Wednesday, February 28, 2007

Casey's Energy Speculator

Preface: Casey's Energy Speculator is a subscription-based publication written by people smarter than I am. Plus, if you sign up using the banner above or the link provided below, I get some revenue too!

The Casey Files:
For more than twenty years, Australia-with its rich uranium resources-has been largely closed for yellowcake mining. But now the country may be preparing to open its doors to junior uranium explorers and producers, which, in view of the Cigar Lake breakdown, would be a major step to ramping up production in the foreseeable future-and could provide some excellent investment opportunities. Below, senior researcher Chris Gilpin breaks down some key developments expected Down Under during the coming months..

Doug Casey, Casey Energy Speculator
April 29 - a Day to Watch for Uranium Investors
Australia is poised for a breakout in uranium production. The land down under hosts 36% of the world's reasonably assured uranium resources (recoverable at low cost)--more than any other country--and yet it accounts for only 23% of global output. But that picture could change drastically in the next few years.

The current opposition party in Canberra--the federal wing of the Australian Labour Party--could have the largest influence on the future of the uranium industry. Their leader, Kevin Rudd, supports a rethinking of Labour's opposition to uranium mining. The federal Labour conference takes place on April 27-29 and will be a pivotal event for Australian uranium politics.

Why? A federal election must occur in Australia sometime in the second half of 2007. Kevin Rudd is a popular figure, and polls show that Labour has pulled ahead of John Howard's ruling coalition for the first time in years. The last Morgan poll gives Labour 48% of the popular vote, while John Howard's coalition sits at 38%.

Labour holds the balance of power in each and every one of Australia's states and territories. Its regional governments' attitudes toward yellowcake vary. New South Wales and Victoria ban all uranium-related industrial activity, even exploration. Queensland and Western Australia straddle the fence, allowing uranium exploration but not uranium mining. Tasmania has no ban in place, but has never drawn interest from uranium explorers. Only South Australia and the Northern Territory (neighbors in the middle of the continent) have allowed uranium mining.

Here's why the April Labour conference could be a game-changer: Queensland's premier, Peter Beattie, says that his state will fall in line with the policy that reaches consensus at April's gathering, which could signal an immediate boon to companies working in that province.

The stakes are enormous. Because of past governmental disincentives, few of Australia's prospective uranium regions have been explored with up-to-date technology. There's big potential for a significant discovery in the Northern Territory, where, according to a November 2006 report by the Northern Territory Minerals Council, only 20% to 25% of the prospective rock units have been effectively explored.

Most likely this holds true for other regions of Australia as well. Today airborne electromagnetic surveys can yield useful data from ten times deeper into formations than they could in the 1970s. Many authorities, including the Uranium Information Centre and Geoscience Australia, believe that past exploration was superficial by today's standards and that there are several resources at depth waiting to be found.

A look at history makes it even more apparent how groundbreaking Labour's potential change of attitude could be. In 1984, the federal Labour government instituted the "three mines policy," which was intended to eventually end all uranium mining in Australia. The law stipulated that only the three uranium mines in production at the time would be given permits to export uranium: the Olympic Dam project (the world's largest uranium mine) in the state of South Australia, and the Ranger and Nabarlek mines in the Northern Territory. Provisional approvals for other would-be uranium mines were cancelled. Labour's notion was that when the three producing deposits had been exhausted, uranium mining in Australia would be finished for good. Exploration cratered, and today Australia’s known resources are little changed from what they were 20 years ago.

After John Howard's coalition government swept into power in 1996, it scrapped the three mines policy. But because state and territorial governments were all dominated by the Labour party, the industry still made little progress. In fact, the Nabarlek mine had already shut down in 1988, leaving only two mines in operation. In 2000, the Beverley mine in South Australia opened, bringing the number back up to three. And today there is the prospect that SXR Uranium One's Honeymoon project will become Australia's fourth uranium mine. SXR Uranium One received its export permit from the federal government in January of this year, an essential step for uranium production in a country that hosts no nuclear facilities.
With Labour threatening to win the 2007 federal election, that party's stance on uranium will be pivotal for Australian exploration companies and, indeed, for the global uranium market as a whole. This April's conference will provide crucial clues as to the shape of things ahead.

Sunday, February 25, 2007

The Importance of Cameco and Cigar Lake on Uranium Sentiment

As the spot price of uranium continued a frenzied ascent to $85/lb this week, it has become apparent that at least, north of the border in Canada, uranium has become a hot button issue. Where uranium stock investing was just beginning to attract mainstream attention in 2006, scores of analysts and investors alike have jumped on its bandwagon this year.

An illustration of such is shown below, which is a graph of the total number of subscribers to my uranium stock blog. Also shown for comparison is a 1-year chart of $15.9 billion Cdn uranium giant Cameco Corporation (NYSE:CCJ TSE:CCO) and $1.1 billion Cdn upstart Energy Metals (NYSE:EMU TSE:EMC), one of several promising mid-tier uranium junior companies.

A number of observations worth noting include:

A broad market correction beginning May 2006 in both American and Canadian exchanges stalled momentum as speculative money went out of uranium; notice the flattish slope from May until the beginning of October in my subscription rate as people were less enthused after the market correction

Whereas Cameco was fairly resilient during this time, the uranium explorer Energy Metals experienced a much more severe pullback.

A dramatic turnaround occurred when Cameco announced the flooding of Cigar Lake on October 23rd. In a month my subscriber rate doubled from 300 to 600, with the steepness of the slope correlated to the price action of Energy Metals and inversely correlated with Cameco's stock.

After the announcement, there seems to be a period of "consolidation" where the market tried to digest the possibility that the mine that was to supply 10% of the world's uranium in the near future could be out commission for quite some time

As 2007 came into focus, investors continued to rally into uranium, seemingly anticipating that the upcoming announcement by Cameco in early March will confirm that Cigar Lake would not be producing for a number of years; thus, the favorable supply-demand imbalance would continue to be bullish.

It is important to note that Energy Metals is not the only junior uranium company to exhibit this type of stock pattern; one can take a look at Fronteer Development Group Inc. (FRG) and Uranerz Energy Corp. (URZ), as well as any number of companies listed on the Canadian exchanges (comprehensive list here) to confirm this point.


Tuesday, February 20, 2007

Cameco Corporation CEO on RoBTV

RoBTV: Can Cameco Fix Cigar Lake?

Jerry Grandey, CEO, Cameco

Where Things Stands Now at Cigar Lake

We are now in Phase I of recovery, intercepting the collapsed area, putting concrete into tunnels trying to get effective seal, go on now for one month, maybe a bit longer..hopefully in few months pumping mine out

How Has It Changed Estimates for Coming Year

Remember Cigar was not in production but development..2007 no impact on objectives..mine was supposed to be in production in 2008. In March we will let people know when it will likely start production and the added cost that will be incurred in the cleanup exercise

Like it or not, the coming announcement of Cameco is anticipated by all, mostly because, in my opinion, investor sentiment is key in this speculative phase of the uranium investing cycle.

As liquidity continues to pour into TSX Venture and uranium stocks in general--bulled by a new Sprott report--some have begin to question valuations. In an honest moment, I do worry that market psychology (greed) during these times often displace logic and analysis; case in point, I can make much stronger cases for some of the beat-up gold microcaps than their uranium counterparts. Be that as it may, a keen eye on the broader market and a smidgeon of self-discipline may be the saving graces in this ever-increasingly volatile uranium investing world!


Sunday, February 18, 2007

Uranium Stock Profile: ENERGY FUELS (CVE:EFR)


Energy Fuels Inc. is a Toronto-based mineral exploration and development company with uranium and vanadium projects located in the States of Colorado, Utah and Arizona, through its wholly-owned Colorado subsidiary Energy Fuels Resources Corporation, and with gold, base metals and platinum group properties located in Newfoundland and Quebec and the Roberts property in Northern Ontario, which is prospective for uranium.

It is also a uranium junior that is on the cusp of production visibility, but needs to clear up several outstanding issues. The company was profiled by Lou Shizas a few weeks ago on RoBTV. Following is a summary of Schizas, with my own commentary mixed in:

Lou Schizas, equities analyst, Report on Business Television

On Properties
Yes they "may" begin production on some properties, mine in Colorado, they plan 2-3 hundred tons/day, existing mine site that they rehabiliting..they do have drilling permits in place in 2007 on that property so they want to extend that mineralization, prove more deposits..they also have other preexisting minesite, "could" begin in 2007, spend $2 million for rehabilitation..and the Tenderfoot plan, 100 tons/day, early-mid 2008

I think realistically, 2007 production is out of the question, although any uranium production by 2008 would force many people to reevaluate this company; still, I agree with the emphasis on "may" and "could" from Lou because there is still much work to be done.

On Stock Chart
I see vertical = stick --> pennant, usually when you work this out, break to the is little bit long in the pennant formation but it is definitely something to look at overall..I think drill results and operating environment will be catch-all..if you can find some support at these particular levels, it has been a great wealth we have to see them perform..

The flag in a pennant formation does not last 3+ months, as has been the case for EFR, although the stock does look to be forming a symmetrical triangle and has hit its Fibronacci retracement. I would favor a continuation of the uptrend for EFR, but one of major current issues that the company has to deal with is to file its delayed financial statements; the gaffe was blamed on the increase in business activity of its wholly-owned U.S. subsidiary during the Company's fourth quarter for the financial year ended September 30, 2006. Investor uncertainty around this issue certainly seems to be one of the factors preventing Energy Fuels from taking another run up and expanding on its $170 million market cap.

Overall, an intruiging stock, certainly worth following up on..

Wednesday, February 14, 2007

Feb 14 Uranium Stocks Update: Ur-Energy (TSE:URE)

The Case for Ur-Energy

As we digest the completed merger of IUC and Denison and the coming merger of sxr Uranium One and Urasia Energy, consolidation activity in the uranium sector will only accelerate as emerging seniors look for accretive value. Although I still believe that the proposed SXR/UUU senior Uranium One will perform well, despite the added political risk as suggested by some analysts, the upside of its stock will take time to realize, much in the same way that Denison Mines (TSE:DML) seems to be base-building at present.

In fact, I see more immediate value in some of the uranium juniors, especially those with production visibility. Of course, one of my past picks, Ur-Energy, comes to mind. Here is a list of uranium juniors with market capitalizations in its vicinity:

JNR Resources (CVE:JNN) 259.8M
Western Prospector Group (CVE:WNP) 261.3M
Strathmore Minerals (CVE:STM) 295.3M
Ur-Energy (TSE:URE) 297.6M
Strateco Resources (CVE:RSC) 297.8M
Tournigan Gold Corp (CVE:TVC) 326.7M

URE, with its scheduled uranium production via ISL in Wyoming by 2008, is probably the earliest uranium miner out of the entire group, and to me, represents the best takeover target for any emerging senior uranium looking to add uranium projects that will actually come on-line in a relatively short period of time to capitalize on current prices. To compare, JNR and Strateco are exciting exploration plays, to be sure, but the prospects of actually mining the uranium out are years away.

Some have complained that URE does not promote itself as well, and in truth, it seems like there is a certain amount of truth to it; Paul van Eeden comes on RoBTV regularly to talk about Strateco and Strathmore has its own stable of publicists.

In any case, a look at the six month chart of URE shows two sharp rises followed by several months worth of consolidation and steady accumulation; Bollinger Bands in recent months have increasingly narrowed due to decreased volatility. The last few months have formed what might be interpreted as an ascending triangle, which if true, would be a bullish indicator. Volume has also picked up in recent days after contraction in recent months, culminating in today's 9% rise to $4.40 on three times the normal trading volume. We might indeed be witnessing the next sharp rise in URE, which hopefully, would knock out the old high of $4.70.

Thus, technically and fundamentally, I continue to like Ur-Energy.

Monday, February 12, 2007

Feb 12 Uranium Stocks Update: sxr Uranium One (TSE:SXR) + Urasia Energy (CVE:UUU) Merger (Part I)

The uranium M&A game is heating up, with today's proposed merger between two of my uranium picks SXR and UUU. Without further ado, let's hear what the CEOs of the two respective uranium juniors had to say about this proposed all-stock merger on RoBTV this morning and I'll save my comments for later:

Neal Froneman, president and CEO, SXR Uranium One
Why Urasia?
(1) had production stream
(2) presence in most appropriate uranium resource area in the world = Kazakhstan

Phillip Shirvington, president and CEO, Urasia Energy
Business in Kazakhstan
(1) fine doing business there, living standards improved over last 15 years
(2) "benevolent dictator", things work smoothly, stable country, good place to do business
Why Shares, Not Cash?
(1) shareholders continue to ride up on uranium
(2) uranium has a lot further to go than this

Neal Froneman, president and CEO, SXR Uranium One
Primary Listing
(1) Toronto first and foremost, we are Canadian company, benefits of raising capital
(2) creates emerging senior uranium producer, alternative to Cameco
Uranium Price Prediction
(1) I certainly believe you will see breakthrough >$100 this year, I think it will spark much higher than that
(2) with low cash cost $10-12/lb, we do not need to model a company on much higher uranium process (than $50-60)

Phillip Shirvington, president and CEO, Urasia Energy
(1) we also believe that uranium price will go through $100 this year, we are out there in the marketplace selling, we know how tight market is, see market continuing to tighten

Neal Froneman, president and CEO, SXR Uranium One
Cigar Lake
(1) I personally believe that Cigar Lake has driven sentiment more than supply
(2) even in full production, Cigar Lake supplies 10% of production, significant, but I do not think it is enough to really upset market
(3) Cigar Lake highlight how difficult it is to bring complicated mining projects
Further Acquistions?
(1) yes, as long as value accretive

Saturday, February 10, 2007

Cameco Q4 Earnings (Part II)

Part I explored the reaction of one analyst to the earnings and Cigar Lake issues of Cameco. Shifting gears slightly, I was interested to see what management had to say about the overall uranium market, the forces at work and how they ultimately influence yellowcake price; the following is from an excerpt of their recent conference call, published by SeekingAlpha:

Discretionary purchases and those are purchases not used to fill actual near-term fuel needs accounted for 73% of total transactions on the spot market last year. And that's a record level and an increase from 2005 when discretionary purchases accounted for 66% of spot volumes. Utilities and investment groups accounted for about 50% of spot volumes, as utilities continued to build inventory and investment groups continued to take positions in the rising market.

This unfortunately, adds end-stage volatility as everyone piles onto the uranium bandwagon;, because at some point, investment groups will need to unload their supply of uranium, although that will probably not happen anytime soon. It is something to always keep in the back of the mind, however.

Over 80% of spot transactions occurred off market, as buyers stayed away from public request for quotes in order to avoid increasing visible demand and driving prices up more quickly. About half of the 2006 on-market activity was sold by an auction, and those auctions were important in adding significantly to market transparency.

Does this mean that the actual price could be higher?

The first several weeks of 2007, it seems that spot price remained flat at $72. This plateau was a result of unwillingness on the part of spot sellers to offer fixed prices. With the expectation that spot prices are still under considerable upward pressure, sellers have been reluctant to commit to a fixed price, which would have them leaving the money on the table. Now, last week, the spot price resumed its upper trend and now stands at $75. Moving to the long-term market, the average long-term price indicator at the end of the fourth quarter was also $72, about double that of year-end 2005. And as in the case of spot price, long-term price has moved up since then this year and also stands at $75. As was the case with spot offers, sellers were reluctant to offer base escalated pricing under term contract fearing that they would miss upward momentum in the market.

Great news for uranium stocks like Paladin, SXR Uranium One, Urasia, Denison, as well as other uranium juniors with near-term production visibility. They seem to have every confidence that the uranium oxide price can only go up in the near-term, and because of this confidence, I myself look at the uranium investing landscape and can comfortably sink my money into various stocks without worrying about a catastrophic collapse, at least for now!


Thursday, February 08, 2007

Cameco Q4 Earnings (Part I)

As the uranium world holds its collective breath for Cameco's impending Cigar Lake remediation plans, the company came out with some fairly disappointing Q4 earnings. Cameco earned $40 million or 11 cents per share for the three months ended Dec. 31, 2006, compared with a profit of $83 million or 23 cents a share the year before; a more in-depth rundown of the numbers can be found here.

Since Cameco and Cigar Lake are vital to understanding the nuances of uranium stock investing today, I would like to spend a few days focusing on the company, and especially the types of questions asked during its conference call. Here first is one analyst's reaction on RoBTV:

Victor Lazarovici, analyst, BMO Nesbitt Burns


results are weaker than expected, somewhat disappointing, main reason being costs much higher than expected..headline earnings per share 11 cents/share, which included Cigar Lake costs that were expensed and equipment write-offs..we have adjusted the numbers and taken out the one-time charge, we have left in the expensed items and calculated operating earnings of 14 cents/share, somewhat better than 11 cents/share..the amount of Cigar Lake cost we left in at 1 cent/share..we were looking for 19 cents, conscensus number was 20 cents

Cigar Lake
we know it is very serious situation, will take months of drilling which began several months ago to assess what remediation work will be required and the will take them hundreds of millions of dollars I suspect and years to recover from the incident..I think it is really just too early to tell, this mine is several hundred meters underground, flooded, they have no way of accessing it, do not know how severe the damage to the roof where the water inflow from and whether or not proposed fix will work..

Uranium Price
keep in mind that Cigar Lake was not scheduled to produce for several more years and all utilities that consume uranium fuel have supplies locked in several years ahead so there was never any risk of shortages..what we have seen is producers of uranium working to meet utilities need several years forward where Cigar Lake material would be shipped to market is extremely thin segment of market, I do not think underlying fundamentals will change..utilities will work around Cigar Lake issue..there are certainly many similarities to market bubbles and there are currently no supply-demand issues but market reacts to all sorts of signals

Monday, February 05, 2007

RoBTV: Peter Grandich

Peter Grandich, editor and publisher, Grandich Publications

STRATHMORE MINERALS (CVE:STM): well-managed, had foresight to see uranium bubble before anybody else did, acquired lot of property, went sideways..uranium bubble is just starting its bubble..think what you are going to see is STRATHMOREs, with legitimate projects and true production potential separating themselves..the one firm around the world that always seems to be ahead of the crowd is Sprott..I would soon as bet on them as against them

(TSE:U): they could and will eventually be sellers but uranium earmarked for $100..U trades at premium, I would not be buyer not because I do no think uranium will go up, but I do not think you get leverage anymore..uranium is viable energy source, never thought that in my lifetime I would see a new nuclear plant

CROSSHAIR (CVE:CXX): we first talked about it here at 35-40 cents, client of ours..outstanding fundamentals, following in footsteps of AURORA ENERGY (TSE:AXU)..Crosshair about a year behind in growth path..better when they were 35 cents..outside of uranium turning down, my long-term target is that the company could achieve a billion market cap, $10 in 12-24 months

Brendan Kyne, chairman and CEO, Leeward Hedge Funds

(NYSE:CCO TSE:CCJ): this is a difficult one..stock has done so well for investors over 5 years..over last year, directionless..selling uranium at dramatically less than $72/lb..growth profile growing forward aligned with Cigar Lake..Cameco buys lot of uranium from Russia, I am not a fan of Putin..nationalizing assets..Russia is supplying Cameco with dramatically discounted uranium..I would not put it past Russia to suddenly have production problems..we are actually shorting Cameco..want to be exposed to unhedged spot price..SXR Uranium One (TSE:SXR), Urasia Energy (CVE:UUU), Paladin Resources (TSE:PDN), all three are high-grade acquisition targets

SXR URANIUM ONE (TSE:SXR): one of the themes in uranium market is M&A activity..Cameco will be buying near-term producers..unhedged production, I think there is distinct opportunity because I suspect Rio Tinto wants to get into uranium themselves..uranium conference this year had six multinational teams complete with analysts..we own every single near-term producer

UEX CORP (TSE:UEX): interesting company, very volatile..2007 will be significant that crude prices appear to be bottoming and Bush announcing wanting to double SPR, UEX worth looking at..we have done tremendous amount of work in uranium, there will be 22% in demand by 2011, take out the largest uranium mine, equivalent to Iran, Iraq, and Kuwait in oil production, and you say prices will decrease?

(TSE:PDN): I own large position, Paladin acquisition candidate for SXR Uranium One, Rio Tinto, two things working: higher commodity price plus acquisition multiple..when US dealers talk to us about uranium, they only know about Paladin

(CVE:UUU): like it, own it, love it..what I really like it is near-term uranium producer in Kazakhstan, supply growth over three years..Cameco also developing mine in Kazakhstan, logical acquisition..unhedged..this name could be very good name over next two years

Sunday, February 04, 2007

Feb 4 Uranium Stocks Update: First Uranium (TSE:FIU)

First Uranium, a new gold and uranium company spun off from parent Simmers & Jack in South Africa, recently announced that it would seek a secondary listing on the JSE during the first half of 2007, as well as provided updates on its two main South African projects..

FIU has initiated underground development two months ahead of schedule, although initial gold production has been shifted from Q2 to October of this year, eventually building towards 363,000 ounces/year by 2010; uranium production is expected from Ezulwini in June 2008.

Instead of atmospheric leaching, FIU is thinking of using pressure leaching, which could result “in an estimated 27% reduction in the uranium plant operating costs, more importantly, it increases the NPV of the project by 15% and reduces the uranium cash cost of production for the Buffels project by an estimated 9%”. The company also plans on completing a detailed feasibility study on Buffelsfontein in April of this year.

The stock has ran up slightly ever since its $7.00 initial IPO and is comfortably filling the niche of a mid-tier uranium junior, albeit with the added twist of being a significant potential gold producer. It is as yet relatively unknown, with no questions about this company from RoBTV viewers, very little commentary from uranium analysts, and a fairly quiet stock message board. I myself have accumulated a few shares and will be interested to see how the company executes on its plans in the upcoming months.