| Legendary stock picker James Dines recently | | | | the largest sustained divergence between |
| compared uranium stocks to the high-flying net | | | | expectations and reality in the 60 year history of |
| stocks of the halcyon days of the Internet | | | | uranium." |
| expansion era. While the much-hyped and fleeting | | | | Kevin Bambrough offered some slight relief for the |
| Y2K crisis never materialized, the U.S. energy crisis | | | | uranium inventory problem, "There are a number of |
| for highly sought uranium has been developing for | | | | mines coming on, and there are talks of expansion." |
| more than twenty years. Still early in the current | | | | He gave Australia's Olympic Dam as one example, |
| bullish uranium cycle, investors are scoring triple-digit | | | | and added, "There's lots of talk about big production |
| returns on what some are calling a 'renaissance in | | | | coming on in Kazakhstan, but I've also heard reports |
| nuclear energy.' | | | | saying that's very optimistic." The International |
| Just as investors caught the curve of a new | | | | Atomic Energy Agency (IAEA) is less sanguine, "Lead |
| paradigm in communications and commerce with | | | | times to bring major projects into operation are |
| Internet stocks, many early birds have already begun | | | | typically between eight and ten years from discovery |
| investing in the nuclear energy story. The nuclear | | | | to start of production. To this total, five or more |
| story pitch is simple: How do you accommodate a | | | | years must be added for exploration and discovery." |
| massive rush for electrical power demand while faced | | | | The IAEA doesn't foresee relief until 2015 to 2020. |
| with the dire threat of carbon dioxide emissions and | | | | For the time being, U.S. utilities are forced to bide |
| its direct impact on global warming? The growing | | | | their time while they continue to rely mainly upon |
| consensus is that fission-based nuclear power may | | | | newly mined uranium imported from Canada or |
| become the significant stop-gap energy alternative | | | | Australia. Once the world's largest uranium producer, |
| for this century and possibly until reliable technologies | | | | the estimated recoverable reserves in the United |
| can effectively provide the means for | | | | States now ranks but eighth in the world with four |
| renewable-sourced energy. | | | | percent of known global reserves. Those 125,000 |
| Nearly 2 billion people across the planet have no | | | | tonnes of uranium would supply 250 million pounds of |
| electricity. The World Nuclear Association (WNA) | | | | uranium, far less than the unfilled maximum |
| believes nuclear energy could reduce the fossil fuel | | | | requirement for U.S. utilities over the next decade. |
| burden of generating the new demand for electricity. | | | | The majority of domestically mined uranium now |
| The WNA forecasts a 40-percent jump in worldwide | | | | comes mainly from Wyoming, Texas and Nebraska. |
| electricity demand over the next five years. The | | | | Permitting operations are progressing in New Mexico, |
| world's most populated countries, China and India, are | | | | once the country's largest producer of uranium, which |
| in the process of creating the largest | | | | may become a significant uranium supplier later this |
| energy-consuming class in the history of earth. Both | | | | decade. |
| plan aggressive nuclear energy expansion programs. | | | | "For people who want to bring on new (nuclear) |
| Dozens of lesser developed countries, from Turkey | | | | facilities and contract for it, it's very difficult to do |
| and Indonesia to Vietnam and Venezuela, have | | | | that," said Bambrough. "You have to go to mines that |
| announced their eagerness to pursue a civilian nuclear | | | | are not even there yet in order to try and contract |
| policy to benefit power needs for their burgeoning | | | | supply." In this light, it appears the greatest |
| middle classes. | | | | opportunity will appear with the junior uranium |
| In a nutshell, global utilities are going to need uranium | | | | companies, which obtained known uranium resources |
| to help feed the increasing number of nuclear power | | | | during the last down cycle, and whose operators |
| plants proposed over the next twenty years. Herein | | | | abandoned such properties because of low prices. As |
| lays the crisis: the world has been living off rapidly | | | | Neff warned in his presentation, "Uranium prices have |
| dwindling inventories since the last uranium up cycle. | | | | recently reversed a twenty year decline, apparently |
| Uranium is now in shorter available supply for civilian | | | | surprising many buyers and sellers." Buyers will be |
| energy use than ever before. Over the next decade, | | | | combing the same company lists investors scan. Just |
| as demand continues to outstrip supply, analysts are | | | | as investors will be racing to find the best uranium |
| predicting utilities will snap up known uranium | | | | juniors for investment purposes, utility buyers and |
| inventories sending spot uranium prices to record | | | | uranium traders will be scrambling to identify which |
| highs. During this launch phase, investors have taken | | | | company could provide them with a long-term |
| notice, chasing up the stock prices of many uranium | | | | uranium supply. |
| producers and exploration companies. | | | | How Can Investors Profit? |
| Uranium Prices May Reach "Unbelievable Highs" | | | | Bambrough recalled compiling a worldwide list, in 2003, |
| Toronto-based Sprott Asset Management research | | | | of a mere 25 companies involving in uranium mining |
| analyst, Kevin Bambrough, told | | | | and exploration. "I cut the list down to around ten |
| STOCKINTERVIEW.COM, "There is a good possibility | | | | that looked to be promising," said Bambrough. "I'd say |
| of a supply crunch that could drive uranium prices to | | | | that today there are still less than 30 uranium |
| unbelievable highs." Various analysts predict price | | | | companies that present a good reward-to-risk ratio |
| targets for spot uranium, in the near-term, above | | | | considering the massive move the sector has made." |
| $40. Canadian Augen Capital Corp's managing director | | | | Depending upon whose list you believe, the number |
| David Mason speculated, "$100 (US) a pound is within | | | | of companies now mining or exploring for uranium |
| reason within the next year or two." Sydney-based | | | | stretches to about 200. The majority trade on either |
| Resource Capital Research is half as generous, | | | | the Canadian or Australian stock exchanges. |
| forecasting $50/pound by 2007, explaining another 40 | | | | So how do you separate the potential winners from |
| percent jump in spot uranium prices will be "driven by | | | | the also-ran's? "People in the industry sort of know |
| end users in the power generation market which is | | | | who's real and who's not," said Bambrough. "I think a |
| urgently trying to secure supply into the future." | | | | lot of the pure exploration companies are more likely |
| How high could spot uranium prices run? Kevin | | | | to fall on tough times." Bambrough cautioned, "I think |
| Bambrough made a hypothetical case for uranium | | | | there will be a real separation between the have's |
| trading north of $500. "It's a ridiculous price," | | | | and the have-not's, those who actually have uranium |
| Bambrough confided. "It's hard to speculate if this is | | | | and economic deposits. A lot of exploration |
| even going to happen." While he admits that price | | | | companies are more likely to fall on tough times. |
| would not be sustainable, Bambrough makes an | | | | Those are the ones that will get hurt because they |
| interesting point about the concerns facing utility | | | | don't have anything to fall back upon. They have to |
| companies, charged with providing us with our | | | | go to market to keep raising money to do the |
| electricity. In his futuristic scenario, Bambrough | | | | expensive drilling that needs to be done. It costs so |
| speculated, "There's a chance that some facilities will | | | | much." Miller added, "It will take exploration funds, |
| have to choose shutting down their nuclear plants (if | | | | good geology, and some luck to find new uranium |
| they can not obtain uranium to fuel the facility)." On | | | | deposits in these frontier areas. The success rate of |
| that basis, Bambrough calculated the operating costs | | | | each individual prospect will be far less than 1 in 100." |
| of a nuclear facility versus the operating cost of a | | | | What sort of companies has Sprott Asset |
| competing fuel. In his conjectural model, Bambrough | | | | Management invested in? Bambrough responded, |
| used natural gas priced at $5. | | | | "We have preferred to invest in companies that have |
| Bambrough explained, "Assuming that the coal-fired | | | | acquired properties that were once owned and were |
| plant's operating capacity, before you would basically | | | | actively being worked by majors at the end of the |
| shut down a nuclear facility, you would be comparing | | | | 70's bull market." He added, "The cost of uranium |
| it to what you would have to bring on, which would | | | | exploration is so large there is great value built into |
| be natural gas. If there is a shortage there (with | | | | many of these properties. Specifically, millions of |
| natural gas), what price would it take before I am | | | | dollars worth of drilling work and data have been |
| willing to shut down my nuclear facility? If you were | | | | collected on some properties. In some cases, mining |
| to shut off the nuclear capacity, and fire up more | | | | shafts have been built that only require rehabilitation |
| gas to replace it, it would send gas prices through | | | | at a fraction of the cost of starting fresh with a |
| the stratosphere." And that doesn't factor in the cost | | | | green fields project." Another example of what he |
| of shutting down a nuclear facility, itself an exorbitant | | | | does and doesn't like, "The guys that picked up stuff |
| process. The analyst said he reached his calculation of | | | | in the last year, when they saw the uranium boom, |
| "north of $500/pound" for spot uranium, under an | | | | they just said, 'I'm going to go grab some land.' I |
| extraordinary emergency supply crunch, by | | | | have greater confidence in the guys that have been |
| answering this question: "How much would people | | | | there for a longer period of time, bought things when |
| pay before they shut it (a nuclear plant) down if | | | | they were being thrown away at the lows, and |
| there is a shortage of uranium?" | | | | waiting for the uranium price to rise." |
| Bambrough's point illustrates that, unlike coal or | | | | Bambrough shared a few of his favorite uranium |
| natural gas, the cost of uranium in the nuclear fuel | | | | stocks. "Of the companies that we own, we own a |
| cycle is minimal. Thus, uranium is subject to an ever | | | | larger percentage of Strathmore Minerals (TSX: STM; |
| greater price rise without the blowback of consumer | | | | Other OTC: STHJF) than almost any other company," |
| panic found in rising fossil fuel prices. Uranium prices | | | | said Bambrough. "We think they've got some great |
| might have to approach the level of Bambrough's | | | | properties. They were guys who got into the game |
| hypothetical forecast before even registering concern | | | | very early, and who have skills as they do with David |
| on an ordinary consumer's radar. | | | | Miller (president and chief operating officer of |
| Despite the recent parabolic rise in spot uranium | | | | Strathmore Minerals) in understanding the uranium |
| prices, Bambrough doesn't foresee the uranium | | | | business. And they have a very large amount of |
| frenzy peaking until the years 2013-2015. What will | | | | databases, as does Energy Metals Corporation, which |
| happen then? "There's a good chance that the HEU | | | | is extremely valuable in understanding the properties." |
| agreement won't be renewed," said Bambrough. | | | | Both Strathmore Minerals and Energy Metals have |
| "Russia may not be selling their uranium. The Russians | | | | properties in New Mexico and Wyoming. "I think the |
| may want to hold onto what they have." And if they | | | | future for New Mexico is quite good," Bambrough |
| do sell, they may not sell to the U.S. In 2004, U.S. | | | | noted, "as well as ISLs in Texas and Wyoming." Said |
| utilities imported more than 80 percent of their | | | | Strathmore's president, David Miller, "Strathmore is |
| uranium supplies from foreign sources. "It could be | | | | the only company to open an office up in New |
| that the Russians are interested in trying to build | | | | Mexico dedicated to bringing properties into |
| nuclear plants for other countries and be in that | | | | production. The office is staffed by two veteran |
| business," he suggested. "That may go hand in hand | | | | uranium men, John Dejoia, VP of Technical Services |
| with 'we're going to build you the facility and we can | | | | and Juan Velazquez, VP of Environmental and |
| guarantee you supply.' And Russia would be using the | | | | Government Affairs. They have a number of |
| balance of that uranium for their domestic needs." | | | | subcontractors doing various required work to bring |
| Bambrough also cited the problem of mines expiring in | | | | projects forward to obtain permits to mine." |
| the face of a potential new demand. | | | | Another Sprott Asset Management favorite is |
| He concluded, "There are time lags to bring new | | | | Tournigan Gold Corp (TSX: TVC). "You look at a past |
| production on versus what needs to be replaced in | | | | producing region," Bambrough pointed out. "They |
| that 2013 period." The International Atomic Energy | | | | went and got old mines." Tournigan recently drilled |
| Agency forecast nuclear electrical generating capacity | | | | the historic Jahodna uranium resource in Slovakia, |
| to soar by more than 40 percent by the year 2030, | | | | once drilled by the Russians. The company also holds |
| which may further drive demand for tight uranium | | | | uranium properties in Wyoming and recently acquired |
| resources, especially during the period of Bambrough's | | | | uranium properties in South Dakota. He also likes |
| forecasted period. | | | | Western Prospector (TSX: WNP), saying, "Western |
| Historical cycles support spot prices higher than $40 | | | | Prospector has gone through areas where in some |
| pound, a level above where uranium may hover for | | | | cases, there are shafts there that were dug by the |
| several years. The current cycle of rising uranium | | | | Russians. A lot of work was previously done." Others |
| prices closely parallels the leap which occurred | | | | rounding out Bambrough's preferred list of juniors |
| between February 1975 and April 1976. Spot uranium | | | | include Paladin Resources (TSE: PDN) and Aflease, |
| prices soared from $16 to $40/pound during that | | | | now trading as SXR Uranium One (TSE: SXR). "We |
| 15-month period. During the 1970s cycle, uranium | | | | also have a bit of investment in the Labrador area, |
| steadily rose from $6.75/pound in November 1973, | | | | and very small, mainly in Altius (TSX: ALS)," added |
| peaking in July 1978 at $43.40/pound. Uranium held | | | | Bambrough. "It's something we're watching. We think |
| above $40/pound for nearly four years from April | | | | it's a promising area." |
| 1976 through February 1980. In this cycle, uranium | | | | Where the Action Is |
| prices bottomed at $6.40 in January 2001, creeping | | | | The more adventurous price action may be found in |
| higher into 2004. Since late last year, spot uranium | | | | the ongoing consolidation within the uranium sector. |
| prices soared with the same momentum seen thirty | | | | Bambrough observed, "There appear to be a few |
| years ago. If history repeats itself, spot uranium | | | | aggressive junior uranium companies that seem to be |
| prices should trade above $40/pound this year, and | | | | moving forward and working to build a 'major' |
| stay above that level until the end of this decade or | | | | company." In November, one uranium exploration |
| perhaps for a longer stretch. | | | | company, Energy Metals Corporation (TSX: EMC) |
| The key yardstick in determining how much higher | | | | began takeover procedures to acquire two other |
| uranium prices will climb is by keeping track of the | | | | uranium juniors, Quincy (TSX: QUI) and Standard |
| number of new nuclear facilities being constructed or | | | | Uranium (TSX: URN). Standard Uranium has since |
| proposed. Estimates vary wildly, from as few as | | | | traded nearly 70 percent higher. "There are people |
| thirty by 2020 to more than 150 before 2050. "A | | | | who have neighboring properties, and it makes sense |
| few years ago, when we first started investing in | | | | for them to come together," advised Bambrough. |
| uranium," Bambrough explained. "There were very | | | | In late December, another of Bambrough's favorite |
| few plants being proposed. The numbers have | | | | uranium companies, Strathmore Minerals (TSX: STM; |
| doubled for proposed facilities. And for every one | | | | Other OTC: STHJF), announced it had "engaged |
| you hear about, there's a lot more being planned." | | | | National Bank Financial as its exclusive financial adviser |
| That puts uranium miners into an enviable position. | | | | to review transaction alternatives to maximize |
| Bambrough added that utilities have to secure their | | | | shareholder value from its uranium assets." |
| fuel supply for up to six years out, once they decide | | | | Questioned about this news release, CEO Dev |
| to build a nuclear facility. "The fact is the supply is | | | | Randhawa told StockInterview.com, "National Bank |
| just not there," warned Bambrough. | | | | has the best technical team and will help us reach the |
| According to the U.S. Energy Information | | | | right decision to maximize the benefit to our |
| Administration, "Cumulative unfilled uranium | | | | shareholders." In a December 7th note to his |
| requirements for U.S. civilian nuclear reactors for 2005 | | | | subscribers, Canaccord's David Pescod wrote, "We |
| through 2014 were reported to be 365 million pounds | | | | talked to Dev Randhawa of Strathmore Minerals |
| U3O8e. The quantity of maximum deliveries of | | | | because Strathmore seemed to be the one company |
| uranium for the same period under existing purchase | | | | on most people's list as an obvious take-out target. |
| contracts totaled 181 million pounds." Nearly 67 | | | | When we talked to Dev, obviously he wouldn't be |
| percent of the maximum anticipated market | | | | adverse to a take-out as long as the price is right, |
| requirements for uranium lack a contract. Over the | | | | and he even gives us a 50/50 bet that they won't |
| next decade, U.S. utilities will need to newly purchase | | | | be around in the next six to twelve months." In a |
| more than 36 million pounds of uranium oxide each | | | | 2005 research report, the Cohen Independent |
| year, on average, in order to keep their nuclear | | | | Research Group set a price target of C$4.29/share |
| power plants running. According to the Department | | | | for Strathmore Minerals, based upon the current spot |
| of Energy website, contracted purchases from all | | | | uranium price. |
| suppliers precipitously falls in 2007 below 40 million | | | | How does Bambrough envision the uranium bull |
| pounds. By 2008, the amount of contracted uranium | | | | market unfolding for investors? "I think the market |
| sinks below 20 million pounds. | | | | could really use more large cap uranium companies, |
| In short, U.S. utilities may soon be scrambling for | | | | since large fund managers currently can really only |
| uranium inventory to fuel their nuclear reactors, or | | | | look to Cameco (NYSE: CCJ) and Energy Resources |
| face the "ridiculous price(s)" research analyst Kevin | | | | of Australia (ASX: ERA) to get exposure to the |
| Bambrough warned about. An excerpt from The | | | | uranium market," said Bambrough. "There are several |
| International Atomic Energy Agency's booklet, | | | | junior companies that should come together to form |
| Analysis of Uranium Supply to 2050, bears out | | | | large uranium companies to leverage their extremely |
| Bambrough's thesis, "As we look to the future, | | | | valuable skilled personnel, lower the exorbitant costs |
| presently known resources fall short of demand." The | | | | of permitting and exploration, and achieving other |
| deficit between newly mined uranium and reactor | | | | economies of scale." How soon would it be before a |
| demand has averaged about 40 million pounds | | | | larger company, combining some of these promising |
| annually over the past decade, cannibalizing existing | | | | juniors, reaches listed status on the New York |
| inventories. As we begin 2006, the supply/demand | | | | exchange? "I would guess that a NYSE listing may |
| imbalance has reached a critical phase. | | | | not come until 2007 or 2008," responded Bambrough. |
| Where Will the Uranium Come From? | | | | "I think that when the tap comes for a lot of these |
| In his September 2004 presentation to the World | | | | companies, it will come to those that are in |
| Nuclear Association, Thomas L. Neff of MIT's Center | | | | production. You'll be able to see a nice production |
| for International Studies, stated, "The net result of | | | | profile, several projects, diversification, cash flows, |
| nearly twenty years of inventory liquidation is that | | | | and a nice pipeline of projects." |
| existing higher-cost suppliers were driven out of | | | | As for the approximately 200 uranium exploration |
| business, new mines were discovered from starting, | | | | companies that have sprouted up in less than two |
| and exploration was neglected." Neff warned in his | | | | years, Bambrough advised, "I don't understand why |
| conclusion, "The problem is the one to two decades | | | | people would put so much money into grassroots |
| that will be needed to expand (production) capacity | | | | properties when there are properties that were |
| and build the flow of nuclear fuel that meet the | | | | (already) worked on, and you can continue on their |
| expanding requirements horizon." | | | | work. The idea is we are continuing on those |
| The 1970s price spike in uranium was limited because | | | | projects rather than going grassroots. It's the logical |
| existing uranium mines were quickly ramped up to | | | | place to go for me." Bambrough is still enthusiastic |
| supply utilities with fuel. Neff noted, "This is not the | | | | about the uranium sector and closed his remarks, |
| case today and a longer period of high prices could | | | | saying, "I expect that we will see a great out |
| prevail." In Neff's analysis, uranium prices would have | | | | performance by quality uranium companies as they |
| risen well above $100/pound in the mid 1970s, using | | | | move their projects forward. We still see some |
| constant 2004 US$. On that basis, Bambrough's | | | | incredible values and are still actively investing in the |
| hypothetical forecast above $500/pound may be not | | | | space. We are still in the early days of the uranium |
| too far out of reach. Neff summarized why the | | | | bull market." |
| problem has reached a critical stage, "We are | | | | COPYRIGHT © 2007 by StockInterview, Inc. |
| currently facing the consequences of what may be | | | | ALL RIGHTS RESERVED. |