Saturday, May 23, 2015 8 Filtered Mid-Day Market Movers Recap

Mid-Day Market Movers focus on above average volume, price action, breakout chart trends and news - posted throughout the day live at the top of and on our Hot Sheet. Below recaps last week's movers, all prices when posted, week high price Wk-H:, with a brief company description and recent news headlines. Submit any ticker symbol to our Detailed Quote Portal (top-left of all pages) for quotes, java charts, research and news, or to comment/share.

(NYSE:EHIC) eHi Car Services Ltd. $11.93 Wk-H: $16.02
- a leading car rentals/services provider in China, US$134M $12/ADS pp; April Files 20-F, Q4 Net Rev. +56.6%, Non-GAAP adj. EBITDA +95.4%

(AMEX:INUV) Inuvo Inc. $1.05 $1.43 $1.80 $1.26 $1.83 $2.34 $2.88 Wk-H: $2.97
- advertising technology and digital publishing, May 12 Issues 2014 Shareholders Letter and Presents at Investor Conf.; April 29 Q1 Rev. +33%
(AMEX:EMAN) eMagin Corp. $3.86 $3.20 Wk-H: $3.41
- leading maker of Active Matrix OLED microdisplays for high resolution imaging products, May 14 Q1 Results turn a profit with $0.9M EBITDA
(AMEX:EGI)(TSX:ETG) Entree Gold Inc. $0.48 Wk-H: $0.509
- Nevada/Mongolia mining assets, gov't signs Oyu Tolgoi copper-gold mine dev. and financing plan, JV with: (NYSE:TRQ)(TSX:TRQ)(NYSE:RIO)

(NASDAQ:GIGA) Giga-tronics Inc. $1.10 $2.77 $2.55 $2.81 Wk-H: $3.15
- produces instruments, subsystems and sophisticated microwave components, Q4 Net Sales +48%; Finalizes $10M Order
(NASDAQ:AMBA) Ambarella Inc. $14.00 $19.24 $83.92 Wk-H: $86.75
- a leading developer of low-power, HD video compression and image processing semiconductors, Q1 FY 2016 Earnings/Conf. Call on June 2

TSX Venture (quote V. and ticker symbol)
(TSXV:YFI) Edgewater Wireless Systems Inc. $0.20 $0.425 Wk-H: $0.57
- developers of patented WiFi3 technology, May 12 forms Strategic Alliance with Zinwave to integrate WiFi3 technology into DAS Solutions
(TSXV:OYL) CGX Energy Inc. $0.68 Wk-H: $2.05
- focused on oil exploration in the Guyana-Suriname Basin, May 7 Responds to Media Reports about Drilling Results in Guyana, Oper. Update

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Wednesday, May 20, 2015

Japan Court Fires Uranium Bull Market Starter Gun; UUUU + URZ Merger F-4 Update - Small-Cap Stock Observer

Nuclear Power Renaissance Never In Doubt, Only The Timing Of Uranium's Next Bull Market

I have been writing about the merits of uranium stocks for so long that it seems like a religion of sorts. Like all uranium investors my faith has been regularly tested over the past four years since the Fukushima Daiichi power plant accident. However the more we learn about the near- and long-term supply and demand fundamentals of nuclear power and uranium mining the more you too may become convinced that today's low prices offer an incredible opportunity.

As an industry recap for the unconverted I should preach a little about some simple facts:
  • World population eclipsed 7-billion in 2012, is expected to reach 9-billion by 2040 and 11-billion by 2050. More and more people simply means higher and higher long-term energy demand.

  • This need for ever rising amounts of energy is further intensified as we consume more power per person as emerging nations emerge and as more of us move to cities.

  • Some debate the many advantages of nuclear energy in supplying safe, clean, efficient and reliable power over dirty fossil fuels or even renewable sources, but we cannot debate that the number of reactors worldwide are scheduled to more than double by around 2030. See World Nuclear Association (WNA) table: World Nuclear Power Reactors & Uranium Requirements.

  • Unlike coal, oil and natural gas power plants which can sometimes refit to switch fuel sources, there is no commercially available substitute for nuclear reactors to use other than uranium.

  • Nuclear energy offers stable power rates at even high uranium prices. U3O8 is cheap at even multiples of its current price as typical reactor fuel costs are only 10% to 20% of operating costs.

  • The world already consumes more uranium than is mined each year. Severe shortages with price spikes can be expected as demand grows unless new uranium supplies open up.

  • Instead many large uranium mines have closed or expansion plans have been cancelled until prices double. Even then uranium mines are highly regulated and take years longer to permit.

  • Secondary sources of uranium which have bridged the supply gap are now disappearing quickly since the 24Mlbs. per year Megatons to Megawatts agreement with Russia ended in 2013.

  • The all-time high spot price for U3O8 was $137 per pound in 2007. As prices were recovering from $40 lows during the financial crisis to over $70, uranium's bull market halted suddenly after Japan's March 2011 record 9.0 earthquake and tsunami caused a nuclear accident at Fukushima.

  • Nuclear energy is still the safest form of base-load power. While almost 16k died from Japan's 2011 natural disasters, none died from radiation with no evidence of increased cancer rates or birth defects. Similarly no injuries or adverse health effects resulted from the 1979 Three Mile Island accident. The WNA shows 31 initial deaths (actual is unknown) from the worst nuclear accident, the result of a flawed Soviet reactor design and human error at Chernobyl in 1986.

  • Compare nuclear energy to the too many to mention deaths from gas pipeline accidents, oil spills and train derailments such as at Lac-Megantic Quebec in 2013 which killed 47 people. In the U.S. alone over 100,000 coal miners died in accidents last century, and worldwide thousands still get killed each year. This does not include the many more deaths and diseases from pollution.

  • Japan's nuclear energy program started 60-years ago; worldwide more reactors are in the works today than even before Fukushima. Regardless, uranium prices steadily fell over the next 3.5-years until late last summer as the spot price bounced 57% from $28 to $44, now $36 per pound.

  • Market sentiment for uranium miners is starting to turn positive again. Japan's reactor restarts have taken longer than expected but are close. Upward momentum should accelerate with more successful restarts, as more reactors get built in China, and as more analysts and investors notice.

No sermon is complete without some recent news updates. Last fall Japan's newly formed Nuclear Regulatory Agency (NRA) approved the first two reactor restarts at Sendai, anticipated by early 2015. In December the NRA approved two more reactor restarts at Takahama, anticipated by November this year, with 20 more of Japan's 43 operable reactors already in the restart approval queue.

Last month uranium stocks dipped and then recovered sharply as court challenges against reactor restarts were heard. On April 14 an injunction was issued to prevent the two NRA approved restarts at Takahama, with residents' safety concerns cited. Legal efforts failed to remove the head of the court panel who also ruled against Kansai Electric Power last year. An appeal has already been filed.

On April 27 another district court rejected a similar petition that could have halted restarts of the two NRA approved reactors at Kyushu Electric Power's Sendai nuclear station. This court decision validates the NRA and is a big win for Japan's pro-nuclear Prime Minister Shinzo Abe. Japan's first reactor restart may be as early as next month which could finally spark uranium's next bull market.

Headline events in Japan will continue to tug on traders' emotions, affecting short-term prices. After the latest positive court ruling there were several reports promising violent U3O8 price surges and uranium miners about to rocket. Be careful as even analysts use catchy hyperbole to grab attention. Value focused investors have an edge when realizing the big picture and exploiting quiet market dips.

Japan had trade surpluses when a third of its electricity came from nuclear but now has huge deficits largely as a result of high LNG costs. Japan's new paradigm is to decide whether to restart or go broke. I have always believed Japan will act rationally and restart most of its reactors. There may still be short-term headline price risks but in any event the uranium industry is set to grow significantly.

My Uranium Focus Stocks

While buying precious metals stocks over the past year with one hand still tied behind my back, I now have both arms open for any dips in quality uranium stocks. Soon I hope to share how I filter many gold and silver stocks down to a few of what I believe are the most undervalued names, but for uranium which has only a few key players I focus mainly on four producers and one explorer.

(NYSE:CCJ)(TSX:CCO) Cameco is the world's largest publicly traded uranium company with mines in Canada, the US and Kazakhstan. The company has ~429Mlbs. of proven and probable reserves and is the largest player in the rich Athabasca Basin. Its McArthur River is the world's largest high-grade deposit and Cigar Lake is second. Now that flooding issues at the Cigar Lake mine have been worked out, a successful ramp-up should enable it to still meet its Double U strategy of producing 40Mlbs. by 2018. On April 15 Cameco announced a long-term contract to provide 7.1Mlbs. to India through 2020. My only real concerns are the CRA and IRS tax issues, which some say are baked into the stock price but even then may represent headline price risk. Key technical support and resistance levels have been around $15 and $20 for CCJ going back to the financial crisis. Now at $16 going into the Summer Doldrums after a lacklustre Q1 I'm hoping it tests support but holds 52-week lows of $13.62.

(AMEX:DNN)(TSX:DML) Denison Mines has exploration and development projects in Canada, Zambia, Mali, Namibia and Mongolia, and with over 400k hectares is also one of the largest players in the Athabasca Basin. The company has some production plus JVs in several projects and mills, and manages ETF-like (TSX:U)(OTCBB:URPTF) Uranium Participation. A recent $15M bought deal flow-through offering will fund Denison's aggressive summer drill campaign at eight properties and focuses on its 60% owned Wheeler River high-grade Phoenix deposit and Gryphon zone discovery. DNN traded as high as $15 in 2007 and $5 prior to Fukushima, now $0.86. My hope is that after recent low-cost acquisitions Denison is taken out someday with a spinout of its non-Athabasca assets.

(TSXV:FCU)(OTCBB:FCUUF) Fission Uranium has been one of our Top 30 Small Caps since November 2012 at $0.35 before it tripled and was acquired in 2013 by Denison for stock, cash and a share in the current Fission. The new Fission also tripled and now has a market cap of $436M after discovering shallow high-grade uranium at its 31k hectare Patterson Lake South project in the western Athabasca. After releasing its initial indicated and inferred resources of over 100Mlbs. in January, last month the company announced two bought deal flow-through offerings at $1.50 per share for $17.4M and $20M, and continues to report exceptional results from its latest drill program. Fission might be undervalued without even considering how much more uranium is left to find. However until compliant economic assessments with mining costs are known, which can take years, I'd love to see a quiet period and a deep dip to average into in hopes of an eventual mine or more likely a buyout.

(AMEX:URZ)(TSX:URZ) Uranerz Energy is my most closely followed uranium play which owns and operates America's newest uranium mine. Its Nichols Ranch project is located in the heart of Wyoming's Powder River Basin (PRB) where over half of the country's domestically produced uranium comes from. Recent news releases describe how the mine's wellfield is now being expanded with additional header houses as it ramps-up production. Uranerz' May 11 Q1 shows healthy margins with average costs of $38.22 per pound (including taxes and royalties), and with average sales into its long-term contracts of $68 per pound. Nichols Ranch employs a low-cost In-Situ-Recovery (ISR) mining process and costs should be even lower as production increases. Uranerz also has lots of exploration potential as only 6 of its 30 PRB projects over ~73K acres have been explored so far. URZ traded as high as $7 in 2007 and $5 prior to Fukushima, now $1.12 with a $107M market cap.

(AMEX:UUUU)(TSX:EFR) Energy Fuels has a producing mine and several production-ready mines, plus a large portfolio of exploration and development projects all located in Wyoming, Arizona, Utah, New Mexico and Colorado. Its website shows measured and indicated resources of ~127Mlbs. so far. The company's White Mesa mill is the only conventional uranium mill operating in the US. Energy Fuels' May 11 Q1 highlights its strong: working capital of ~$35M including ~800Klbs. of inventory, sales and gross profit, with production at its mill and Pinenut mine performing better than expected.

Energy Fuels And Uranerz Energy Merger F-4 Update

Much of the balance of Energy Fuels' Q1 describes progress in its pending merger with Uranerz Energy and the benefits. This includes more diversified production with both ISR and conventional mining methods, to growth opportunities as uranium prices recover from having larger scale resources to feed into a combined portfolio of premium sales contracts.

The SEC requires public companies to file detailed explanations about major transactions such as a business combination. I have been waiting for this F-4 Registration Statement which was filed on May 8. Save a few trees and a whole lot of expensive ink by reading it online here. If anyone doubts whether these two companies are serious about merging they won't be after reading these 394 pages.

The document starts with a letter to Uranerz shareholders advising that both boards have unanimously approved the merger plan, about the proxy statement and prospectus, share exchange ratio of 0.255 and many other transaction details. A majority of shareholder votes are needed to approve a merger, either by instructing your broker to cast your vote, voting online or at special meetings which are not set yet. Both companies encourage voting "FOR" the merger as not voting is the same as a no vote!

Questions and answers about the transaction and special meetings are found at page 1 (the Q&A section actually starts on the 15th Page, after the table of contents). Following are various terms and conditions, shareholder rights, regulatory and exchange requirements, tax considerations, legal issues, risk factors, historical financial data and what-if scenarios. A summer closing is anticipated in July.

Next is about everything there is to know about both companies and the reasons why the deal makes sense. The mechanics of the merger plan is that Energy Fuels has a subsidiary company called Merger Sub that will be merged into Uranerz Energy; Merger Sub then ceases to exist with Uranerz becoming a wholly-owned indirect subsidiary of Energy Fuels. The 91 page Merger Agreement is attached as Annex-A from the 243rd page. Euro Pacific's Fairness Opinion starts on the 356th page as Annex-D.

A timeline and background of the transaction starts at page 61, from strategic acquisitions since Fukushima, initial merger meetings in June 2014, Confidentiality Agreement signed a month later, execution of the Letter Of Intent, more board meetings, evaluations, consultations and negotiations until the merger agreement announcement on January 5, 2015, and events since then up until May 8.

Please don't rely on my very short summary of a very long document. Feel free to comment below this article, or quote URZ, T.URZ, UUUU or T.EFR for these stock discussion boards at our website.

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