http://www.theenergyreport.com/pub/na/8775
Source: George Mack of The Energy Report 03/01/2011

TER: Tell me about your initial screen, the enterprise value per pound (EV/lb.) of uranium in the ground. Describe that for me briefly.

RC: Sure. The EV/lb. metric that I use essentially common-sizes the universe of uranium companies by applying the EV/lb. metric for every company. I prefer enterprise value over market cap because it includes the debt and the cash numbers, which I believe are fairly significant in the decision of investing in any company. It also allows for easier comparison. You're going to have different companies with different resource sizes, and you can see whether one may be overvalued or undervalued on a per-pound basis.

TER: I understand that valuations can vary from exploration company all the way up the value chain to producer, but under what EV/lb. level would you consider looking at a company as a long position?

RC: I wouldn't say there's an exact hard rule in terms of what number I would look at, given that EV/lb. is basically a screening tool or even just a sorting tool in terms of showing where companies fit in the grand scheme of things. The key thing to note is that some companies do deserve to be where they sit. A good example is Hathor Exploration Ltd. (TSX.V:HAT), which has one of the highest EV/lb. valuations. It should not be trading below the average given the location and grade of the project. So, it would be rather unfair to cut it off at an arbitrary number just because it seems to be above that number.


...TER: You mentioned Hathor.

RC: Hathor is a very strong story. From an EV/lb. perspective, it's trading at around $13/lb., which has it at the top valuation among exploration companies. This is one of the situations where it definitely deserves to be on the higher side of the EV/lb. average. Hathor is in the prolific Athabasca Basin, and it has some of the highest grades of any uranium property in the world. It already has around 25 million pounds (Mlb.) of attributable NI 43-101-compliant resources, and it has the potential for it to be even higher. So, Hathor does look very interesting.

TER: It deserves to be that high relative to everyone else?

RC: That's the key question. I do believe that at least a portion of the $13/lb. valuation is attributed to an expected resource increase. So, it really just depends on what number you want to hang on the increase to see if it trades closer to what its peers are. As a comparison, the average exploration company trades at a $3.17 EV/lb. So, Hathor definitely is a premium company, and it could be potentially much higher. It's very high grade. On a blended basis it has a U3O8 grade of 5.4%, which is extremely high given that the global median for uranium grades is 0.076% from my database. So, it's a fantastic grade.