The Month Ahead
Monday, April 02, 2007

We are now entering what will be the most crucial month of the year 2007. April will be pivotal in that it could alter the landscape of the uranium industry by the end of the month creating a new monster on the supply side. Australia will vote by the end of the month whether to do away with their “Three Mines Policy” which could open some of the world's best deposits, and exploration districts, to uranium mining. Australia has some of the most economical deposits found anywhere in the world right now, but due to the restrictions on mining, they have had to remain undeveloped until now (hopefully).

On the surface, one would think that Australia beginning to allow all of this potential supply would be detrimental to the supply/demand ratio for uranium going forward as well as the prices of Canadian uranium companies. Yes, it may slow the rapid rise in the uranium spot price some as utilities attempt to delay purchases in hopes of cheaper uranium, but it also allows for the continued build out of the nuclear renaissance that is upon us! One of the major problems we saw early on was the potential for nuclear power generators to quit adding capacity due to a shortage (or worries of a conceived prolonged shortage) and thus hurting this bull market's longevity. It will also take at least two years for a new mine to come online (not including SXR's Honeymoon Project) and my guess is that it shall take many more years to bring all of the projects currently ready for production to production due to a lack of construction supply. This could all be a mute point if some of the Provincial Governments do not pass resolutions along with the National Government...or the National Government itself!

Going back to the supply of this extra yellowcake, it is crucial for the industry to prove to the utilities that they can bring on extra supply in the coming years in order to entice them to add capacity worldwide, thus increasing demand for the future production getting brought online. It is so crucial, that China is in negotiations with Australian miners to buy into their deposits in order to secure supply for their nuclear plants. It would be very prudent for the Australian lawmakers to approve the legislation overturning the “Three Mines Policy” as it would add a very large customer (one whose nuclear output would grow faster than the economy behind it-referring to China here) and polluter to the world's nuclear producing countries, in a big way. My bet is that China would be enticed to possibly double planned capacity expansion if Australia were to open a large majority of their lands to uranium mining.

It is never good for a bull market depending upon a supply demand ratio to have a pendulum stay too far to one side for too long. In those circumstances, one party usually takes advantage of the other, just as happened when uranium prices were depressed for so long. Bull markets climb a wall of worry is the saying, but I am betting that this bull market will climb a wall of hope first, and then climb a wall of worry (there are some indications that this is already happening as we speak, but only time will tell which wall was scaled first).

Looking at our indices, we see one theme being blatantly apparent: Junior miners are trailing the producers and near-term producers at this time however this should change as we move forward in the coming months. The leadership role in the indices shall always rest with the leading companies as they have larger (not percentage-wise but in dollar denominated terms) price swings, however the juniors' time to shine is quickly approaching. The logic behind this thought is that any positive drill results will lift all surrounding plays in the area and create excitement in the overall uranium arena. Also, our friends in Australia seem to be taking a stand and exclaiming to the larger companies that “you will have to pay up for my shares!” These are some of the safest deposits in the world, so a high premium should be paid...but the market seems to be telling us that only 30% of investors in Australia believe that there is a chance that the National Government does not pass the new legislation. So, roughly 70% of investors believe that brighter times are ahead for Aussie uranium plays. This stand-off in Australia should also push up any premium paid here in North America as well. The final point on why juniors are going to take a leading role in the near-term is that when the Aussies pass the new legislation, they will push down the share prices of the producers/near-term producers and the exploration companies will be where the news and potential profits will come from in the months ahead.

We currently see CanAlaska coming to life, as well it should be. The stock has been relatively flat for the year, especially when you consider what the rest of the juniors have done over that time. They JVed what is their top project for $11 million and should be doing some major exploration work in the months ahead. Also, Pitchstone has acted 'weird' but appears to be coming back to life as well. This stock could more than double should any drill results come back with large intersections of U3O8 as there are less than 30 million shares outstanding, and 40% of those are held by the management team. Not only is a double possible, but potentially a triple. Also keep an eye on Strathmore Minerals and Oilsands Quest in the months ahead.