Alliance Resources Limited (ASX:AGS) has developed the Four Mile & Four Mile West uranium projects in South Australia near the existing Beverley uranium mine. The project JV is a satellite development to the existing mine owned by Quasar Resources. The company also has gold exploration interests in Maldon, Victoria, which were to be the basis for a amalgamation, however that separate deal did not go through.
In the case of the Four Mile project, the uranium resource is the highest grade project in the world, and offers a 15 year life based on existing resources. The problem is that the JV has been riddled with contentious JV disputes. The share price of AGS has fallen back to 40c from a high of $2.74, and after an issue at 68c. The dispute is currently before the SA Supreme Court.
This is a very attractive project. Sadly you could argue (ethics aside) that this project has been sabotaged by:
1. The 'hard-nosed' strategic games played by Quasar Resources
2. The failure of AGS to anticipate the problems which ought to have been expected with this type of JV agreement, which left them beholden to the JV partner.
There was a lack of critical thinking, or dealing from strength, displayed by AGS. So the project ends up in court, where the judge will evaluate the respective ethical and commercial arguments. There seems to be an expectation that people will do the right thing by you. People can rationalise all types of actions, and the only way to protect yourself is to anticipate problems. This is the role of critical thinking. One cannot really rely on the courts to protect you in these instances as a shareholder because you just don't know where you stand. The project as an investor is that the Four Mile project is captive to the Beverley treatment facility.
Nice project - but what a mess! Anyway for anyone interested in the details, take a look at the following presentation (25th Nov 2009) which I viewed. Draw your own conclusions. AGS is currently capitalised at $130 million, it has $45 million in cash, and a project tied up in the courts. At this point, the uranium spot price is at a low. The appeal of this company is:
1. If AGS win the court action, they will have achieved a significant payout to fund new developments, as well as resolving their previous issues (you would hope).
2. If Quasar win, then you might expect a takeover at current prices for the assets.
Certainly I think this project is one to watch for a decision on the Supreme Court case. I also note that the stock price has fallen to 42c. This is getting close to its 5-year low of 29c, so that should provide an excellent entry. I also note that spot uranium prices are at their lows, and are probably going to recover from this point. Remember, this is the highest grade uranium project, so it ranks high in terms of cost competitiveness. Of course, not having to duplicate (Beverley) processing facilities is another strong point. See Google Finance for 5-year chart.
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Andrew Sheldon www.sheldonthinks.com
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