Wednesday, December 5, 2012

Shop Till You Drop (Off The Fiscal Cliff); Post Election Tidbits; Wyoming & Uranerz' $20M Golden Goose -

Shop Till You Drop (Off The Fiscal Cliff)

The fourth-quarter is live-or-die for many businesses, especially retail. And as we gobble turkey watching Black Friday, Cyber Monday and Boxing Day sales, with some football in-between hundreds of rugged truck TV ads, our other bipolar focus worries about whether the whole economy could really be headed off the fiscal cliff in a few weeks.

The stakes are extremely high, but for now the stock market seems content that a Hail Mary pass is in the works. I tend to agree; not so much because of clear election results that should finally sway the GOP that spending cuts AND revenue increases are needed, and not even because both sides will develop a last minute seasonal spirit to do the right thing - self-preservation fear gets deals done!

Money and future votes are more predictable motivators. The prospect of losing both will likely force both sides' hands to get out their lipstick and apply some kind of real-deal this time. The odds are low that everything will be solved, and high that some major issues will be kicked even further down the road. Still, just call this sarcastic political intuition, one almost certainty is that Wall Street will de-stink whatever is produced, to be heralded with a late Ho-Ho Rally - just in time for yearend bonuses!

Post Presidential Election Economic Tidbits

Now that you've regenerated from election exhaustion, here are a few interesting economic postscript items to tuck away for next time.

Our October 5th newsletter researched historic market return trends and investment timing around the four-year presidential election cycle and how stock markets predict winners and losers. This also dispelled the rumour that stock markets do better under Republicans.

We wrote, "This year being another presidential election year, we won't know Obama's second-half return until December 31. However, the S&P 500 was 1,143 on October 1, 2010 and if we apply today's 1,461, this works out to around +28%. Unless there's a crash this month (always a scary thing to say in October) then the stock market may be predicting an Obama win."

I had actually wondered if this historic predictor would hold up again this time. The article was written just two days after the first presidential debate as Romney gained the momentum and was surging in the polls, with the race virtually a dead heat.

That first debate seemed to ignite the polls mostly over how economic questions were handled. Why didn't the GOP keep milking the, "it's the economy stupid", trump card instead of regurgitating confusing sound bites about birth certificates and reflecting on empty chair conversations etc.

Democrats pointed to a lack of details and the math not adding up. Why didn't Republicans simply provide the following interesting economic tidbits that might have swayed more undecided voters? The Pollina / American Economic Development Institute annual business ranking survey shows that 9 out of the Top 10 Pro-Business States were Red States. The election in Virgina was a squeaker and almost resulted in a clean sweep for Red States.

2012 Top 10 Pro-Business Rankings
  1. Utah
  2. Virginia
  3. Wyoming
  4. North Dakota
  5. Indiana
  6. Nebraska
  7. South Dakota
  8. Kansas
  9. Missouri
  10. Oklahoma

It's also interesting that the greatest three-year ranking increases happened in four Red States:
  • Indiana +18
  • Arkansas +17
  • Kentucky +16
  • Alaska +11

And that the greatest three-year ranking drops happened in three Blue States:
  • Connecticut -21
  • Nevada -13
  • Illinois -12

The prestigious annual study of job retention and creation measures a state's economic development prowess. It is considered to be one of the most comprehensive and unbiased of its type for evaluating and ranking states based on 32 factors controlled by state government, including taxes, human resources, education, right-to-work legislation, energy costs, infrastructure spending, workers compensation laws, economic incentive programs and state economic development efforts. Two new factors - state budget deficit and state property tax index - along with a comprehensive State Report Card were added to this year's study. More:

Wyoming Ranks 3rd In Pro-Business States

I came across the above report when researching new information about one of our featured stocks Uranerz Energy (AMEX: URZ)(TSX: URZ)(FF: U9E). Uranerz has 30+ uranium projects to explore in the Powder River Basin of Wyoming, with 19+ million pounds of U3O8 reported so far. URZ is also developing its first ISR uranium mine, expected to commence production next year.

From the report, some of Wyoming's pro-business highlights:
  • Consistent winner in economic development, Top 10 State ranking since study started in 2004
  • Right-to-Work state with an excellent corporate tax structure
  • Low unemployment rate, and no state budget deficit
  • Very excellent High-School Completion rate as well as High Teacher Compensation

Wyoming also recently claimed the ranking of Best Business Tax Climate (Business Facilities Magazine, 2012), and the number 5 spot in the U.S. Chamber of Commerce 2012 Top 10 Next Boom States ranking. More:

When evaluating mining investments we need to understand the implications of where a resource is, almost as much as how much of it there is. I have seen certain mining stocks lose virtually all of their value overnight over risky geopolitical changes, and one of the key reasons why we have followed Uranerz since late 2010 is because they are set to become America's next uranium producer, located in the safe PRB mining district of Wyoming - the state's first new uranium mine in 20-years.

Discovering new economic resources in an established North American mining jurisdiction is getting scarce. As Earth's resources deplete, miners now have to look farther into the world's jungles, mountains, deserts and oceans. In addition to the usual exploration risks of not finding anything, investors have to consider extra costs relating to complicated mining terrains, extreme climates, sparse infrastructure and remote transportation. You might even have to worry about dangers from personal safety to government stability, corruption or law changes, to even how to repatriate profits.

Uranerz is fortunate that their uranium projects are located in Wyoming. The company has been able to focus all of its energy on exploration, and development of its first mine. Permit approval timelines, financings and other URZ milestones have been reasonably predictable. The point is that I probably wouldn't go to Wyoming as an exotic place to vacation, but when looking for strategic mining stocks that avoid the extraneous risks mentioned before - Wyoming is one of the sexiest places to invest!

Uranerz Energy's $20 Million Golden Goose

Uranerz has just discovered another huge bonus of doing business from Wyoming!

The company's November 8th news release details their Q3 financial results. I usually jump to the Cash and Working Capital lines first, showing over $11M as of September 30, 2012. Then I go back to read URZ' recent accomplishments including:

"Subsequent to the third quarter end, the Company received its Class I Underground Injection Control (deep disposal well) permit from the Wyoming Department of Environmental Quality for the Nichols Ranch ISR Uranium Project located in the Powder River Basin of Wyoming, U.S.A. The Company now has all of the regulatory permits and licenses needed to construct and operate an ISR uranium mine in Wyoming. Construction of the Nichols Ranch ISR Mine is nearing completion and uranium production is targeted to commence in 2013."

Then I noticed this:

"On November 6, 2012, the Wyoming Business Council recommended approval of the Company's application for a $20 million loan under the State of Wyoming's Industrial Development Bond financing program. The loan will be repayable over seven years and bear interest at a rate of 4.25%. Final approval for the loan is subject to the completion of due diligence and satisfaction of various other State approvals."

The mission of the Business Council is to facilitate the economic growth of Wyoming. The Business Council, a state government agency, concentrates its efforts on providing assistance for existing Wyoming companies and start-ups, helping communities meet their development and diversification needs, and recruiting new firms and industries targeted to complement the state's assets.

A November 15, 2012, update on the WBC's website now shows: "The board approved an application from Uranerz Energy Corporation for a $20 million State Treasurer Industrial Development Bond for the development of an in-situ uranium mining facility in Johnson and Campbell Counties. (Recommended to the governor and state treasurer for approval)."

The WBC's recommendations will be presented to the State Loan and Investment Board at its December 6, 2012, meeting in Cheyenne. More:

Now you know why I have been writing so much about Wyoming!

Uranerz' budget was $38M - $40M to construct its mine, which their last news release says is nearing completion. While $11M+ cash as of the end of September is a lot of money, they still have to drill their Deep Disposal Wells and cover any other capital and G&A expenses until production ramps up.

In any event it is usually never a bad idea to have a cash buffer if the cost is right. Use it to develop new mines, to step-up exploration, or for new acquisitions etc. In a cyclical industry like mining, whenever a $20 million loan becomes available, especially a low-cost government loan that doesn't dilute shareholders, most miners jump at the opportunity!

Wyoming's state budget surplus has afforded it the opportunity to help local companies like Uranerz Energy to grow faster, with around $600M earmarked for these types of government partnership loans. With the WBC already onside, my understanding is that URZ is just waiting for a third-party appraiser assessment and the governor's signature.

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