Many of us read Peter Lynch’s “One Up on Wall Street” early on in our investing careers, or perhaps even before our investing careers started. It’s a safe bet that the concept of the “ten-bagger” that Lynch laid out made a big impression and that the hunt for young companies growing at explosive rates is the exciting part of equity research. Finding a company that can 10x is the holy grail of the discipline, and one such company with the possibility to do so is a tiny diversified mining operation in the Great White North called Pegasus Resources Inc. (TSXV: PEGA) (OTC Pink: SLTFF).
Pegasus is involved in uranium mining in the western parts of Canada and the United States. Uranium is essential for nuclear energy, which is clean and efficient. Nuclear power sometimes gets a bad rap because it contains the word “nuclear” and people cannot separate the enriched uranium for making bombs from generated electricity.
As recent geopolitical events have demonstrated, countries controlling their sources of abundant power is paramount for their national security. Nuclear power is a way to achieve that objective. Many European countries are learning hard lessons from Russia that where they buy their natural gas matters a great deal. Currently world electric power is only about 10% nuclear-generated, and of that 10% almost the entire amount comes from the United States and Europe. Asia gets 4.6% of its power from nuclear, Brazil gets 2.3%, and the entire continent of Africa gets 0%. If these regions were to use nuclear power at the same levels as the U.S. and Europe, that 10% figure would double and be over 20%.
Currently, the United States gets about 70% of its uranium supply from the nation of Kazakhstan, which has been in the news recently with social unrest and protests around rising fuel prices and disrupted internet. This could trigger a severe supply shock which would send uranium prices skyward. Suddenly the prospects of getting uranium from Saskatchewan and South Dakota look very attractive.
Pegasus currently holds six total properties, including four uranium mining projects containing 535,718 pounds of uranium which at the recent spot price of $53.00, as of April 30th, is over $28.39 million in resources. The company is in the process of expanding its project in the Canadian Athabasca Basin which is believed to hold an additional 10 million-20M million additional pounds of uranium. Drilling and exploration costs must be factored in, and those can certainly be expensive, but at current spot levels, these resources could be worth $635 million to $1.27 billion. And if uranium prices climb, well then things get a lot more interesting.
Early in 2022 Pegasus acquired a project site called Energy Sands in Utah consisting of 600 acres that have a high potential to become productive. The United States has the world’s largest nuclear reactor fleet so increasing domestic production mitigates risks that come with the global supply chain. The Biden administration recently announced plans to build a strategic stockpile of uranium, similar to the Strategic Petroleum Reserve, which could be another demand driver.
Microcaps carry a higher risk than their large-cap counterparts, but investors searching for ten baggers have to look at them sometimes to uncover explosive opportunities. A potential uranium supercycle driven by world events and the growth of the developing world could potentially make Pegasus Resources one of those elusive 10x growth stories.
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