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Additional	Information
Market:	U308 INDEX
Sector:	General Mining
Epic:	URANIUM
News:	Latest news
Web Site:	Uranium
Other Articles:	22-05-200911-05-200905-01-2009

Is Uranium set for a rebound?

by Jackie Steinitz

The commercial uranium market has had a very short history compared to most other metals as until 1968 the US Government was the sole purchaser of the metal.  But in the last forty years the market has undergone some pronounced bull and bear markets and the impact of these on, for example, uranium inventories, exploration, and the availability of uranium specialists is still shaping the outlook for the industry.

In the most recent cycle the spot price of uranium soared from below $10/lb in 2002 to a peak of $136/lb in mid 2007, but has since more than halved to $64/lb today.   Shares in uranium companies likewise enjoyed a massive bull run with, for example, the price of Cameco, the world’s largest uranium producer, rising from under $4 in 2002 to $55 by mid-07 and back to $33 today.  The last boom also spawned the birth of a huge number of uranium exploration, development and mining companies; over one thousand are currently listed on the World Information Service about Energy (WISE) website. 
So where are we now in the current cycle and what is the long term outlook? Of course these are the sixty four million dollar questions, but there is a school of thought which argues there is now a misalignment between the outlook for nuclear energy, (which is becoming better by the day as oil prices soar and concerns about energy security and carbon emissions intensify), and the current low valuation of uranium companies.  Arguably, the best uranium companies, those which will genuinely deliver in the future, are looking cheap.

Before reviewing seven companies here are a few observations about the supply and demand for uranium.

 On the supply side:

•    There is plenty of uranium on earth though mostly at very low concentrations:  Cosmochemical theories suggest that the earth’s uranium was formed in one or more supernovae explosions some six billion years ago.  Traces of uranium, the heaviest of all the naturally occurring elements, are widely dispersed in the earth’s crust; it is found in rock, soil and seawater though always combined with other elements. It mostly occurs at very low concentrations; the average concentration in seawater is 0.3 parts per million (ppm), while in the earth’s continental crust it is 2.8 parts ppm.

•    Nonetheless there are a number of geological settings where uranium can be found in considerably higher concentrations;  The excellent World Nuclear Association website lists fourteen different types of setting ranging from intrusive deposits such as Rossing in Namibia, which is currently the world’s third largest mine and which operates at a head grade of around 0.032% (320ppm), through to unconformity deposits such as the Athabasca Basin in Canada where grades can be as high as 20%+ (or even 50%+ in some zones). 

•    There are currently three basic types of uranium mine in twenty countries worldwide; Roughly 25% of the world’s production comes from open pits while 40% comes from underground mines up (which mine to a depth of up to 600 metres).  Underground mines tend to have higher grades but greater technical and ventilation issues. Radiation is also a serious issue for the very high grade mines.  A further 25% comes from in-situ leach (ISL) projects where the uranium minerals are dissolved in a leaching solution them pumped to the treatment plant while 9-10% of uranium is mined as a by-product with copper and/or gold.
 
•    In theory there are identified uranium resources which could produce enough uranium to last for 100 years at current consumption rates.  The “Red Book” recently published by the Nuclear Energy Agency estimated that there are 5.5 million tonnes of known uranium resources which could be mined for less than $130/kg ($59/lb).  At current consumption rates this could last a century.

•    However there are many challenges to overcome in setting up a uranium mine, and supply side shocks or disruptions are common.  Uranium projects face all the same challenges as other mines in terms of  rising costs, equipment shortages, regulatory hurdles and so on, but in addition there is a particularly acute shortage of uranium specialists after the twenty year collapse in prices.

On the demand side meanwhile:

•    Apart from some limited applications (such as in lamp filaments and dyes) uranium’s first significant use was in military applications There are still substantial military stockpiles which are gradually being released to the market.  In particular the stockpile releases are the result of a deal made between the Americans and the Russians in the 1990s to downblend 500 tonnes of highly enriched uranium to yield 150,000 tonnes of uranium over the 18 years from 1995-2013. This is equivalent to 8,000 tonnes per year, or 20% of annual primary production, and so is even bigger than the world’s largest mine. There is also a further 1,000 tonnes or so of secondary supply each year from other ex-military sources.

•    These secondary sources however are crucial, as primary production supplies only 60% of demand.  Uranium demand is fairly predictable. Most of it is used for nuclear energy, and at the end of 2006 there were 435 reactors worldwide which together required 66,500 tonnes of uranium annually of which only 60% (39,600 tonnes) came from primary production and the remainder from stockpiles.

•    There is no doubt that sentiment towards nuclear energy is on the up.  The benefits and green credentials of nuclear energy are increasingly being recognised.  Nuclear power plants emit virtually no greenhouse gasses, they are cost-effective and less sensitive to fuel prices than other fuels (fuel accounts for 26% of production costs at a nuclear power plant compared to 78% for coal and 94% for natural gas), and there is no dependency on Russian pipelines or on the Middle East.  Moreover nuclear safety has been improving dramatically with each new generation of power plant.  Nuclear energy is now being endorsed even by some of the Non-Governmental Organisations (NGOs) who previously vehemently opposed it.

•    Improved sentiment is translating into action:  In addition to the 439 reactors in use today a further 36 are under construction while the number that are planned or proposed has risen from 222 at the beginning of 2007 to 311 today.

•    There are rising concerns about future electricity shortages:  The recent power crises in South Africa and elsewhere have highlighted the vulnerability of national economies to insufficient power.

Here are six companies whose primary business activity is uranium.  Key discriminators between them will be those who offer the best combination of geology/grade, management expertise, accessibility, and access to labour (particularly uranium specialists), water, electricity, and equipment. ISL mines need access to sulphur (whose price has rise 1000% in 3 years) and for all uranium companies the attitude of the local jurisdictions and communities is particularly crucial.  One commentator recommends checking the local media, noting that the opposition in Colorado, for example, is loud and fierce!

Strathmore Minerals [TSX.V:STM]  Strathmore is the longest established of the companies in the list.  Its primary goal is to become a leading uranium producer in the United States and to that end it has acquired a portfolio of a dozen projects in Wyoming, New Mexico and South Dakota all of which were previously discovered but then abandoned by the uranium majors in the lean years of the 1980s and 1990s.  The projects have historical resources (defined prior to the NI 43-101 requirements) and are located in important uranium districts; the Gas Hills district in Wyoming is historically the second largest producing district in the US while the Grant’s Mineral belt in New Mexico was at one time the largest uranium district in the world.  The plan is to bring the projects into production from as soon as 2010. 

Murchison United [ASX:MUR, AIM:MUU] Murchison is exploring for uranium in Mauritania and Guinea in West Africa.  It was attracted to these countries as it considered them highly prospective but under-exploited and so reasoned that it would be possible to secure large tracts of prospective exploration acreage. Sure enough the company was able to acquire permits in 14 areas covering an astonishing 11,700 square kilometres and it has already made significant uranium discoveries both at Bin En Nar in Mauritania and at Firawa in Guinea. At the end of June Murchison’s success was implicitly recognised when it signed a Cooperation Agreement with French nuclear giant Areva.  Among other things it means that Murchison will be able to access Areva’s data, technical expertise and funding to accelerate development at its projects. Murchison also owns two copper projects in Australia. 

Forum Uranium [TSX.V:FDC] Forum Uranium is a Canadian based uranium exploration company with a team of highly experienced uranium exploration geologists who between them have discovered over 300 million pounds of uranium over their careers.  The company is exploring on eight projects in the Athabasca Basin (which produces more than 30% of the world’s uranium) in Saskatchewan and in the Thelon basin in Nunavut, which Forum claim is the most underexplored region in Canada for world-class uranium deposits.  The strategy is to explore for near surface deposits near existing infrastructure on its 100% owned deposits, and on its strategic partnerships and Joint Ventures.  The company generates plenty of news flow and in the last month it has acquired a further two properties. 

Fission Energy [TSX.V:FIS] Fission Energy was spun off from Strathmore Minerals in June 2007 in order to unlock shareholder value.  It is exploring for uranium in eight Canadian properties (in the Athabasca Basin, Alberta and Quebec) and in one in Peru. The crown jewel of the portfolio is the Waterbury Lake Uranium Project Waterbury Lake, which surrounds the Areva-Denison Midwest deposit (which will has 41.2 million lbs of uranium and will begin production in 2010) and is next door to Hathor Exploration which announced an intersection of 11.9 metres at 5.29% uranium less than 100 metres away from the Fission boundary.  There have also been encouraging results from Fission’s Davy Lake property, where a 51 km long conductor was identified during the 2006 field season and at Dieter Lake in Quebec where a NI 43-101 inferred resource totalling 24 million pounds grading .057% U3O8 has been identified.

Thor Mining [ASX, AIM:THR] Thor Mining is an exploration and development company with a number of properties in the Northern Territory of Australia.  While its flagship property is a molybdenum/tungsten prospect at Molyhil, (and in May BGF Equities Research published a report citing Thor as the cheapest tungsten/molybdenum stock in the market), Thor also owns 4 uranium exploration properties.  These were selected for their prospectivity, previous history of exploration and proximity to existing discoveries.   


Abbastar Uranium [TSX.V:ABA]   Abbastar is exploring for uranium at it’s Doran property on the North Shore of the St Lawrence Gulf in Quebec, Canada. Quebec was rated the best place in the world for mining investment in the latest Fraser Institute Survey of Mining Companies, and for the most part the location of the project is indeed very favourable with uranium near the surface, power overhead, water on-site, a highway next door and civilisation reasonably close by. The winter snows will slow exploration progress however.  The property has been explored intermittently since the 1950s and since 2005 there has been a further 6,000 metres of drilling in 63 holes. Abbastar’s immediate objective is to define an N43-101 compliant resource which Abbastar hopes will match the non-compliant historical resource of 5 million pounds of uranium.  Ultimately its objective is to develop a near surface, large tonnage Rossing-style open pit uranium mine through a JV with one of the uranium majors.  If successful the potential gains could be huge.  Abbastar has recently raised $820,000 in private placements



Pencari Mining [TSX.V: PCI] strategic focus is on uranium and gold projects. Pencari has taken this focus to Madagascar, where there are abundant unexplored opportunities. Pencari controls 5 gold properties totalling 4,788.5 square kilometres and 8 uranium properties totalling 27,518.75 square kilometres. Pencari's total land position in the central, western, and southern regions of Madagascar that are prospective for gold and uranium is 32,307.25 square kilometres. Pencari continues to look for additional opportunities. In addition, Pencari has a 90% interest in a joint venture on the Pani property, Indonesia.
 

Xemplar Energy  (TSX.V: XE) through its wholly owned subsidiary Namura Minerals, has the exclusive prospecting licenses (EPL) to three large scale properties (Warmbad, Cape Cross and Aus) and pending EPL for two other properties (Engo Valley and Garub) in Namibia. Xemplar Energy has been drilling aggressively at the Warmbad project in 2008 and has commenced reconnaissance drilling at the Cape Cross project. The Company has been the subject of takeover speculation in 2007.

 

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