About Stans Energy
Stans Energy Corp is a Toronto based company focused on developing properties containing Rare Earth Elements (REEs), Uranium, and Associated Metals. Stans owns five mineral properties in Kyrgyzstan, of which Kutessay II is most advanced.
Company Website: StansEnergy.com
Symbol: RUU.V on the Toronto Exchange and STZYF.PK on the american pinksheets.
Investment Thesis
Before I go into the investment reasons for Stans I think I should first discuss the rare earths industry in general. Overall the rare earths industry is in somewhat of a mania thanks to James Dines (major investment newsletter) who pumped the stocks in May 2009. This had the effect of propelling many of these nothing companies 8-10 fold in under 9 months , leaving many of them egregiously overvalued. However, Stans Energy has escaped this mania because the company only acquired their rare earth property in Dec 2009 which benefits investors looking for exposure to rare earths.
With that said lets get to why Stans Energy makes a compelling investment. Instead of going out and exploring for rare earths Stans simply bought an existing mine in Kyrgyzstan called Kutessay II for $855,000 (pretty good deal). This previously producing mine was operated by the Soviet Union between 1960-1991 and made up 80% of total rare earth output. After the fall of the Soviet Union the mine was placed on care and maintenance. It is estimated that the mine was only 1/3rd mined and has potential for expansion through further drilling. The mine produced all 15 rare earth elements (at 65% recovery rate-good for rare earths) and included a good mix of 50% Heavy rare earths (HREE) which are the most economically profitable. Because this was a previously producing mine, there is excellent infrastructure which minimizes the cost to Stans Energy. All necessary roads are there along with a power source and a railway. More importantly Stans has purchased an option to buy the processing mill which was previously used for Kutessay II. This is a major plus for Stans because processing mills are extremely expensive to build from scratch. Stans management has indicated that 3 of the 4 required processing plants are there and in adequate condition. Obviously they will have to spend money to upgrade and enhance some of the facilities but this gives Stans a real advantage over its rare earth competitors.
One major concern regarding Stans Energy is the political turmoil and violence in Kyrgyzstan which does not seem to be going away any time soon. However I do not think this is a major problem for Stans considering the current government is supportive of opening the mine and has not shown any interest in expropriating privately owned assets. Also the violence you hear about on TV is not located anywhere near the mine so the reduces the chances of the mine or processing facility being vandalized. Finally, many members of Stans board and management have important political ties and contacts in Kyrgyzstan which should help them get this mine back into production.
Timeline
For a company which only acquired their property 6 months ago I must say management has been very quick to get the ball moving. The company recently outlined the plan for the next few months which includes completing a JORC resource estimate, underground drift resampling, complete a comprehensive study to discern what it will take to get the mill processing plant up and running, and identify future drilling sites to potentially expand the official resource estimate. Once this is completed the company will go ahead with a feasibility study. Stans goal is to become the first rare earths producer outside of China and because they are only redeveloping an existing mine I think they have a good chance of accomplishing this. As to when the mine will be back into production I do not for sure as the company has not disclosed this fact. However, I would estimate that we could see this mine back into production by the end of 2012.
Management
From what I have observed so far the management team under CEO Robert Mackay is pretty business savvy. After all they were able to get a proven rare earth mine for $855,000. No doubt the boards extensive Kyrgyzstan political contacts helped the process but it was a great move for shareholders. Furthermore, the company has done an excellent job of recruiting knowledgeable experts in the rare earths sector which should help provide the technical know-how to get this mine back into production. My only complaint is the high share count which is always a problem for junior resource companies (currently 141 million).
Financial Position
There is no question that Stans will need to raise more money which of course means future dilution to shareholders. However this is what happens with junior resource companies and is necessary in order to get the mine into production. The company should not have a problem raising the money the only question is on what terms. The company has approx. 23 million warrants outstanding which should also be a potential source of funding assuming there in the money. My hope when it comes to future capital raising is that the company waits until they complete the JORC estimate in October 2010, which should provide a nice bounce for the stock.
Because of the strategic nature of the deposit I believe the company will be able to arrange an off-take/financing agreement with a user of rare earths. This will dramatically reduce dilution to shareholders and raise the company's profile within the investment community.
Major Investors
For some reason I have not been able to find an ownership list for Stans Energy. However, management has a strong interest in the stock and owns 23% fully diluted. Also, Pinetree Capital owns aprox. 9% of the company.
Summary
Overall Stans Energy represents an attractive investment for investors interested in the rare earths sector but do not want to buy into the high flying stocks. Stans is in my opinion a much lower risk than the other companies because they are not blindly exploring for rare earths but already have a proven mine which requires much less capital to put into production than building a mine from scratch. There is also an upcoming catalyst (approx Sept 2010) when the company will announce their JORC estimate which should confirm historical estimates. While Stans has a lot in its favor there are always potential risks and in small junior resource companies there are in more risks to evaluate. Most people will point to the political problems in Kyrgyzstan but my greatest are of concern is with future dilution and how the company is going to raise all of the money necessary to get the mine into production. However I believe in this case the potential reward greatly out ways the risks and provides investors with an excellent opportunity.
If you want some more information on the company you can check out a presentation by the CEO at an investment conference by clicking here.
Black Swan Insights
Disclosure: 2% of my portfolio is invested in Stans Energy. My basis in the stock is .30 cents.
Legal Disclaimer: I am not an investment advisor and nothing on this site should be interpreted as investment advice. Please consult with your own financial advisor before investing in the stock market or any financial asset. (I know this is a stupid statement but for legal purposes I have to say it. Thanks)
