UCORE Rare Metals Inc. -- Update

Last year, I made UCORE Rare Metals Inc. the stock of the month for December. (UCORE trades in Canada under the symbol UCU and on the pink sheets as UURAF) UCORE owns the rights to mining at Bokan Mountain in Alaska, a deposit that appears to be one of the largest of rare earth elements in the pipeline. There is now an imminent development that makes it worthwhile to take another look at the company.

Last fall, UCORE began preparation of a Preliminary Economic Assessment ("PEA") by hiring Wardrop, a Tetra Tech company to do the analysis. The expected schedule for the PEA was that it would be released by the end of March of 2012. That date, of course, has come and gone, and there has been no release of the PEA. The likely reasons for the delay, however, are positives rather than negatives. Last March 6, UCORE released the news that new xray sorting technology could be used at the proposed Bokan mine to greatly change the economics. Specifically, the new xray technology was tested and showed that 46% of the material fed into the sorter could be discarded by the machinery while still retaining a recovery rate of 93% of the rare earth elements. An installation of this sort substantially reduces the scale of the equipment needed to extract the rare earths from the material with concommitant cost reductions. In other words, using the xray process substantially improves the economics of the mine. As a result, the PEA would need to be revised to include the improved performance results.

There are rumors in the market that the PEA will be out this coming week. The company, however, is officially silent on that point. In view, however, of the delay in the release of the PEA beyond the announced original date, there is pressure on UCORE to at least announce a new schedule for that event. As things stand now, all that is public is an incorrect statement of the timing. In my view, the lack of any formal announcement of delay from UCORE means that the release is actually imminent.

The release of the PEA is not just another chapter in the tale of yet another story stock. Without a doubt, if the PEA is not good, this entire company could fizzle and then fail. That, however, is not a result I see as likely. The company's latest report of mineralization from its drilling progam at the site, shows many billions of dollars of rare earths in the ground. Alternatively, if the PEA shows good results, UCORE stock should begin a price rise for its current level of 39 cents per share. There is not enough information available right now to give a reasoned view as to just how high the stock would go, but here is one important metric to consider. Right now, the entire market capitalization of the company is about $58 million. On the last available financial statement, the company had just over $10 million in cash and liquid short term investments, so the enterprise value is roughly $48 million. With that in mind, the question then becomes how valuable will a multi billion dollar deposit (guestimated at $5 billion) be in the view of the market. Remember, the Bokan is at the site of a pre-existing mine so much of the infrastructure and permitting is already in place. Remember also that the site is located right next to an arm of the Pacific, so access by ship is easily available for the mine. Remember further that Bokan appears to be the largest deposit of heavy rare earths in the USA and that these elements play an important role in construction of defense technology as well as other critical items; as a result there have been moves in Congress (not close to success at this point) to subsidize development of sources of these elements outside of China which currently controls the world market. Finally, remember that the State of Alaska is also pushing for the development of the mine. In other words, there are a lot of strong forces pushing for the successful development of this mine.

In my view, there will never be a chance to buy UCORE at the current price once the PEA is released.

DISCLOSURE: I am long UCORE with a substantial position.

One final note: UCORE is more speculative than most of the stocks I discuss on this site. It has the possibility that it could go to nothing if the report is poor. Please do your own investigation of the company before investing. Also, please only invest that portion of your portfolio that you keep for the highly speculative.