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By DUSTIN BLEIZEFFER
Star-Tribune energy reporter
Thursday, February 10, 2005
A recent price recovery in the world's uranium market is nudging a once-giant industry from a 20-year slumber in Wyoming.Riverton-based U.S. Energy Corp. recently announced a new partnership with Canada-based Bell Coast Capital Corp. The partnership aims to reopen the Sheep Mountain uranium mines located in the Crooks Gap mining district in south-central Fremont County.Production of uranium oxide, or "yellowcake," could begin by mid-2006, according to the companies.
"I think you're going to see a lot of activity," said Keith Larsen, president of U.S. Energy.Larsen said a couple of North American uranium mill closures and a shrinking supply of tailings used to "blend-down" weapons-grade uranium from the former Soviet Union have contributed to rising uranium prices during the past 18 months. Prices wallowed at $7 per pound in 2000, but have recovered to $21 per pound on the spot market, and $26 per pound under contract.
"It's pretty darn exciting right now," Larsen said. "If you start looking around Wyoming, you'll find a lot of people looking to get into the uranium business, and a lot of people who were in the business are looking to getting back into it."Uranium mining activity peaked in Wyoming in 1980, employing 5,300 people in the state and producing about 12 million pounds per year, according to the Wyoming Mining Association. Back then, prices for Wyoming yellowcake ranged from $35 to $40 per pound.Currently, CAMECO's (ticker: CCJ) Smith Ranch-Highland mine north of Douglas has the only active uranium production in Wyoming. The in-situ process yielded more than 1.2 million pounds of yellowcake in 2003, according to the Wyoming Geological Survey.........
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US Energy (USEG) has been on our Special Situations list since August 2004. Since that time it has risen in price from 2.15 to 3.50. This little company has holdings in a variety of natural resources—gold, natural gas, uranium, and molybdenum. The value of its holdings may be worth many times more the stock price.Last week, one of their two outstanding lawsuits was resolved. It’s a long and complicated story, but the bottom line is that they now own a molybdenum mine near Crested Butte Colorado. The value of the metal has gone from $3 to $30 per unit since 2002, and their reserve is worth—get this—$20 billion. This is, of course, what the metal is worth “in the ground.” But it is a huge asset for a company whose market cap is only $54 million. There is a catch, however. While there is an old mine on the property, they have to get a permit from various state and local authorities to restart the mining operation. But they own a federal “mining patent” that gives them some assurance that if they just go through the procedure, they will have to be awarded the permit. Of course, the environmentalists will try to stop it, but my discussion with the company president last week suggests to me that the environmentalists have no solid basis to stop the mine. It is an underground mine, not an open pit mine—so no ugliness issues. There is not the environmental impact of cyanide from mining molybdenum as there is with gold. And there is already a very expensive ($200 million) water treatment plant on site that treats all the water from the old portion of the mine before releasing it into a creek.There is a second old lawsuit, this one concerning their uranium operations, which is due to be settled by an appellate judge any day now. The bottom line here is that the company is expected to get somewhere between $5 million and $27 million. The original verdict was for $20 million, and as I understand it, the only issue is not whether they will be compensated, but how much the final award will be. I offer no guarantees as to this interpretation; presumably the court could do whatever it wants. However, it is fair to conclude that the chances of some kind of a victory are good. And the end of all these issues ushers in a new era for the company.The stock could go a lot higher. It is still an unrecognized natural resource play.
Disclosure: We own shares of USEG in accounts we manage. MeekMarketModels.com
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Ok "beanie" readers, are you ready for this one?! It's gonna blow your socks off! Read it carefully!
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RIVERTON, Wyoming (November 7, 2002) – U.S. Energy Corp. ("USE") (NASDAQ/NMS: “USEG”) and Crested Corp. ("Crested") (OTC Bulletin Board: “CBAG”), d/b/a USECC, announced today that on November 1, 2002, Phelps Dodge Corporation (PD) and its subsidiary Mt. Emmons Mining Co. (MEMCO), (plaintiffs) filed an amended complaint with the U.S. District Court for the District of Colorado. In the amended complaint, PD withdrew its claim on the return of advance royalties paid by PD and its predecessors that amounted to just under $1 million. PD’s motion to amend the complaint was granted by the Court on November 4, 2002. Earlier this year, PD and MEMCO sued USE and Crested (defendants) over certain contract rights on the Mt. Emmons molybdenum deposit located three miles west of the town of Crested Butte, Colorado. In the complaint, Plaintiffs were seeking declaratory judgments on issues regarding: (1) the transfer to USECC of the Mt. Emmons mining properties and the obligations to operate a water treatment plant located on the properties; (2) claims that the acquisition of Cyprus Amax Minerals Company by Phelps Dodge in 1999 was not a purchase that would trigger a payment to USECC of $3,750,000; (3) that PD has no obligation under the contracts to pay USECC the advance royalties, and (4) claims that Phelps Dodge and its predecessors, AMAX and Cyprus Amax Minerals Company mistakenly paid advance royalties to USE and Crested beginning in 1991 and that USE and Crested should return the money. PD’s amended complaint withdraws this item (4). (See press releases of June 26, 2002 and July 16, 2002) On October 31, 2002, USECC filed an amendment to USECC’s original answer and counterclaim against PD and MEMCO with more specificity on anti-trust issues alleged in the first counterclaim. In counter and cross-claims filed in the case, USECC contends that Phelps Dodge and its subsidiaries committed several breaches of contracts in the agreements, including breach of fiduciary obligations and covenants of fair dealing. More specifically, USECC’s counterclaim (1)
Press Release November 7, 2002 Page 2 of 3 contends purchase of MEMCO by PD’s wholly owned subsidiary CAV Corporation, contractually triggers the payment of $3.75 million to USECC; (2) rejects the contention of PD and its predecessors, Cyrus Amax and AMAX Inc., that they had mistakenly paid royalties since January 1991, and ask that the payment of advance royalties continue; (3) refuses to accept the inclusion of a water treatment plant on return of the properties to USECC which USECC claims is a violation of the original contract with AMAX, and (4) contends that the purchase of Cyprus Amax by PD’s subsidiary caused damages to USECC. Discovery proceedings are underway in the case.
In 1974, USECC leased twenty-one (21) mining claims at Mt. Emmons to AMAX Inc., which cover the discovery later made by AMAX of one of the largest and richest deposits of molybdenum in the world, and contains an estimated 143 million tons of material averaging 0.43% molybdenum disulfide (MoS2). In 1977, USE and Crested sold an additional adjacent 174 mining claims to AMAX for $9.5 million. Commencing in 1984, AMAX began paying an advance royalty of 700,000 pounds of molybdenum per year or its cash equivalent, one half to each USE and Crested, until commencement of production at the mine. Reportedly, after spending in excess of $200 million on exploration and mine planning activities at Mt. Emmons, AMAX experienced financial difficulties. In 1986, USE and Crested agreed to assist AMAX by substantially reducing their annual advance royalty to 25,000 pounds of molybdenum or its cash equivalent to each, so that AMAX could continue to hold the properties and eventually bring them into production. Thereafter in 1991, Cyprus Minerals Company acquired AMAX Inc and became Cyprus Amax Minerals Company. In October 1999, CAV Corporation, a wholly owned subsidiary of Phelps Dodge, purchased control of Cyprus Amax and its subsidiaries (including MEMCO) by acquiring over 89% of the outstanding shares of Cyprus Amax, and Cyprus Amax thus became a subsidiary of PD. AMAX, Cyprus Amax and PD continued paying USE and Crested the cash equivalent of the advance royalty until January 2001, when Phelps Dodge unilaterally ceased making the payments.
"We welcome Phelps Dodge’s withdrawal of the advance royalty claim and view this as a positive development in the lawsuit. We do not like being involved in litigation, but look forward to presenting our position to the courts,” commented Keith G. Larsen, President of U.S. Energy Corp. “Simply put, we expect Phelps Dodge to (1) pay USE/Crested at least $3.75 million, plus interest; (2) return the properties; (3) retain the water treatment plant ownership and operation; (4) pay damages to USECC which they have suffered because of PD’s purchase of Cyprus Amax resulting in monopolizing the molybdenum market in the U.S., and (5) pay damages because of PD’s and its predecessors neglect of the Mount Emmons project,” Larsen concluded.
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From June 2002 press release:
"We welcome this lawsuit and look forward to presenting our position to the courts,” commented Keith G. Larsen, President of U.S. Energy Corp. “Phelps Dodge received accruals of some $252 million to cover environmental remediation and other liabilities when it acquired Cyprus Amax in 1999. In the early 1980s, AMAX, without the consent of USE and Crested, who were only royalty owners, built a water treatment plant for the water discharged from the mountain at Mt. Emmons. It now appears that Phelps Dodge does not want to use a portion of the funds received from Cyprus Amax to continue treating the water. Instead, Phelps Dodge is attempting to saddle our two companies or the State of Colorado with the obligations to clean up the water being discharged from Mt. Emmons, and we will vigorously oppose this action. We also expect Phelps Dodge to (1) pay USE/Crested at least $3.75 million, plus interest, (2) return the properties, and (3) retain the water treatment plant ownership and operation. USE and Crested have initiated discussions with reputable mining companies with the intent of putting this very valuable property into production on a smaller scale than AMAX had designed, thus minimizing any environmental impact." John L. Larsen, CEO/Chairman of USE and Crested stated that, "Over the past 2 ½ years, we've attempted to meet with Steve Whisler, Chairman and CEO of Phelps Dodge to resolve the issues but we were always referred to lawyers. It's tragic when management of mining companies cannot solve their differences but resort to the courts. I believe the litigation against USECC was ill-conceived by Phelps Dodge management." He added, "Phelps Dodge’s claim in the litigation that they did not purchase the mineral properties (thus triggering a payment to USE and Crested) is absurd and we will not only aggressively advance USECC’s position, but intend to file counter claims on other matters against Phelps Dodge. Their contention that the advance royalties paid to USECC by AMAX, Cyprus Amax and, more recently, Phelps Dodge was a mistake and that the Court should require USECC return the monies, is equally ridiculous. The same can be said of their third claim -- that USECC refused to take the Mt. Emmons property back. USE and Crested would welcome the property back, but not if it is burdened with expensive never-ending costs associated with operating the water treatment plant that AMAX constructed. USECC was never consulted about the installation of the water treatment plant. We believe that a jury will rule in favor of USECC concerning this issue as well." Mr. Larsen concluded.
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Hey, no matter how you look at it, Phelps Dodge (ticker: PD) is gonna have to pay up. Their greed is outrageous, especially considerating they made over $1 billion in income last year. USEG, the sleeping giant, is about to wake up! Can you say, $20?