Value Investors: 1 Precious Metals Stock Set to Outperform

Uranium Participation Corp. (TSX:U) is a company whose primary purpose is to invest in uranium such that the common shares of the company represents an indirect interest in physical uranium.

| More on:
A miner down a mine shaft

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Uranium Participation (TSX:U) is a company whose primary purpose is to invest in uranium such that the common shares of the company represents an indirect interest in physical uranium. An investment in the common shares of the company provides investors with exposure to increases or decreases in the value of the company’s underlying assets.

Exposure to precious uranium

In the case of Uranium Participation Corp. (UPC), the value of the company’s underlying assets is largely derived from UPC’s holdings of physical uranium. As a result, investors in UPC indirectly invest in physical uranium, without being exposed to the risks associated with investments in companies that engage in the exploration, mining, and processing of uranium.

The strategy of UPC is to invest in holdings of uranium and not to actively speculate on changes in uranium prices by entering exchange or investment contracts or derivative arrangements. The intent is for UPC to provide investors with a vehicle that is levered directly to the uranium price.

Maximizing intrinsic value

The company’s primary objective is to provide investors with the maximum exposure to UPC’s underlying uranium investments at any given time, as is reasonable given the company’s current and expected future financial position. The company uses the measure of net asset value (NAV) per share to assess all material business decisions.

The NAV is calculated as the value of total assets less the value of total liabilities. To arrive at NAV per share, the NAV is then divided by the total number of common shares outstanding as at a specific date. NAV will typically equate to the value of the company’s physical uranium, plus the net working capital.

Accordingly, NAV per share can notionally be divided into the portion of the company’s working capital and holdings of uranium attributable to each share. As of February 29, 2020, the company held investments in uranium with an estimated fair value of $589 million and net working capital and other assets of $7.5 million for a combined NAV of $596.5 million.

Taking advantage of market inefficiencies

Each company share represents an indirect ownership in approximately 0.13 pounds of uranium, providing leverage to the commodity price. In line with the company’s primary objective, the board of directors attempts to manage the company’s business activities to maximize the NAV per share and, more specifically, the attributable equivalent pounds of uranium per share. Accordingly, UPC considers a transaction to be accretive when it increases the NAV per share.

While the underlying value of the company’s common shares, or NAV per share, is directly linked to the estimated fair market value of the UPC’s holdings of uranium and net working capital, the common shares of UPC often trades at a value that is either at a premium or discount to the estimated NAV per share.

Trading at a premium or discount to NAV per share provides the company with the opportunity to manage UPC’s business activities, on an accretive basis, via numerous tools available through the capital markets. Overall, an investment in uranium should provide good value over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold Stock a Hedge Against Inflation?

Barrick Gold is among the largest gold mining companies globally. Is the stock a good bet amid rising inflation rates…

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Should You Buy Barrick Gold (TSX:ABX) Stock on the Pullback?

Barrick Gold stock looks cheap right now, but is it a good buy at this level?

Read more »

gold stocks gold mining
Metals and Mining Stocks

3 Gold Stocks That Have Held Strong During a Chaotic 2022

Three TSX gold stocks remain strong performers in 2022, notwithstanding the growing fears of a recession and rising inflation.

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Friday, June 24

Despite minor optimism in key global stock indexes, the TSX Composite could open on a flat note today, as commodity…

Read more »

calculate and analyze stock
Metals and Mining Stocks

1 Growth Stock to Buy and Hold During Any Market Correction

This growth stock is still up year to date by 14%, whereas many continue to fall around it. Yet it…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Are Gold Stocks Now a Buy?

Gold stocks look cheap today. Is this the right time to buy?

Read more »

Gold bars
Metals and Mining Stocks

Inflation Is Hot This Year: Why Isn’t Gold Rising?

Gold isn't rising much this year. Neither are gold stocks like Barrick Gold (TSX:GOLD)(NYSE:ABX).

Read more »

energy oil gas
Metals and Mining Stocks

3 TSX Commodity Stocks to Buy in July

Canadian investors can look to buy commodity stocks such as Barrick Gold and Nutrien to derive outsized gains in the…

Read more »