- Power Metal Resouces is up only 1% on uranium stake news
- It’s an interesting claim they’ve been able to make buy why so little reaction?
- The time value of money means it doesn’t move the dial on current valuations
Power Metal Resources (LON: POW) shares are up only 1% or so on the announcement of staking out a large uranium claim in Canada. The thing being, it is a large claim, for a very low price, in an area known for very decent indeed uranium mines. So, why’s the share price moved so little on what could be a very good decision and or action? As Sherlock Holmes pointed out, sometimes it’s why didn’t the dog bark in the nighttime?
One answer is in the particular metal that is being sought here – uranium. Yes, there is a revived interest in nuclear power these days but then people have been saying that for decades – the revival is nigh! There are those political issues this time around, varied countries hoping not to be reliant upon Russian supplies for example. And the uranium spot price is rising nicely. But uranium supply itself isn’t really the problem, it’s conversion from yellowcake to fuel that is a considerable bottleneck, not something that more uranium mining solves- nor Power Metal.
Then we’ve got the nature of the news itself. This is not the finding of more uranium, it’s most certainly not the financing of a mine nor the beginning of production. It’s the staking out of a claim in a useful area that might host uranium deposits. Sure, the price was pretty cheap “The cost of staking of the Property was Canadian $3,519.78”. But this was previously staked land, the previous holder thought it wasn’t keeping hold of it. So, is there something that makes this more valuable in POW hands than the near nothing it was worth before? Not really obvious that there is.
Then there’s just time. As we’ve pointed out before the investment world is changing. That combination of inflation and rising interest rates makes growth companies worth less relative to those producing profits now. The further off into the distant future any revenues are then the less they’re worth now. From staking a claim to a producing mine – even assuming that there is indeed a valuable deposit in the stake – is two decades and then counting. Revenue – in a 10% inflation, 4% interest rate and rising world – that is two decades off has very, very, little value now. This is the entirely point made by the Stern Review on climate change, that costs and benefits off in the future, when viewed at market interest rates, are worth that little right now.
All of which aids in explaining why there’s so little movement in the POW share price on this. Yes, uranium is interesting, a rising market. Yes, picking up a claim – staking it – for near nothing in a known uranium producing basin is a great way to spend three thousand bucks. But even if it does contain a mineable deposit the sheer length of time it will take to bring it to market means that the net present value of whatever is there is very low indeed. That’s just the way the numbers turn out.