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Areva in Play?
Wednesday, May 09, 2007

Our index for Canada broke out of the recent downtrend which contained lower lows and lower highs, to power its way back near the highs of the year. As of last night, the index was up over 25% for the year! Quite impressive when you consider the diversification within it, as well as the fact that we are only five months into the year. We truly believe that we will see a downturn this summer, however it seems that everyone is looking for it, so there is the possibility it could be delayed, as it most likely will. Not because of the bulls trying to keep the bears at bay, but rather drill results this year will come out, in some cases, months after last season's. For many companies this will be the make or break year as they are running out of “priority targets” on their properties.

With our portfolio though, we are pleased with the progress made by Canalaska and Pitchstone in signing JVs and drilling out the properties. Canalaska is a stock which will have to be owned for years as they drill out their numerous properties, however as we move further through the development process, it will be much easier for them to sign JVs, and at higher prices. Pitchstone is going to wait at least until the end of this drilling season to figure out exactly what their 100% owned properties contain and may be worth, but our guess is that they will be able to command top dollar for those properties as they are prime. Remember that they were one of the first companies to begin re-staking the Athabascan Basin, and at the time had roughly 6 competitors for the same land (a third of which were Cameco and Areva/Cogema). Those are the two explorers whose results we are very interested in, not only because we have a financial stake in them through the portfolio, but also because they have some of the top properties in the Basin.

One stock which we had been watching very closely, Tournigan Gold (TVC.v) recently jumped 33% on news regarding their new resource estimates. They nearly tripled the reserve estimates from previous ones, and will begin to perform infill as well as deep drilling in order to clearly define the Kuriskova deposit. The company still believes that Kuriskova has good potential to be expanded, which would add further to their resources.

The French seem to be beginning to come around to the realization that socialism cannot mix with capitalism, with both prospering to their full potential. With the election of Nicolas Sarkozy, they now appear much more business friendly as he will relax the strict 35-hour work week as well as government intervention in the markets. The intervention within the markets was already under increasing scrutiny from European Regulators, however the French people seem to have effectively put a stop to that via their election. It is not clear how Segolene Royal would have enacted many of her proposals without running afoul with the EU regulations, but that is no longer an issue.

What is important to uranium investors and nuclear enthusiasts alike is that Nicolas Sarkozy has close ties with Anne Lauvergeon, currently the CEO of Areva. For those who follow the industry closely, you know that Areva is owned overwhelmingly by the French government and considered one of the “Champions of Industry” under the old government. Reports out of France via Le Journal du Dimanche indicate that Sarkozy wants to sell the French government's stake in Areva (still no indication on what amount) to Total SA, the French multi-national oil concern or to another group through a three way tie-up. The consortium would include Bouygues, Alstom (already 25% owned by Bouygues), and Areva. The deal would be financed via the sale of Bouygues Telecom as well as Bouygues' cable assets, and already the CEO of Dutch concern KPN has indicated that they would be very interested in any deal if Bouygues Telecom were to come up for sale. The rest of the deal becomes a bit more uncertain, as Bouygues could purchase more of Alstom and then merge Alstom with Areva or purchase shares in Areva and push a merger through. Another scenario could have them merging with Alstom, then purchasing/merging with Areva. At this point both deals are highly speculative, and Sarkozy's camp indicated that they are not talking at this point. Also, note that should this consortium merge, it would be combining the world's largest nuclear power station builder (Areva) with the world's third largest builder of power stations.

The biggest news however would be the significance of any deal involving Total SA. Total has not kept hidden their desire to become involved in some way in the nuclear cycle, as they announced just last year they would investigate the use of a nuclear power station to fuel their oil sands projects in Alberta, Canada. Also, this would bring in one of the world's largest oil companies into the nuclear renaissance, and the industry has a tendency to follow each other into new forays, as well as desire to leapfrog one another when able to. Any deal for Areva automatically puts Cameco into play, as anyone else wanting to jump in would need to have the same scale as Areva and only Cameco currently offers that along with diversification around the world.

We are not discounting this news, but realize that it may take quite a while for any deal to surface, however when the French talk of selling assets, especially to French concerns, they usually mean business and do perform the task. This should be something to watch for every investor, and could quickly push the uranium mining shares to new heights. We continue to be 100% invested in our accounts (no more via margin, and no less via shorts), currently building up cash on the side, and patiently waiting for the correct time to add to the portfolio.

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