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A Future Blue Chip
Tuesday, April 11, 2006

This whole “Uranium Movement” that you see happening right now is in the early stages of what will most likely be looked back upon as one of the best investing opportunities of a generation. In all likelihood it will make the internet craze of the late 90s look like K2 compared to Uranium's Mount Everest. See the internet was based on promise, much as uranium is, however uranium has real fundamentals and real demand. These two facts also equal real money as the explorers/miners are dealing with a real product that will forever be demanded. Think about it like this, every time a customer was not pleased with their online experience for one reason or another they could simply just not use the internet for their buying, selling, or searching needs. With Uranium, that is not the case because once China or India build a Nuclear Power plant they must forever use uranium fuel to power the reactor...In short the demand will never drop below a certain threshold once a plant and its reactors are completed. Thus demand will not shrink unless other sources of power (coal or some new breakthrough) become cheaper.

With that said, we are constantly on the lookout for great companies with even better stories. During the dot-com era everyone wanted to find the next Microsoft, but now that “The Uranium Movement” is underway I am sure many will want to find the next Cameco. Well based on history its more likely that you will find the great companies in an industry near the beginning of the boom as opposed to near the middle to end. Think eBay, Yahoo, AOL, Amazon, and the exception being Google. Well if you want tomorrow's Cameco start by looking for companies who are even more diverse than them with assets that are close to producing.

Now look at SXR Uraniumone. This company was created by the merger of Southern Cross and Aflease recently. Their combined portfolio gives them assets in Africa and Australia where they hold 100% stakes as well as the Athabasca region of Canada through a partnership with Pitchstone Exploration Ltd. The company's mine in Africa (Dominion Rietkuil) is due to open within the next year (first quarter of 2007), and will also produce a significant gold by-product. Their Honeymoon project in Australia is the only undeveloped mine in that country that is at this time “legal” as the country has not totally opened up to uranium mining as a whole. Also the projects that they are partnered within the Athabasca with Pitchstone Exploration Ltd. Appear to be top of the line properties, with their proximity to McArthur River and Cigar Lake. Although the company has promising properties, its African property will produce 2 million pounds of Uranium until production is expanded in 2011 to 4 million pounds. So they will shortly be a producer of Uranium and then they will be working on building their Honeymoon project in Australia which is widely already believed to be one of the best projects coming online in the world in the near future. Now there is no telling what the company may or may not find with Pitchstone, but from our perspective that will just be an added extra for the company with the potential to give it at least one more world class mine.

This is a company that in our opinion is one of the early industry leaders, and will use their stable of close to production mines to build upon their holdings in the future. This will most likely be done through acquisitions, but there will be more to follow on that later. SXRFF will be added to our portfolio as of today, and should be considered as safe as International Uranium (IUCPF) and a step below Cameco.

On a closing note, the recent flooding that has taken place at Cameco's Cigar Lake should not necessarily be viewed as a negative. Yes it will cost the company 10% more in construction costs, however it should do them more good than harm. In six months the price of Uranium could jump more than 10% which would make this great for Cameco because they are not selling their product at a cheaper price than they could get later. Also, this event will force utilities and foreign countries to purchase Uranium from other sources, and my guess is that they will go after the easiest source to tap around...Russia's dismantled nuclear weapons! By using these stores up, the utility industry will forever be forced to purchase from the miners from that point on, which will most likely be the time when the mainstream investing community gets wind of the extent of the shortage of Uranium. At this point in the future there will be no more Uranium sitting around in storage for east access, and every pound that comes out of the ground will go straight to a mill to be processed and then taken directly to the plant that purchased it. This shortage will last for at least another decade, and possibly longer, if the plants that are on the drawing board around the world come onto production as planned. U308 has the potential to hit $100 a pound in the coming years, especially as certain countries (France comes to mind first with 78% of their production coming from nuclear power, and then China as it will become ever more dependent on nuclear power in the near future) will require the nuclear solution as they have no other source of power to fall back on.

Until our next installment, good luck and happy trading...

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