January 26, 2007
By James Finch
Smaller Uranium Companies Could Prove More Profitable
New Cameco Delays at Cigar Lake Could Soon Create Renewed Uranium Price Frenzy
Because of Thursday’s Cameco Corp update on remediation progress at Cigar Lake, and other developments which have transpired since this article was originally published on another financial news website, we felt it a revision and update might be in order.
On December 18th, we wrote, “In light of TradeTech’s December 15th announcement of the largest percentage increase of the weekly spot uranium price in history, the brewing kettle of some 300-plus uranium companies could quickly boil over.” Over the past month there have been some strong gains exhibited by some of our most closely followed advanced stage uranium mining companies. Some had price rallies coming into the New Year and then backed off. Cameco has traded within a $3/share price range – slightly lower since our initial article.
Since the December 15th announcement by TradeTech of a record weekly spot uranium price increase to $72/pound, buyers and sellers have remained in limbo. The market froze for the past five weeks, two of which were holiday weeks. Mostly, utilities awaited a follow-up message from Cameco about their repair work at Cigar Lake. Confidently, fuel traders held onto their inventory expecting delays.
Active demand has grown since the December announcement. And more demand is expected to be announced over the coming months. Yesterday, Cameco’s message was to calm the roiled markets which were hit with a rumor this past Monday. Someone had started a rumor announcing Cigar Lake was doomed. Cameco’s chief operating officer explained in Thursday’s news release, “Cigar Lake is an extremely valuable deposit that is expected to play a significant role not only in Cameco\'s Future but as part of the world\'s uranium supply. Given its importance, we believe taking extra time to develop our remediation plans and estimate costs is prudent.”
Cameco’s share price now trades at roughly the same price pre-Cigar Lake. The more serious junior uranium producers and potential producers trade much higher. Our research confirms the spot uranium price is likely to increase another 10 to 20 percent before investors get a more complete and accurate update from Cameco about Cigar Lake. Of course, speculation remains rampant about how soon Cigar Lake is delayed. This will benefit numerous junior uranium miners who hope to get their projects online before 2010 or 2011.
The biggest beneficiaries have been the junior producers or very near-term producers, such as Paladin Resources, Ur-Asia, Denison, Uranium Resources, Energy Metals and SXR Uranium One. Share prices since October 23rd have doubled or nearly doubled. Stocks which double within a three-month time frame reap their initial investors handsome rewards. The financial markets have rewarded the producers and those approaching production over the next three to four years.
Shares in Uranium Participation Corp continue suggesting a higher spot uranium price in the near future. This past week, shares in this physical uranium holding fund broke out of the November-January trading range. Speculators probably welcomed further delays at Cigar Lake and may remain less eager to sell their physical uranium. This should lead to higher uranium prices into the spring.
Over the course of nearly 200 interviews with industry insiders, utilities, energy consultants and uranium company technicians and executives over the past 13 months, it has become evident to us that no one truly knows where the price of uranium will eventually settle or stabilize. It was only in early 2006 that a handful began talking about $60, $70 and even $80/pound uranium. To date, every analyst, including those who weekly report the spot uranium price, has underestimated this uranium bull market.
Low Grade, Safe Technical Risk
One concern voiced by investors and uranium miners we’ve talked to is the movement to the safer, low-grade uranium plays. Cigar Lake has a big payoff, but has a very high technical risk. It’s the grand slam home run of uranium mining, but this current delay may not necessarily be the last one Cameco experience over the duration of Cigar Lake’s mine life. In a recent interview, SXR Uranium One’s Neal Froneman spoke of having low technical risk. He’s one but many pursuing the course of low technical risk with low-grade uranium. And his Dominion uranium mine could host a major uranium deposit.
We reviewed some of the more promising advanced stage uranium companies which have not yet produced. There are others we’ll be writing about in the near future as well. Some of these have emerged on the radar screens of many uranium mining stock investors. We believe nearly all of them are likely to become headline-makers in the uranium sector, some as early as this year and most by the end of the decade.
During the post-Cigar Lake period, Africa has emerged as a hotbed of exploration and development. On the coat tails of Paladin and soon-to-be-producer SXR Uranium One, In Namibia,
Forsys Metals and UraMin are racing toward production before the end of the decade. A year ago, those were the two primary candidates in that country. Now, there are about 20 companies vying for investor dollars and exploration licenses.
We have been surprised at how well Forsys has performed. The company’s shares have jumped more than 300 percent since Cigar Lake, but this wasn’t the only reason the company has done well. Not only has Forsys moved forward with their Valencia uranium project in Namibia, but they’ve saddled up relationships with key figures in Namibia business and politics. Based upon an earlier interview with the company’s exploration manager, Forsys hopes to announce the results of its pre-feasibility during February.
The United States remains a favorite area although it offers low-grade uranium deposits. With lesser grade uranium deposits, Wyoming’s environmentally supportive political bureaucracy – some departments populated by those which have long mining backgrounds – makes this ‘uranium province’ a preferred destination for junior uranium companies. The front runners are likely to be UR-Energy and Uranerz Energy – companies which we’ve tracked for about a year.
In a recent audio interview with UR-Energy’s Chief Executive Bill Boberg, it has become apparent this company should be the first new uranium producer in Wyoming. According to our interview with Energy Metals’ Dennis Stover, his company is likely to become the first new U.S. producer, but in Texas. The swarm of activity in Wyoming is mind-boggling. The next likely candidate for uranium mining in Wyoming should be Uranerz Energy, led by Glenn Catchpole and his in-situ leach technical team. Both uranium mining companies have a proven technical team and have kept the markets abreast of their progress.
Another area, which is quietly emerging is the Grants (New Mexico) area. New Mexico has gotten a slightly negative rap because of the Navajo Nation ban on uranium mining. What is less well known is that none of the companies we’ve covered actually plan to mine on reservation properties. And, the difference between the Gallup and Grants areas is night and day.
Gallup is more liberal, more Navajo-populated and closer to the reservation. The top politicians in Grants are eager to bring back uranium mining into Cibola County. It was only recently that Grants dropped from the world’s top uranium mining districts – and only because no mining has taken place in this area for the past several years.
After we wrote an article announcing that Grants was at the center of New Mexico’s nuclear renaissance, the Cibola County commission passed a resolution in September supporting and encouraging the granting of permits to facilitate the operation of uranium mines. Head of Cibola County’s Economic Development Star Gonzales wasn’t kidding when she told us, “We will greet them (uranium miners) with open arms.”
A year ago, we forecast the explosion in uranium activity in Wyoming. This year, it may be New Mexico’s turn. We’ve observed a number of companies involved in New Mexico, hoping to bring their uranium properties into production. A subtle shift occurred in mid 2006 as the momentum began picking up in Grants as opposed to the Gallup area. An interesting development: SXR’s Neal Froneman positively mentioned New Mexico in the same breath as Wyoming and Utah, whereas this past July, he tended to shun the area.
Laramide Resources and others began the preliminary steps in the Grants area for uranium mining. Privately held General Atomics may have the 800-pound gorilla in Grants, but they have made no indication to proceed at their Mt. Taylor deposit. The rest of the pack is still early stage aside from one. Strathmore Minerals has begun the permitting process for the company’s Roca Honda uranium property near Grants, New Mexico. In November, the company announced it had purchased land for a potential uranium mill site in the Ambrosia Lake area. Last year, Strathmore announced National Instrument 43-101 measured, indicated and inferred resources of more than 33 million pounds – just for the Roca Honda project.
On Thursday, Justin Reid, Sprott Securities mining analyst, issued a speculative buy recommendation on Strathmore Minerals with a target price of C$4.70/share. In his investment thesis, Reid pointed to Strathmore’s properties in both New Mexico and Wyoming. However, he wrote, “We expect that Strathmore will be able to progress its properties to eventual production, however, as we believe the four corners region (New Mexico, Colorado, Arizona, Utah) of the US is ripe for consolidation, Strathmore also represents a prime target as the NM Grants Uranium Belt is highly fragmented and STM’s assets are among the most advanced in the region.”
Of course, there are numerous other uranium deposits and projects we have not included. There are some which we did not include because they had not responded to a simple email, such as Australia’s WildHorse Energy, which has announced projects in Wyoming and Hungary. We promise to keep readers updated on promising uranium mining projects throughout the year.
And we would like to close this revised article with the same message found in the earlier version. Not much has changed over the past month to dissuade us the uranium bull market has ended.
Even the 800-pound gorilla might not arrive before the next uranium price leap. The single dampening fear of uranium producers is the specter of a significant offering by the U.S. Department of Energy (DOE), auctioned from the agency’s AMU (already mined uranium) inventory. But, an extremely reliable source told us late last week that the DOE was extremely unlikely to auction any uranium at all until this coming summer.
Over the longer horizon, the uranium bull market might continue its stampede until the 2010 to 2013 time frame. At the earliest, Olympic Dam’s expansion is not scheduled until 2010. BHP Billiton is now soliciting bids for future uranium production before it commits to the estimated $5 billion capital expenditure the project’s expansion could require. (Olympic Dam is primarily a copper mine and the proposed expansion could be jeopardized should copper prices tumble and remain lower). Kazakhstan projections of dramatic uranium production by 2010 have yet to be taken seriously by many analysts. And Cigar Lake remains an unknown quantity, perhaps even after Cameco comes closer to bringing this uranium mine into production.
As one knowledgeable uranium insider said, after TradeTech announced the weekly spot uranium price record, in December 2006, “$100/pound is no longer out of the question.”
WEBSITES and Trading Symbols of companies mentioned in this feature:
Forsys Metals TSX: FSY www.forsysmetals.com
Denison Mines TSXbreites GrinsenML www.denisonmines.com
Energy Metals Corp TSX: EMC www.energymetalscorp.com
Laramide Resources TSX: LAM www.laramide.com
Paladin Resources Limited TSX: PDN www.paladinresources.com
Strathmore Minerals TSX: STM www.strathmoreminerals.com
SXR Uranium One TSX: SXR www.uranium1.com
Uramin TSX: UMN www.uramin.com
UR-Energy TSX: URE www.ur-energy.com
Uranerz Energy AMEX: URZ www.uranerz.com
Uranium Resources URRE www.uraniumresources.com
Uranium Participation TSX: U www.uraniumparticipation.com
UR-Asia Energy TSX: UUU www.urasiaenergy.com
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