7% interest in a company called Management Resource Solutions (LON:MRS). Given that MRS is currently valued with a market capitalization of £14.4mln, this stake is worth roughly £1.4 mln pounds at today’s prices.
Given the company’s cash and interests in MRS, it’s clear that URU’s actual nickel projects are being valued as very low numbers at the moment. This is surprising given the numbers that were circulated in the company’s April 2017 investor doc around the company’s main Nickel mine. The document had calculations of a NPV of £1 billion for the main mining project vs a capital cost of £708 million and also forecasted the revenue from mining of an additional mineral – magnetitie as $363m.
With these sort of numbers being floated about, the current market cap of £6-£7 million for URU does indeed seem a bit depressed.
In fact, just a year ago, the share price of URU was 4.28p (5 times the current share price). The company has been slowly progressing studies around the Zebediela project and has been experimenting with methods to lower the cost of producing Nickel from the mine. So far, the results of the tests are positive so it’s a bit interesting why the trend in share price has been downward over the past year.
This downward movement has continued although Nickel has been at record highs ($14,000 per tonne – the highest since 2015).
Everything at the moment appears to point to URU Metals being significantly undervalued. Although the price of the share could stay at this level for a while, or may even go lower, this share looks like it’s a buy and hold for me. With the correct type of news/progress update, it will inevitably spike and its price could possibly reach multiples of where the share price is at now.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views.
