Tuesday, February 28, 2006

Feb 28 Uranium Stocks Update: Urasia Energy (CVE:UUU )

Preface: uranium oxide price increased another $0.25 to $38.50/lb

All four of my uranium picks gave presentations today at the 2006 Global Resources Conference.

Interesting Tidbits

Urasia (UUU.TO)
(1) Kazatomprom, the state-owned company cooperating with Urasia in their joint ventures, actually owns 4% of Urasia.
(2) UUU.TO has enough cash to fund its developing projects in South Inkai and Kharassan. UUU.TO will not need to raise any more money until 2008.
(3) Urasia is looking to acquire more uranium assets in Kazakhstan, areas already explored by Russia in the past but not developed.
(4) total tax take will be 42% for its uranium mining.

Monday, February 27, 2006

Feb 27 Uranium Stocks Update: Urasia Energy (CVE:UUU )

two newsworthy items about Urasia today, one expected, the other very interesting

First Uranium Sales Contract Secured

Urasia Energy Ltd. ("Urasia") is pleased to announce it has entered into an agreement for the supply of uranium concentrates from its Akdala uranium mine in the Republic of Kazakhstan.

The contract is for the purchase of approximately 200,000 pounds U3O8 for delivery in 2006 to a major Western utility company.

As a new producer in the industry, from Central Asia, the Company is pleased to have finalised its first contract with a Western utility, and the first new contract since it acquired its interest in the Akdala uranium mine in November 2005.

Urasia Energy is a Canadian-based uranium producer that offers investorsexposure to lowcost, uranium production and growth. The Company plans tocreate shareholder value by focusing on development and operation of low-cost, in-situ leach uranium projects in Central Asia.

Analysis: no surprises here, basically good news but entirely expected. Stock jumped from $2.79Cdn to $2.90Cdn on an otherwise down day in the markets.

The Moscow Times Feb 28th

Russia plans to pump $10 billion into expanding its uranium resource base over the next 10 years, part of a program to accelerate the country's nuclear energy output, top government officials said Monday.

Spearheaded by the Natural Resources Ministry and the Federal Atomic Energy Agency, the program would increase annual uranium production sixfold by 2020, ensuring ore supplies for existing and new nuclear stations.

If the government does not act, Russian stockpiles of the ore will dry up in less than a decade, said an official from the Federal Subsoil Resource Use Agency, part of the Natural Resources Ministry.

Analysis: you can be sure that the uranium deficit between supply and demand will NOT be made up by any more old Russian warheads when the HEU agreement expires in 2013. Russia wants any and all uranium to herself, period.

To increase future supply, the government would double production at existing uranium mines and start exploration at a number of fields in Siberia and Buryatia. It would also set up joint ventures with CIS partners.

Analysis: CIS = Commonwealth of Independent States. Guess who is part of CIS? Yes, Kazakhstan, holding the 3rd largest uranium reserves in the world. Guess who is mining uranium in Kazakhstan?

Last month, President Vladimir Putin said nuclear power's share of Russia's energy use would increase from 15 percent to 25 percent by 2030. To achieve that goal, Russia plans to build 40 new nuclear reactors in place by 2030.

Analysis: As I've said before, Russia and China are both going to build 40 each. Kazakhstan is right next door to each country. Urasia is a low-cost ISL uranium producer. I'm going to leave it of at that..


Saturday, February 25, 2006

Feb 25 Uranium Stocks Update: sxr Uranium One (TSE:SXR)

Honeymoon Project

As my fourth uranium mining stock recommendation, I had highlighted the prospects for sxr's Dominon Project. Now it is time to take a look at their other uranium project and shift our focus from South Africa to South Australia.

Now as we all know, Australia has some of the tightest uranium mining laws in the world (if you want to read more about that situation, click on the January 2006 Archives on the right sidebar). Basically, they have a three mine policy that only allows for the operation of three uranium mines at the same time. However, as the Uranium Information Centre Ltd. correctly points out, there is room for four:

There are three operating uranium mines in Australia, Ranger in NT, Olympic Dam. and Beverley in South Australia. A fourth is cleared to start construction: Honeymoon, in South Australia.

This is what SXR has to say about its Honeymoon project in its MD&A (Nov 2005):

All primary regulatory approvals required to proceed into commercial production at Honeymoon including an Export license have been obtained. In the event the Company proceeds into commercial production, permits common to all site construction and commerical mining operations in South Australia are required to be obtained prior to commissioning.

So how much time does that take? Let's take a look at their website.

Honeymoon is fully permitted, with a mining license in effect for 20 years, and is ready to begin production with a short lead time of less than 18 months. short lead time of less than 18 months.

So if SXR.TO decides to go forward with Honeymoon, they could conceivably be mining uranium out of the ground somewhere in the latter half of next year. So how much are they planning to mine anyways?

A cost and engineering study carried out by Ausenco in 2004 projected construction costs of US $24.5 million and working capital requirements of US $6.3 million, for a total capital requirement of US $30.9 million. Over the projected mine life, the average cash operating costs per pound would be US $12.40, with optimal plant capacity of approximately 400 tonnes (880,000 pounds) per year. The project has indicated resources of 9.3 million pounds (NI 43-101 compliant) and a flexible plant design that would allow increased production levels with exploration success.

That's not too much uranium being mined actually; the other three mines will all be mining more. The point, however, is that a $30.9 million capital cost is actually quite low. At today's uranium oxide price, SXR.TO could recoup that cost in less than 2 years if they are mining close to a million pounds a year. With the Dominion project hopefully beginning uranium production in early 2007, Honeymoon represents a second source of revenue for SXR.TO.

One caveat. On January 12th, 2006, SXR.TO actually had to release a press release denying that the Honeymoon Project was up for sale. One segment in particular caught my eye:

"There have been reports that the old SXR held talks with interested parties from China about the Chinese acquiring a stake in Honeymoon. "The talks were not conclusive, and as far as Uranium One is concerned, Honeymoon is a core asset of our global company and is not up for sale. "I am on record as having said that the new Board of Uranium One will be asked to take a decision on the project later this year, and I expect to be in a position to make a recommendation to the board by June.

Well, efficiency is one of the benefits of central planning. China is building lots of reactors, China needs uranium, China will get uranium, somewhere, somehow. Point is, if Australia and China had been able to reach an agreement in their talks about exporting uranium, Honeymoon might have been swept up already. As it is, we have a bit of a waiting game until China can convince Australia that it will not use uranium for weapons.

All of this just means SXR is sitting pretty right now.

Friday, February 24, 2006

3-year Uranium Oxide Price

I'd like to end off this week by having everyone examine the price movement of yellowcake

This is why we invest in uranium. Without an understanding of this, it would be an impossibility to justifiably advocate uranium mining stocks. A couple of points I like to remind everyone about uranium versus other commodities like gold and copper are:

(1) the uranium supply and demand market is very small. One does not need to spend much time in figuring out those who use and buy uranium and those who produce and sell uraniium. There have been a few wrinkles to this equation (namely the parties who buy but do not use) but the point here is that the fundamentals of uranium oxide are very easy to understand.

(2) have you notice ANY downward trend in this graph? Me neither. For all of its doubling in the last couple of years, gold has had its share of ups and downs. Now don't get me wrong, I'm invested in gold as well, but my point is that uranium oxide price per pound has quadrupled in the past three years, and is showing no signs of slowing down.

(3) uranium oxide producers like Urasia are spending $7-8 to mine one pound of uranium oxide, but can fully take advantage of the ascent of the uranium oxide price. Understand that there are other costs to be taken care of and taxes to pay, but to have that kind of differential between selling a pound of uranium oxide to how much it costs to bring it out of the ground will produce profitable margins that are getting wider by the day.

(4) the general public does not know uranium. They know about oil now, yes, and are coming to know about gold. Do they know uranium? Beyond news about Iran and the vague plans of Bush to de-addict the United States to oil, I would strongly argue against any pre-existing mass enlightenment of uranium and nuclear power in general.


Thursday, February 23, 2006

4th Uranium Stocks Pick:: sxr Uranium One Inc. (SXR.TO)

Do you like uranium? Do you like gold?

Well, how about a company that will do both?

Let me introduce you to the stock of a company with one of the best chances to be the next impending and inevitable uranium producer: sxr Uranium One Inc.

Company Description

sxr Uranium One Inc. is a Canadian uranium and gold resource company with a primary listing on The Toronto Stock Exchange and a secondary listing on the JSE Limited (the Johannesburg Stock Exchange). The Corporation owns 100% of the Dominion Rietkuil uranium project in South Africa and the fully permitted Honeymoon uranium project in South Australia. Through a joint venture with Pitchstone Exploration Ltd., the Corporation is also engaged in uranium exploration activities in the Athabasca Basin of Saskatchewan. The Corporation's Aflease Gold and Uranium Resources Limited subsidiary owns the Modder East gold property and related gold assets in South Africa.

Uranium Assets

I'm not going to focus on sxr's exploration projects today, because, although they are promising, well, everybody else's uranium explorations seem promising too. What really separates SXR.TO are two projects, Dominion and Honeymoon, each of them possessing a great chance of being full-blown uranium producers in 2007.

On January 3rd, SXR.TO put out a press release with revised estimates for their Dominion properties, and frankly, they are impressive:

16,121,000 pounds of uranium in the indicated category
146,608,000 pounds of uranium in the inferred category
amended independent technical report on the Dominion property prepared by SRK Consulting (available on SEDAR)
346,000 ounces of gold in the indicated category
2,213,000 ounces of gold in the inferred category
mineral resources have been reported in accordance with the classification criteria of the South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code).

Yes, I did not spuriously add an extra zero to the uranium inferred category. The Dominion property is possibly sitting on one of the largest uranium reserves in the world.

Of course, the main question one must ask is: are they going to develop it? How much will it cost? Why should I buy this company's stock?

A bankable feasibility study for the Dominion Project is expected to be completed by April 2006. It will be used by Uranium One to progress mine planning and design and to facilitate project financing.

Production at the Dominion is planned to commence in the first half of 2007, initially at 2 million pounds per year of uranium oxide, ramping to 4 million pounds per year by 2010.

The project has significant infrastructure in place, including a relatively new CIL gold processing plant, which will form part of a larger complex designed to recover both uranium and gold from the Dominion and Bonanza South ore bodies. The CIL plant is already processing ore from Bonanza South, but has considerable capacity for further expansion.

So, yes, SXR.TO has its sight set on uranium production, not just uranium discovery or uranium exploration. What makes this assertion more convincing is their recent closing of financing. On Jan 13th, SXR.TO posted a news release stating its intention of raising $65 million Cdn, earmarked as part of Dominion's construction costs. However, the company posted on February 7th a statement saying that they had actually raised $170.6 million Cdn! How did this happen?

Cash pours in to Uranium One offer
David McKay
Tue, 07 Feb 2006

Neal Froneman, Uranium One CEO, said the placement – in which a total of 22.3 million shares were placed – had introduced a number of new investors to the company register, including pension funds that had not expressed an interest before.

Analysis: if this is true, then this is a big boost. Pension funds are usually more conservative in which stocks they buy.

Moreover, the shares were placed at an average price of C$7.65, representing a 2.3% discount to the five-day volume weighted price of Uranium One's shares. But since the capital raising began three weeks ago, Uranium One’s shares had appreciated 30%.

Analysis: On January 13th, SXR.TO closed at $6.55Cdn. Today it closed at $7.60Cdn. Not bad for a company that just introduced 22.3 million new shares.

Analysts said that the Dominion mine, forecast to cost $130m in 2004 money, was now fully banked. Froneman said the interest in Uranium One's shares meant that the company could re-examine the debt portion of the funding for Dominion, originally planned at a 60:40 ratio in favour of equity. In addition, there was almost no requirement for Uranium One to enter into fixed contracts with buyers.

Analysis: Just as UUU.TO and PDN.TO are uranium producers who are/will be unhedged, SXR.TO is seeking to capitalize fully on the upswing of the uranium oxide price.

In a separate but related announcement, Aflease Gold, which is controlled by Uranium One, unveiled a 28% increase in its Modder East reserves, a prospect on the east Rand of Johannesburg. The updated reserve is related to a bankable feasibility study the company is completing.

Analysis: I have only started to talk about sxr Uranium One Inc., and in the next few addendums, I will explore their other uranium property, Honeymoon, which has one of only three permitted licenses in Australia to mine uranium. SXR.TO owns 80% of Aflease Gold, and its contribution to sxr's assets will also be delineated later. Plus, I will examine some of the people behind this darkhorse powerhouse.


Feb 23 Uranium Stocks Update: Urasia Energy (CVE:UUU )

Urasia's Ramping Up of Uranium Production at Akdala

In addition to developing its other uranium properties, Urasia is spending money to increase production at its existing Akdala mine, from 600t in 2005 to 1,000t (2.6 million pounds) this year. With the price of uranium oxide rising again this week to $38.25/lb from $37.50/lb, I wanted to revisit Urasia's projections for Akdala.

Capital Costs

Projected costs for the expansion currently underway to a capacity of 1,000 t U per year amount to U.S.$37 million, of which U.S.$11 million is budgeted for 2005 and U.S.$25 million is budgeted for 2006.

(Caveat) Additional infrastructure costs may be assessed in the future to account for railways, road, and power line construction to the various uranium production projects in the region, but it is not clear how such costs might be allocated to the Akdala project.

Analysis: So is expanding the annual production of Akdala from 1.6 million lbs of yellowcake to 2.6 million lbs worth the capital cost of $37 million US + unknown infrastructure costs? Urasia thankfully has included a sensitivities section where they projected net present values (NPV) based on different uranium oxide prices.

(1) Average Price Over Project Life (U.S.$ per pound U3O8)
(2) Net Present Value (million U.S.$)

Base Case (1) $21.59 (2) $77.1
(1) $35.00 (2) $159.9
(1) $40.00 (2) $190.8

(Urasia used a 12% discount rate to calculate the NPV)



NAV = difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.

Discount Rate = percentage used to calculate the NPV, reflects the time value of money.

So did Urasia make the right choice in expanding their existing production? The answer is an overwhelming yes. They correctly deduced that the price of uranium oxide would continue its ascent and have taken the necessary steps to capitalize on it. At the current $38.25/lb US price of yellowcake, they seem almost prescient!

Tuesday, February 21, 2006

China and Uranium

Here's validating and unsurprising news coming out of China about their uranium aspirations.

China Mulling Joint Development of Uranium
The Associated Press
Feb. 21, 2006

China is studying the possibility of jointly developing foreign uranium reserves in countries whose resources have yet to be fully exploited, a senior official with the China National Nuclear Corp. said Tuesday.

Analysis: as China is building 2 nuclear plants a year for the next 20 years, it would be prudent of them to secure a supply of uranium now while the metal is still fairly unrecognized when compared to commodities like oil.

"It's from these countries that we might buy uranium," said Shen Wenquan, vice chairman of the committee for science and technology for CNNC, which is responsible for China's civilian and military nuclear programs.

"If there's the possibility of developing these resources through a joint venture, then we can discuss that also," Shen said on the sidelines of a conference on China-European energy cooperation.

Analysis: China is taking the same approach with uranium as it is with Canadian oil sand companies, which, if you even have an inkling of how well they've been doing, would cause you to be happy about uranium too!

Shen would not say which countries might be considered.

Analysis: how about countries whose governments who are not wary of China and whose governments support uranium production? Anyone thinking Kazakhstan? Anyone remember Petrokazakhstan? Anyone excited about Urasia?

China is looking to shore up uranium supplies to fuel a massive planned expansion of nuclear power over the next 15 years. It has begun talks with Australia about imports from there, but shipments are likely months away since Beijing first must meet requirements guaranteeing the uranium could never be used for military purposes.

Analysis: Australia still has some of the tightest restrictions on uranium mining, although talks are underway to potentially double the existing 3 mine limit.

CNNC has a 30 percent stake in a unit of KazAtomprom, Kazakhstan's national nuclear company, with rights to develop a uranium deposit in the south of that country.
Australia, Canada and Kazakhstan are by far the biggest uranium producers in the world.

Analysis: So China has links with Kazakhstan via KazAtomprom and Urasia, as we all know, is intimately related to KazAtomprom through their joint ventures. Sounds intruiging doesn't it?

Monday, February 20, 2006

Feb 20 Uranium Stocks Update: Paladin Resources (TSE:PDN)

A week ago February 13th, Paladin announced 2nd quarter results to the end of 2005 and offered up a few insights into what is to come.

Second Quarter Highlights

- Construction activity continues on schedule (31% complete) and budget for the Langer
Heinrich Uranium Project, Namibia
- BFS progressed on the Kayelekera Uranium Project, Malawi – including metallurgical work and State Agreement discussions

- As at December 31, 2005, the Company had A$94.4 million in cash and cash equivalents,
compared with A$34.9 million at the commencement of the quarter – as a result of the A$77
million placement completed in October 2005
- Mine construction expenditure of A$15.7 million and exploration/evaluation expenditure of
A$0.2 million for the second quarter on the Langer Heinrich Uranium Project
- Exploration and evaluation expenditure of A$0.6 million during the second quarter for the
Kayelekera Uranium Project
- Operating profit for the latest period was A$2.3 million, compared with a loss (including a profit from discontinued operations) of A$1.5 million for the prior period

Analysis: basically, everything is going as planned. They really haven't missed a deadline yet.

Btw, James Dines, basically the pioneer of uranium investing, can be heard speaking during the Vancouver Resource Conference.


This is what he says about Paladin:

"There's no other investment in the world in my opinion that comes anywhere near uranium. It's recession-proof. Everytime there's a new price, it's up; there is virtually never a pullback and, furthermore, something historic just happened recently. A nuclear facility, desperate for uranium, made an agreement with Paladin to buy uranium in the ground, before it's been even mined, to be delievered in 2009. Now wait a second, that's not all, they also have a floor price, but no ceiling! So it's an unprecendented, incredible demonstration of the coming uranium buying panic."

Read my original Paladin post for more details and analysis

Feb 20 Uranium Stocks Update: Urasia Energy (CVE:UUU )

What has happened since my last Urasia update on Feb 5?

Well, the commodities market corrected and a steep correction it was. Uranium was not spared and many took hefty hits. Fortunately, it seems that the correction is over, although volatility will persist.

UUU has also had a rollercoaster ride, dipping to an intraday low of $2.38Cdn before rebounding in the last couple of days to close at $2.80Cdn today, and even touching $3.01 last Friday when over 9 million shares changed hands.

A rough ride to be sure, but some good news came out from Urasia today.

With respect to the announced financing disclosed on February 1, 2006,the Company and its financing syndicate, led by Canaccord Adams Ltd.,anticipates closing of the bought deal to occur on or about February 24, 2006. The proceeds will be used to accelerate the development of South Inkai, forpotential acquisitions and for working capital purposes.

So the financing that started at the beginning of this month is done by the end of this week. Momentum is beginning to ebb up on this uranium stock and I do not perceive too much more downside on this stock. It is producing uranium, it has the support of a Khazakhstan government wanting desperately to become a uranium supplying power, and it's got great people behind the company. Let's see what the rest of this year holds for Urasia.


3rd Uranium Stocks Pick: International Uranium Coporation (TSE:IUC)

International Uranium Corporation (IUC.TO) One of the more intruiging uranium plays out there is a company with wide-ranging assets. This company is IUC, headquartered in Denver, Colorado and poised to capitalize on the growing interest in reviving uranium production in the United States


White Mesa Mill

This mill is located in Southeastern Utah and is used to recycle waste material. While doing so, it can extract uranium and vanadium. In 2006, White Mesa is expected to extract half a million pounds of uranium, which IUC will sell at its own leisure. Vanadium, by the way, is used to reinforce steel among other things. Ferrovanadium, an alloy containing 50-80% vanadium, is selling at about $59/kg.

American Mines

IUC owns two adjacement mines in Utah, Bullfrog and Tony M, which combine to form the Henry Mountains Complex. There are an estimated 24 million lbs of uranium oxide in these two mines, although they are not confirmed by industry NI 43-101 standards yet. IUC has stated that due to increased mining and milling costs that they would postpone the restart of production in Tony M until uranium prices were higher. IUC also own several mines in Colorado and Arizona, and does exploration there, although these do not be significant.

Canadian Exploration

The jewel for IUC here is a 75% stake in Moore Lake, located 35 kilometres southeast of Cameco's McArthur River uranium mine, aka world's biggest uranium mine. Results posted on December 21, 2005 validated the existence of fairly concentrated uranium in Moore Lake: ML-100 returned 2% U3O8 over 7.75 metres, including 4.54% U3O8 and 3% nickel over 2.75 metres. ML-88 returned 0.66% U3O8 over 4.8 metres, including 1.58% U3O8 over 1.5 metres. Five days ago IUC announced additional drilling plans for Moore Lake, including areas previously untouched that are adjacent to McArthur mine.

Mongolian Exploration

IUC has an option to earn a 65% interest in Erdene Gold's (ERD) 32 uranium licenses in Mongolia. On top of that, it owns a 70% stake in the Gurvan-Saihan Joint Venture and is continuing to conduct exploration. Historical references suggest Gurvan-Saihan could contain 17.5 million lbs of uranium, but nothing has been proving with industry standards yet.

Fortress Minerals Corporation (FST)

Ron Hochstein, the president of FMC is also the president of IUC. In 2004, FMC acquired some of IUC's mineral assets in Mongolia. IUC has about a 40% stake in FMC, valued at ~$40 million based on market capitalization.

Standard Uranium (URN)

Recently, IUC announced that it has doubled its stake in Standard Uranium, owning 11.7% of the outstanding shares and using it as an investment vehicle. That's about a $3 million dollar investment.


Chairman of Board of Directors: Lukas Lundin

Lukas Lundin is the son of Adolf Lundin, as in Lundin Petroleum and Lundin Mining. Lukas is on the boards of many resource companies of various sizes; this list is extensive: Atacama Minerals, Canadian Gold Hunter, Canmex Minerals, Fortress Minerals, Lundin Mining, Newmex Minerals, Red Back Mining, Tanganyika Oil, Tenke Mining, TNR Gold, Valkyries Petroleum. He and his family have connections all over the place and represents a powerful force behind IUC.

President and CEO: Ronald Hochstein

Hochstein has been President of IUC since April 2000. He was previously a manager of Agra-Simons Mining Group operations in Toronto and before that, was with Noranda Inc. for 12 years. And according to SEDI, he has not sold a share of IUC in 11 months.

Mutual Fund Backing

Resolute Funds, including Resolute Growth and Resolute Performance, are two of the best performing Canadian funds (Resolute Growth gave a 130% return in the past year). Collectively, they own >10% of IUC.

When to Get In?

Resolute Funds filed on February 8th to sell 184,100 shares and reduce its holding of IUC from 13.12 to 12.91% of all outstanding shares. This, along with the market correction, eroded IUC's share price as it fell to an intraday low of $5.50Cdn on February 14th, which approached its most recent low of $5.44Cdn on October 28, 2005.

The key for IUC in joining the ranks of promising producers like Urasia and Paladin will be an announcement to reopen their existing American mines. Although official word from the company is to wait until uranium prices head even further up before reopening, I am a little suspicious; it is unclear to me at this point whether they project that it is not cost-effective at current prices (something that I can't really believe), or that there are other hindrances in play (permits, Native American opposition).

It would be recommended at this point to wait until IUC announces reopening before buying this stock. Personally, I love the company, its potential, its assets, and the people behind it, but without certainty of impending and inevitable uranium production, IUC will always be worth less than half of Paladin or Urasia.

Sunday, February 05, 2006

Feb 5 Uranium Stocks Update: Urasia Energy (CVE:UUU )

I profiled Urasia (UUU.V) as my first uranium mining stock pick and I am sticking with it. However, as I also got wind of Urasia's recent announcement of a $100 million financing plan at $2.55, I would advise people NOT to buy it right now. UUU closed over the weekend at 2.80 and will mostly likely fall back towards the $2.55-$2.60 level.

The 5-day EMA of UUU is about to merge with the 20-day EMA. The MACD is also moving in a negative direction. Momentum is against UUU right now, probably fueled by that financing announcement. I doubt, however, that the 50-day EMA will be breached. I advise potential UUU investors to wait until the 5-day EMA has finished its descent and recrosses the 20-day EMA with a positive MACD.

To reiterate, Urasia is a great uranium mining company with impressive people behind it, an operational mine, and a bright future. Its stock however, should be left alone, probably until financing is closed on February 21st.


Friday, February 03, 2006

Feb 3 Uranium Stocks Update: Paladin Resources (TSE:PDN)

Less than a week after announcing their second uranium contract, Paladin Resources (TSX:PDN/ASX:PDN)--featured previously here-- announces it will expand the uranium hunt.

February 1, 2006

Paladin Resources Ltd: Prospective Tenements Granted Adjacent Kayelekera Uranium Project, Malawi

"Paladin Resources Ltd is pleased to advise that the Minister of Mines, Natural Resources and Environment has granted three Exclusive Prospecting Licenses (EPL) in northern Malawi to its wholly owned subsidiary Paladin (Africa) Limited (PAL).

Figure 1 shows the location of the three new EPL's (Nos. 168, 169 and 170) and in total these cover 1,140 km2. Two licences are contiguous with the Kayelekera EPL070, while the third licence stretches along a coastal section of Lake Malawi.

The area covered by EPL170 has been previously investigated which included the carrying out of geophysical airborne surveys and limited ground follow-up programs. These earlier investigations were carried out during the 1980's by the British Central Electric Generating Board (CEGB), the group that discovered and evaluated the Kayelekera deposit up to a full feasibility study. The tenements cover anomalous areas delineated by CEGB. The large number of airborne radiometric and geochemical anomalies identified on these properties are associated with the target geological formations that host the Kayelekera deposit.

Only EPL170 underwent some follow-up exploration and this tenement area is considered to hold the greatest potential for uranium. CEGB drilled 49 holes (30m to 100m depth) to check 10 anomalous areas and 31 intersected numerous low order mineralisation including a maximum of 0.5m at 0.2% U3O8 and identified the existence of critical Redox fronts. The occurrence of such uranium mineralisation and presence of oxidised and reduced rocks in association, is regarded as highly favourable and confirms that mineralising systems operated which were similar to those that generated the Kayelekera Uranium Deposit.

The extensive prospective areas offered by these tenements provide Paladin with a significant opportunity to expand the existing uranium resource base of the project and has the potential to make any mining operation at Kayelekera a strategic facility for longer term utilisation and benefit.

Analysis: Good news. Years ago, CEGB had found the same type of uranium in EPL 170 as it did in Kayelekera. Considering that the uranium deposits are right next to each other, is that really surprising?

Paladin's plan for Kayelekera is to have an annual production of 1,000 tons/year of uranium oxide (2 million pounds/year) with a mine life of 10 years as it is estimated that there is roughly 22 million pounds of uranium in that area. These numbers are being verified in the Bankable Feasibility Study (BFS) with the results expected around November of this year. If everything goes according to plan, Kayelekera is scheduled to begin producing uranium in 2008/2009.

When I eyeball the uranium exploration licenses handed out to Paladin on the map, I'm quite impressed by their sizes. 1140 kilometers squared is close to 300,000 acres. With time, I am quite sure that there will be a future announcement pertaining to exactly how much more uranium reserves Paladin will add on because of these licenses.

However, at present, I am most interested in their development of the Langer Heinrich


Thursday, February 02, 2006

Australian Investing + Rio Tinto 2005 Annual Report

Small cap floats top 2005 returns
by Darin Tyson-Chan
February 1, 2006

Small cap initial public offers (IPOs) generated outstanding returns for investors in 2005, eclipsing the performance of their larger company counterparts on average by 15 per cent, according to the 2005 HLB Mann Judd IPO Watch report.

The accounting firm’s information shows small cap IPOs, those companies with capital of $100 million or less on listing, produced average returns of 35.6 per cent over the previous calendar year compared with a 20.6 per cent return delivered by larger company IPOs and a 17.5 per cent return provided by the S&P/ASX200 index.

The main driver for the significantly high IPO returns for 2005 was the strength of commodity prices in the materials sector. However, when non-materials companies are examined in isolation, small cap IPOs still performed remarkably well.

“Even excluding materials the returns by the small cap companies were 25.4 per cent, so still significantly ahead of larger IPOs. This is interesting because a lot of people would attribute that stock performance to the booming resources sector,” HLB Mann Judd head of corporate finance Justin Audcent said.

Overall materials and energy continued to dominate the small cap listing activity as the two sectors accounted for 60 per cent of small cap IPOs in 2005 compared to 50 per cent in the previous 12 months. Within this category uranium exploring companies were noticeably active in 2005.

“There were six companies in that specific area, all of which listed in the second half of the year, and there were another six companies that had uranium as one of their areas of interest,” Audcent noted.

Note: no surprise here. with a new Canadian uranium juniors springing up daily, it was just a matter of time before Australians started noticing the rising price of uranium oxide, government regulations or not.

Rio unveils massive 58pc earnings jump
by Richard Owen
February 3, 2006

Global mining giant Rio Tinto unveiled a 58 per cent jump in 2005 earnings to a record $US5.22 billion ($6.94 billion) yesterday and remains bullish about the year ahead as China's booming demand for commodities shows no signs of weakening.

Revenue soared 42.75 per cent from $US14.5 billion to $US20.74 billion on the back of soaring prices for iron ore, copper, thermal and metallurgical coals and aluminium which collectively accounted for a $US2.37 billion jump in Rio's earnings.

Earnings from energy products such as uranium and thermal coal also rose 70 per cent from $US431 million to $US733.

Note: I took a quick peek at their 20-page annual report. Rio produced 6,582 tons of uranium, up 10% from last year. It also had this to say about uranium:

"The further reduction of excess inventory continued to push spot prices over $30 per pound. The lead time for significant new capacity from mines will be five to ten years which is expected to keep prices firm in the short to medium term. As attitudes towards nuclear generation of power begin to change and China commits to a nuclear generation investment programme, the longer term outlook for uranium demand looks better than it has been for several years."

Energy Resources of Australia: Another Hedger

ERA Misses Uranium Price Rises
By Mandi Zonneveldt
February 02, 2006

Energy Resources of Australia lifted output at its Ranger uranium mine by 15 per cent last year but has missed out on the big rise in uranium prices.

ERA yesterday reported a 10 per cent increase in annual profit to $40.7 million but long term contracts meant its average sale price rose just 17 per cent to $21.12 ($US16) a pound.

Note: better than Cameco's $15.45..

Spot yellowcake prices almost doubled in 2005, from $US20.50 a pound to almost $US37.

ERA has had a bumpy ride in the past year.

Shares in ERA, which stops mining at Ranger in 2008, fell after it warned that closure costs would affect its bottom line. The stock also took a hit after three foreign shareholders dumped their combined 25 per cent stake at a big discount.

Its shares fell 35c to $13.90 yesterday.

ERA predicted its sales volumes in 2006 would remain steady at about 5700 tonnes and doused expectations it would be able to cash in on more uranium price rises.

"Of this nearly all will be sold into existing contracts," ERA said.

Analysis: so another 1 million lbs of uranium oxide will be gone on the production side of things after the Ranger mine shuts down. Of course, the massive Jabiluka deposit is right next door..

The company also warned of pressure on its payroll due to a rise in employee numbers and wages, but said it had operating costs in hand.

ERA declared a final dividend of 11c, franked at 30 per cent and payable on March 1.
Annual profit of Rio Tinto, which owns 68 per cent of ERA, is due today.


Cameco Earnings Report (Update 2)

Check out Report on Business (ROB) TV for a short five minute segment on Cameco's earnings with the Jerry Grandey, president and CEO. Notice how he places the blame for Cameco not realizing the gain from uranium's spot price on the strong Canadian dollar and declines to mention Cameco's hedged fixed contracts!

The interview is @ 11:13am February 2nd in the segment "Business Morning with Jim O'Connell"

Another tidbit from Cameco's Earning Report:

"For deliveries in 2006, a $1.00 (US) per pound change in the uranium spot price from $33.00 (US) per pound would change revenue by about $4 million (Cdn) and net earnings by $2 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.22 (Cdn), which accounts for our currency hedge program."

Note: uranium is @ $37.50/lb now and should hit $45/lb by the end of the year. With that projection, this translates to an upward change of $48 million Cdn in revenue and $24 million net earnings.

"Earnings before taxes from the uranium business improved to $131 million from $91 million last year, while the profit margin rose to 23% from 18% in 2004 due to the higher realized selling price."

Note: so the net effect of uranium spot price increase is not insignificant, but hardly overwhelming. Add to the fact that Cameco doe not only derive revenue from uranium, but also from gold, electricity, and conversion, and I believe that uranium's beneficial effects is diluted for Cameco at the moment.

The next major step for Cameco in its uranium business is clearly Cigar Lake, and with production set to begin first half of 2007 and ramp up over three years to 18 million lbs/year(!), I personally would not buy Cameco in the short-term, but carefully monitor their news and reevaluate this company in the latter months of this year.

Update: definitely watch today's ROBTv "Stars and Dogs" segment @ 6pm EST. There is quite a long segment where two commentators, one bull, one bear go at each other discussing Cameco. They rehash alot of what we uranium enthusiasts know, what I've posted in the last couple of days about hedging, and their views on the uranium story in general. It's quite an engaging discussion and really makes you think about whether or not to invest in Cameco right now.

A distinct feeling I got was that even ROB's own commentator was not really that knowledgeable about uranium in general (the one of the left explaining the bull side). It just goes to show you that many, many people in the investing universe have absolutely no idea what is happening in this little part of the resource sector!

Wednesday, February 01, 2006

Will Russia Need More Uranium?

Kiriyenko Says Russia Needs Another 40 Nuclear Reactors
Moscow Times
February 2, 2006
by Vladimir Isachenkov
Associated Press

Russia's atomic energy chief said Wednesday that the nation needs to build dozens of nuclear reactors in a massive effort that would require restoring production links with related facilities in other ex-Soviet nations.

Sergei Kiriyenko, head of the Federal Atomic Energy Agency, said Russia needed to build about 40 new nuclear reactors in order to bring the share of nuclear energy in the nation's energy balance to 25 percent, news agencies reported.

Note: that's the number of nuclear reaectors that China is building in the next 20 years.

Nuclear power now accounts for 16 to 17 percent of the country's electricity generation.

"We need to build two nuclear reactors per year beginning in 2011 or 2012," to achieve the goal, Kiriyenko said in the Siberian city of Zheleznogorsk, site of a major nuclear waste storage facility.

Note: again, China is building two reactors a year. Still, 2011 is a good five years away

About Kiriyenko: Sergei Vladilenovich Kiriyenko served as Prime Minister, the second-highest position in Russia government, from his appointment to the post by Boris Yeltsin on March 23, 1998 to August 23 of the same year. Prior to his nomination as Prime Minister, Kiriyenko was minister of energy. An influential man.

Russia has 31 nuclear reactors and plans to open three new commercial nuclear reactors over the next five years and to upgrade existing ones.

In recent years, Russia has overcome a public backlash against nuclear power that followed the 1986 Chernobyl nuclear disaster, and the government has supported an ambitious program to develop its nuclear industry.

Kiriyenko also said Russia would need to restore production ties with nuclear-related industries in other ex-Soviet states, which once were run by the obliquely named Soviet Medium Machine-Building Ministry.

"We need to use the resources of the Medium Machine-Building Ministry left in other ex-Soviet nations to the maximum extent possible," he said.

While major nuclear-related industrial facilities are located in Russia, Kazakhstan is home to key uranium mining facilities and Ukraine manufactures turbines for nuclear power plants.

Analysis: The United States-Russia HEU Agreement to defuse warheads and turn enriched uranium into nuclear power plant-grade uranium lasts until 2013. Of the 500 metric tons of HEU agreed on to be transferred, 262 metric tons have already been delivered. Low uranium production has been supplemented by the HEU for years, at the tune of 10-12,000 short tons of uranium. Even then the deficit will steadily rise. If Russia goes on and builds more nuclear reactors, when that HEU agreement expires, you can guarantee that there won't be another one.

Feb 1 Uranium Stocks Update: Urasia Energy (CVE:UUU )

February 1, 2006 Urasia Plans Financing

UrAsia Energy Ltd ("UrAsia") (TSX-V: UUU) is pleased to announce that it has entered into an agreement with a syndicate led by Canaccord Adams Ltd. ("Canaccord") and including BMO Nesbitt Burns Inc., and GMP Securities Limited, pursuant to which Canaccord has agreed to purchase for resale to the public, on a bought deal basis, an aggregate of 39,225,000 common shares (the "Common Shares") of UrAsia at a price of $2.55 per CommonShare (the "Issue Price"), resulting in gross proceeds of approximately$100 million.

Closing is anticipated to occur on or about February 21, 2006. UrAsia intends to use the proceeds of the offering to accelerate the development of the South Inkai project in Kazakhstan, for potential acquisition opportunities, and for general working capital purposes. UrAsia is listed on the TSX Venture Exchange, trading under the symbol UUU.


No wonder Urasia hasn't been able to break that $3 mark. There are currently about 460 million outstanding shares of Urasia and it ended off trading at $2.84Cdn. With an additional 40 million shares @ $2.55Cdn, I expect dilution to take Urasia down to the $2.60-$2.65 level in the next three weeks. I'm not happy about this from a private investor point of view, but I am not about to panic and sell off. In fact, what I should think about doing is to accumulate more at that depressed level. Most likely I'll take a wait and see level.

Cameco Earnings Report (Update 1)

Cameco vs Urasia + Paladin: Hedged Versus Unhedged

Cameco's earnings report just came out and I will be commenting more about it in the days to come

Cameco's Uranium Production
Let's look at some of Cameco's 2005 highlights:
-$690 million in revenues
-$15.45/lb averaged realized price for uranium oxide
-$159 million gross profits
-production volume of 21.2 million lbs

Because Cameco uses a 60 / 40 mix of market-related and fixed pricing mechanisms, their average realized uranium price will be lower than say Urasia and Paladin's, who are fully unhedged. That explains why their averaged realized price for uranium oxide is $15.45/lb when the current market price is $37.5/lb

In its earnings report, Cameco gives a series of projections stating its expected average realized uranium price if the price was $25, $35, and $45 dollars, and how that would be different in 2006, 2007, and 2008. Of course their expected average realized uranium price will be higher in 2008 than 2006 as existing contracts agreed to at a lower fixed price will expire.

So let's use one of Cameco's projections. They expect to have an expected average realized price of $20.50/lb of uranium oxide if the price of uranium oxide rose to $45 this year (as predicted by most analysts) Thus, Cameco will receive only 46% of the market price due to its hedging. Their planned production volume for 2006 will be 21.4, a slight uptick from 2005.

What this illustrates is that Paladin, with its proposed annual production of 2.6 million lbs of uranium oxide and Urasia, with its annual production of 1.4 million lbs, are earning twice as much as Cameco at present. It's like almost like mining twice as much uranium! These two companies have the flexibility that Cameco lacks.

Cameco, on the other hand, has rock-solid stability; their prospective 2006 and 2007 uranium output is sold out and 2008 is almost all gone as well. Add to that their continued development of the four producing uranium properties they own (MacArthur Lake, Cigar Lake, Smith Ranch/Highland, Crow Butte) and establishment of a Kazakhstan mine means that Cameco's future is bright, even with a restrictive uranium selling price.

Cameco's share price today plummeted 7.5% and reduced their market cap to a mere $14.5 billion. Both Urasia and Paladin's market caps currently stand at around $1.2 billion. Are these two companies worth 1/12th of Cameco? I personally think so, but do your own due diligence and you decide!