Server: Microsoft-IIS/3.0 Date: Thu, 20 Nov 1997 22:04:52 GMT Content-Type: text/html US Energy Investor News - PMG Report on US Energy


Pennsylvania Merchant Group Report on US Energy









September 3, 1996
U.S. Energy Corp.

Summary and Investment Conclusion:

After a nearly two decade Bear Market in the price of uranium that forced closure of all domestic conventional uranium mines and mills, the world wide supply-demand pendulum has begun to swing, driving prices up about 70% in the last two years. In order to bring forth predictable new supplies to satisfy the world wide demand for 150MM lbs. of U3O8 to fuel nuclear reactors, a market short last year by an estimated 65MM lbs., electric utilities will have to contract for future deliveries at prices that will encourage additional supply. U.S. Energy, prior to the recent advance in uranium prices, acquired substantial mining and milling assets at nominal costs, favorably positioning the company to become a major supplier, once contracts are obtained at prices management believes reflect the value of the company's resources.

Present revenues are nominal and the company has posted operating losses in recent years, but the balance sheet should soon be enhanced by confirmation of an arbitration award totaling $12.5MM plus potentially significant profits from future uranium contracts. The main risk to the shares would be a collapse in the price of uranium (unlikely given supply-demand fundamentals), or USEG's inability to prcure sufficient contracts on favorable terms to convert the asset base into an on going stream of revenus and earnings. Valuation of the shares is open to several interpretations discussed at the end of this report but, on average, indicate a higher stock price for risk investors wishing to participate in improved fundamentals of the uranium business.


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