2008: A Year for Investing in Uranium Equities
Thursday, January 3, 2008
Uranium equities have stabilized in recent days with the
uranium average bouncing back to the mid-180 level and only recently crossing
back over the 190+ level . Investors have begun to test the waters and wade back
into some of these issues rather than jump in blindly. It appears that we may
have experienced the worst of the tax selling in both Canada and the United
States, so the table seems set for 2008.
With drill results rolling in for the industry in the next
few months we will have a news flow to trade on, and a few companies will be
reporting NI 43-101 compliant resources. Not sure at all how any of these
results will come in, however we will be investing our money in companies which
have proven that they either have something solid in the ground, or are very
close to something substantial based on their current results.
We cannot help but notice these days some of the full page
advertisements endorsing nuclear power plants which keep popping up in some of
our favorite financial publications (i.e. Barron's and The Wall Street Journal).
It seems that Corporate America has fully embraced what is 'The Nuclear
Renaissance' and have begun to put their money behind it. The utilities are
behind these ads and are painting the picture that nuclear power is green power,
and rightfully so. If you were to measure the electrical output of say coal (a
truly dirty source of power at all stages of its cycle- from mining to the power
plant) versus that of uranium there would be no other conclusion to draw from
the facts. Truth be told, one kg of coal contains only three times more
electrical output than fire wood and produces less than 1/16,600 of that of
uranium. One question I would love to have answered is if you measured the coal
ash which goes into the atmosphere, as a result of coal being burnt at a coal
fired plant, and condensed it to the volume of its energy equivalent in uranium
terms...how lethal and deadly would that substance be? Sad thing is this is all
dumped into the atmosphere and greens seem to prefer that over storing the waste
on the surface. In the future nuclear power may find more support as people
become aware of the hazards of the chemicals dumped into the atmosphere and want
to account for this. As laughable as this may sound, even today oil companies
are looking at the fact of pumping CO2s into the ground in order to pump oil out
and in the process keep greenhouse gasses out of the atmosphere. It is also
being said that this process could help with meeting CO2 emission quotas under
Unfortunately there are those out there who lack knowledge
on the matter and through their ignorance on the subject suggest that nuclear
power is much more dangerous than any other power source we have due to the
plants and spent fuel. There has not been an accident in nearly 30 years and
today many of the plants basically run themselves. There is always the
possibility of accidents, however France has converted to 80% nuclear and they
do not have any problems (engineering or management) plaguing their plants.
The country will learn more about nuclear power and uranium
mining as 2008 moves on. More applications will be submitted to the DOE for
permits to build nuclear power plants, and quite honestly the Southern US is
very pro-nuclear. The guaranteed subsidies will encourage this, plus USEC Inc.
issued a press release stating that these subsidies will also benefit the
uranium refiners. There is $2 billion available to the front-end of the fuel
cycle and $18.5 billion for the plants themselves.
We still do believe that the established miners and near
production explorers will be the issues to lead us out of the darkness, with
Uranium One and Denison Mines looking attractive among the miners and Laramide
Resources, UEX and Ur-Energy among the most attractive near production
explorers. Pinetree would give one exposure to many uranium explorers, but only
one, Mega Uranium, is a serious contender right now for achieving production.
They do own some of the best explorers, and last we were told they effectively
owned, through their stock ownership in Silver Spruce Resources and Universal
Uranium, about 10% of the Two Time Zone Deposit in Labrador's Central Mineral
that we are now trending upwards once again. UUU needs to assure investors
that they can run their uranium mines without the problems that have plagued
them in the past few months.
Another reason we are still bullish on uranium for 2008 is
the very fact that the big miners are not as bullish as once seemed. BHP
Billiton and Rio Tinto both seem willing to part with Rio's holdings in Wyoming,
BHP if they are able to buy Rio Tinto and Rio Tinto to get cash to pay down debt
from recent acquisitions and to increase investors' returns. It is also
important to note that none of the big miners have bought these uranium miners
or explorers. Granted Cameco has made some strategic investments, but nothing
material and Areva did purchase Uramin which was arguably the only buy among big
miners. So until these uranium plays are discovered by those who specialize in
mining, it is going to be hard for casual investors to discover.
There are still many reasons to invest in uranium, and at
these prices we are among the buyers. Many of the same reasons we began
investing in uranium equities still exist, and chief among them are the supply
demand ratio and build-out of nuclear plants. So long as a marketplace exists
where supply is half of demand and demand is increasing for many years out, a
favorable investing opportunity will be present.