Market Outlook Journal
by James Finch - Please email your feedback to
jfinch@stockinterview.com
Editor’s Note: Please visit StockInterview’s disclaimer page for full disclosure, forward looking statements, important links and cautions.
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February 7, 2006 |
Forum to Drill Cameco’s Costigan Lake property in March
A news release issued yesterday by Forum Development Corp (TSX: FDC) piqued my curiosity because it made no sense.
CEO Richard Mazur announced his company had acquired Cameco’s (NYSE: CCJ: TSE: CCO) 65-percent interest in the 743-hectare Costigan Lake property for C$22,975. FDC’s Investor Relations head, Doug Fosbrooke, fielded numerous curiosity calls about the company’s acquisition. Many were puzzled as we were. FDC shares ticked up a penny, closing at C$0.46/share, trading 396,300 shares. It was well above the 60-day average about 100,000 shares trading.
Mazur and his chief geologist, Dr. Boen Tan, were delighted about the property’s early clues. Mazur explained, “About 23 holes were drilled, where the drill intercepted 0.43 percent over 0.36 meters. What’s more important about it is that there is a lot of clay alteration associated with this. It’s in the metapelite package. This is very similar to how Millennium was discovered. They had one drill hole that had a sniff of uranium mineralization over a small interval, but it had the alteration. Cameco kept following the alteration until they hit the Millennium ore body. They didn’t know that 25 years ago. We know that now. We have the benefit of this recent knowledge. We are going to follow up on that drill intercept. We have the right rocks, graphitic metapelites. We have the right horizon that actually goes up to the old Key Lake Mine. There’s damned good structure on the property.”
Another surprise is that Forum has already planned out the winter exploration. Mazur said, “While we’ve been putting this together, we have been in the background doing a lot of planning. We want to get the work done during this winter season. We have a geophysical crew lined up. They are going into the field in a week’s time. We are negotiating with a drill company right now, and they will have a drill in the vicinity. We’re going to tag onto a drilling project they should be finishing around mid March.”
Asked to confirm if the company would drill in March, Mazur responded, “We’re going to start drilling next month. It’s a go. We’re just going through the permitting hoops.”
A final surprise is that Dr. Tan, who helped discover the Gaertner and Deilmann deposits in the Key Lake area, as a uranium project geologist for Uranerz in the 1970s (and who also worked as a senior geologist for Uranerz in the Athabasca Basin from 1980 through 1998), will be the drill geologist. He asked Mazur, “When can we drill? I would like to sit on the drill and drill this and be there.” The drill program will be a short-hole program of six to eight holes of about 150 meters each with a minimum of 1,000 meters, and depending upon results could go to 1,500 meters.
Part of the acquisition requirements is that Forum must complete a large amount of exploration work very quickly. Doug Fosbrooke said, “We are looking in the neighborhood of $300,000 that we will be spending on it.” Mazur added, “This was a strong endorsement by Cameco of the quality of our team. There are more surprises to come. We are developing a good relationship with Cameco.” |
February 6, 2006 |
Speculators the “Driving Force” behind Uranium’s Record Price Jump in 2005
“The shift from a buyers’ market to a sellers’ market that began in 2003 gained new momentum in 2005,” announced nuclear energy consultant, Treva Klingbiel, president of TradeTech, LLC. Total spot volume for 2005 was slightly less than 30 million pounds. Trade Tech announced in a recent news release that the $15/pound rise during 2005 was a record price increase. Klingbiel explained the “driving force” behind the record increase “was the entry into the market of a new type of buyer—the investor/speculator.” Investors and speculators reportedly accounted for 36 percent of spot uranium purchases in 2005.
“Investor interest in the uranium market shows no current signs of abating,” said Klingbiel, but she cautioned that waning interest “leading to a reduction in actual purchases,” later this year, could cause the spot uranium price to level off. The spot uranium price continued to climb last week, settling at $37.50/pound as near-term uranium supply remains extremely thin.
TradeTech publishes the Nuclear Market Review each Friday, and The Nuclear Review, a monthly publication dedicated to the international uranium and nuclear energy industry. http://www.uranium.info/ |
February 2, 2006 |
Strathmore’s Miller Tells Dow Jones - Uranium Market Is “Going Nuts”
In a Dow Jones newswire report Tuesday afternoon, David Miller, president of Strathmore Minerals (TSX: STM; Other OTC: STHJF), told a Dow Jones reporter that the possible reprocessing of spent nuclear fuel won’t tame the spot uranium market. Miller said the market was “going nuts” and forecast in the published wire service report that he expected the spot uranium price to double again over the next 18 months.
Recent media reports suggest the Bush Administration may be moving toward nuclear fuel reprocessing instead of burying power plant waste at the Yucca Mountain depository. Miller told Dow Jones, “It's great to consider reprocessing. It makes sense from an eco-friendly point of view instead of once around and into the ground." How will Asia's hunger for more nuclear energy impact uranium prices? David Pointer, a nuclear engineer also quoted in the Dow Jones story, said, “There's some concern as the Chinese, Japanese and Korean plants come on line that there would be a shortage of uranium oxide fuel.”
The report also mentioned “some studies” showing uranium could as high as $500/pound before the cost would be prohibitive. (See StockInterview.com January 4th report: “Uranium to Head North of $500/pound?”) Miller threw cold water on a uranium shortage, telling Dow Jones: “There will always be uranium available.” |
January 30, 2006 |
U.S. Playing Catch Up On Nuclear - State of the Union Address: Focus on Nukes
U.S. President George W. Bush plans to promote nuclear energy, as a way of reducing the country’s dependence upon foreign oil, in Tuesday evening’s State of the Union Address. “It’s an energy source that is clean,” White House spokesman, Scott McClellan, told reporters on Friday. “We’ve been talking with a number of countries about how to move forward on expanding nuclear energy to meet our global energy needs.”
Strathmore Minerals (TSX: STM; Other OTC: STHJF) president David Miller told StockInterview’s Market Outlook on Saturday night before leaving for Europe, “The President’s timing for expanding the U.S. nuclear energy program could spurn spot world uranium prices to record highs. World inventories are at a 20-year low with a possible deficit in 2006 of 70 million pounds of uranium oxide. Demand is outstripping supply nearly two to one.”
President Bush should be commended for his plan, but the United States is playing catch up to China and Russia. The entire country needs to get behind any decent nuclear initiative or the U.S. will lag the world in the pursuit of meeting its energy needs. Anyone who has followed the race for uranium supplies on this website has come to realize that China is aggressively pursuing uranium properties to feed its nuclear expansion program. It has established long-term deals with Iran for its petroleum and natural gas supplies. A long-term uranium supply contract is next on China’s dance card.
According to the February 6th edition of Newsweek, “In the past few years, Beijing has embarked on the boldest nuclear-energy plan since the one orchestrated by the United States in the 1970s…Nuclear power has thus become an essential part of their plan to prevent an energy and environmental crisis. China intends to increase its output of nuclear power at least fourfold by 2020, from 8,700 to 36,000 megawatts. That will require building up to three reactors a year until then. Already, China's enthusiasm for nuclear power is helping rekindle interest among countries that had abandoned their own programs.”
One such country is Egypt. Middle East newswire reported Saturday, “Arab diplomatic sources said a Russian delegation arrived in Cairo in mid-January to renew nuclear energy cooperation. The sources said the two sides discussed a Russian proposal to develop a civilian nuclear infrastructure in Egypt that would include power reactors. The regime of President Hosni Mubarak has pursued nuclear energy options, and in 2001 drafted a program for the construction of 11 atomic reactors. The plan was said to have been abandoned in 2005 amid budget difficulties and pressure by the United States.” Egypt is yet another country, which we suspect will be added to the Putin Nuclear Alliance. See Market Outlook (January 17th) and this news story.
Strathmore Minerals’ David Miller had given StockInterview.com a heads-up two months ago about China’s nuclear plans, after returning from that country. Miller had suggested, “Within the next few decades, the U.S. will be buying nuclear reactors from China.” In Newsweek’s February 6th article, “China Leaps Forward,” Edwin Snead, a Texas businessman who wants to build a nuclear plant on 55 acres in Texas, said, “I think the Americans will be buying nuclear plants from China within five years.” Newsweek reported, “Snead, apparently impressed, exclaimed that this newfangled Chinese technology may be the key to assuaging the nuclear fears of Americans. He wants to go back and sell the idea to Texas A&M University or another school willing to back a research center.” The new technology Snead was impressed with was the “new” pebble bed technology, first developed by Westinghouse during the heydays of the U.S. nuclear buildup, but was dropped and then picked up and passed around by others. It is now in its experimentation phase in both South Africa and China. (Editor’s Note: StockInterview.com first reported on this new technology in November 2004)
It has again boiled down to politics. The wild cards are the same players as before: Russia, China and India. Once a military worry and a race to build more nukes “to prevent war,” the emphasis of going nuclear is a pursuit of meeting the overwhelming anticipated growth in world electricity demand. As Newsweek reports in its February 6th edition, in one of three nuclear energy articles (this one entitled, “A Change in Climate”), “Nuclear power is increasingly seen as the only energy source that can square the needs of the environment and industry….The turnaround is perhaps most startling in Europe. Most citizens remain wary, but a rethink is underway in almost every European country—even those most traditionally hostile to nuclear power. In Italy, which junked its nuclear program after a referendum 18 years ago, Prime Minister Silvio Berlusconi talks openly of reversing policy.”
It will be interesting to evaluate how forcefully President Bush embraces nuclear energy and the public’s reaction. In the short-term, this may get Wall Street focused on the front-end of the nuclear fuel cycle: the uranium mining exploration and development companies. Demand is high and current mining production doesn’t match that demand. The U.S. imports more than 80 percent of its uranium from foreign sources, including Russia and Kazakhstan. Perhaps among the first rebuttals to President Bush’s State of the Union focus on nuclear energy will be: “We don’t have sufficient uranium supply to feed that expansion.”
To which the common sense response would be: Speed up the permitting process on America’s uranium assets, especially those in Wyoming, New Mexico and Utah. |
January 20, 2006 |
Canadian Junior Follows Chevron-Texaco, Conoco-Phillips into China for Coalbed Methane
If the outlandish claim of “equivalent to almost one billion barrels of oil” had come from someone I knew less well, and which did not also have some credible members on his team, it would have been rudely ignored. Dev Randhawa’s follow-up deal to Strathmore Minerals should be taken seriously. It’s called Pacific Asia China Energy (TSX: PCE), and not many have heard about it. While the company began trading under this new symbol and under his stewardship on January 4th, Randhawa has been assembling this deal for about two years with another Strathmore board member, Steven Khan. Also know by the acronym as PACE, it is the first Canadian company to explore for and develop coalbed methane resources in China.
Only 24 companies have been granted access to China’s vast coal fields with estimated total reserves of 115 Gt. China produced about 27 percent of the world’s coal in year 2000. By 2030, the IEA estimates China could produce about 33 percent of the world’s coal. It is the world’s largest consumer as well, depending on coal for about 75 percent of its annual energy production, consuming about half of the world coal production. PACE joins US-based corporations Chevron-Texaco, Conoco-Phillips and Far East Energy Corp, which have begun exploring for coalbed methane in China since 1998. According to Randhawa, it was former Far East Energy Corp (OTC BB: FEEC) board member, TunAye Sai, who brought the properties to PACE. Will that prevent PACE from getting stuck with the low-hanging fruit the majors didn’t want? “He’s been there a very long time,” Randhawa responded. “TunAye Sai has seen the best coalbed methane properties. Because he’s been there longer than anybody, he has lots of experience in the area and has a full staff. When we acquired this asset, we acquired a management team along with it that has coalbed methane experience in China.”
The property in question is PACE’s approximately 1,000 sq km Guizhou project in southwestern China, for which it has signed a “Production Sharing Contract” (PSC) with the state-owned China United Coalbed Methane Corp (CUCBM), subject to TSX regulatory approval. PACE is only one of 24 companies approved by CUCBM to develop the coalbed methane gas project for production. “We will spend US$8 million to earn our 60 percent,” said Randhawa. “They have drilled about 400 holes on this property, and it is a very large asset, about 20 billion tons of coal.” The Chinese estimate around 5.8 Tcf of gas, nearly the equivalent of one billion barrels of oil. “But we have to drill it to confirm all that,” Randhawa explained. “It is a developed project. Obviously with 400 drill holes into it for coal, when they tested for coal, they also tested for gas – for safety reasons more than anything else.”
To confirm the existing information, PACE will put down four slim holes in March. That testing will determine where the coal bed fumes are, where the gas content is. “It will give us data to drill, such as where we need to horizontally drill to get the gas out,” explained Randhawa. “Then in summer, we’ll do the production testing.” PACE is optimistic with eight staff manning two offices in China, one in Beijing which deals with the central government. “We have already been approached by a number of the industry players, who have offered to set up plants,” said Randhawa. “There is a local market for the gas.”
More than twenty companies have already invested over $150 million in coalbed methane (CBM) projects covering over 32,000 sq km in China. PACE has two CBM projects, subject to stock exchange approval, and another two at the Memorandum of Understanding stage. China is concerned about its coal mines for many reasons. Depending upon whose estimates you believe, the number of gas-related mining accidents could run as high as 10,000 annually. Many coal mining accidents aren’t reported because they occur in small private mines. Another reason is some 200 Bcf of methane is emitted from coal mines. That could be used as a clean-burning hydrocarbon to provide energy to an energy-starved country. “They have brownouts worse than you can imagine,” argued Randhawa. “If China had the energy it needed, its growth would be even higher, if they had enough energy to run their factories. What is holding China back is their energy needs.”
Among the world’s third largest CBM reserves, geological surveys estimate China’s reserves up to 35 trillion cubic meters. Environmentally, using coalbed methane as an energy source makes sense. The US Geological Society forecast that methane will become the leading greenhouse gas in this new century. Instead of just venting off the methane gas and further polluting the atmosphere, it could be used as a major power source to meet a growing demand for the world’s electricity. Hokkaido’ Coal Mine Safety Research Center believes CBM could become the new natural gas of the 21st century.
PACE seems well poised with sufficient technical expertise to move this project forward. “We would be happy with a tenth of that (5.8 TCf of gas),” concluded Randhawa, “if we can confirm it. Supervising the Chinese companies, which PACE as the holding company owns, is Dr. David Marchioni of Calgary-based Petro-Logic Services. His credentials in the area are encouraging for this type of project. Dr. Marchioni is a member of The Canadian Society for Coal Science and Organic Petrology, and also a former committee member for the Canadian Society of Unconventional gas. In summary, Randhawa and team appear ready to follow upon their recent Strathmore Minerals success story with PACE. As with Strathmore, those who got in early have the biggest smiles on their faces.
PCE closed at C$1.30/share Thursday on 63,600 shares traded.
Pace holds a substantial coalbed methane land position in China; see star for reference.
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January 17, 2006 |
Iranian Oil Bourse Could Accelerate Uranium Price Rise
Circle the date March 20, 2006 on your calendars in red. That is when Iran, the world’s fourth biggest exporter of crude oil, will reportedly launch their new oil exchange, competing with both London’s IPE and New York’s NYMEX, both of which are owned by U.S. corporations. They will be invoicing oil trades in euros not dollars. Petrol for euros is an echo of the 1970s petrodollars, but this time it would be petro-euros. Depending on the trading volume for Iran’s proposed oil exchange, this oil exchange might begin to spell serious trouble for the entire U.S. financial system. Iran’s oil and natural gas assets are estimated to be worth about $3 trillion.
Some of the pretty ‘out there’ reports have already begun proclaiming it’s the end of the world as we know it. A few of the more serious reports suggest the current Iranian uranium enrichment dispute may be a prelude to an invasion of Iran, whether by Israel or the U.S. Top U.S. politicians are not ruling out a military strike against Iran. Sunday’s missive from Iran’s Economy Minister Davoud Danesh-Jafari certainly stirred up the petro-political stew further when he announced on Iranian state radio, “Any possible sanctions on Iran from the West could possibly, by disturbing Iran’s political and economic situation, raise oil prices beyond levels the West expects.” A week previous, Manouchehr Takin of the Centre for Global Energy Studies argued crude oil prices could reach $100/barrel if Iran stopped exporting. Senator John McCain told CBS television’s Face the Nation, “If the price of oil has to go up then that's a consequence we would have to suffer.” Senator McCain called the nuclear standoff with Iran, “the most grave situation that we have faced since the end of the Cold War, absent the whole war on terror.”
With someone as irascible and impetuous at Iran’s helm, as is the current president, Mahmoud Ahmadinejad, quite any of his wild notions could quickly become a shocking reality. For example, a few weeks ago, the Iranian president referred to the Jewish holocaust during WW II as a myth, setting off a global condemnation. On Sunday, Iran announced it was convening a scientific conference to evaluate any evidence supporting the mythical holocaust. Unfortunately, all of this Iranian drama may just be Act One with two or three more to follow. What happens if Iran’s brash actions move the world’s reserve currency from dollars to euros?
The road from dollar to euro may just be another transitory move. As the gold standard fell to the oil standard, the U.S. dollar began replacing gold in the 1970s as the “world’s reserve currency.” For the past thirty years, it’s been earth’s most sought-after currency, as any seasoned tourist knows. And as travelers have come to realize, the dollar’s dominance has weakened over the past few years. Today, the euro is more desirable in many countries where the dollar was once King. As late as a few years ago, Canadians joked about their one-dollar Loonie as the Canadian peso. Not true today. More than a few experts believe the C$ will someday soon trade on par with the USD. Iran’s launch of their Oil Bourse may be the proverbial straw that breaks the camel’s back. What they may now lack, an oil marker found on New York’s Mercantile Exchange and London’s International Petroleum Exchange (IPE), such as West Texas Intermediate, Norway Brent, or UAE Dubai. William Clark, author of Petrodollar Warfare (New Society Publishers, 2005), argues Iran’s new oil exchange would “usher in a fourth crude oil marker.”
If invoicing oil in euros gains momentum, what’s to stop other commodities, such as gold or natural gas, from being priced in euros? If the dollar continues its long-term decline, plunging below its late 2004 nadir, then how little confidence will resource-rich countries have in the fiat dollar? At least one serious expert believes it might make perfectly good sense to price a number of these commodities in Canadian or Australian dollars instead of U.S. dollars.
Wyoming legislator, former International Atomic Energy Agency consultant and president of Strathmore Minerals (TSX: STM; Other OTC: STHJF) David Miller believes, “A switch out of U.S. dollars would just accelerate the current rise in the price of uranium in terms of U.S. dollars for American utilities, the world’s largest consumers of uranium.” What if Cameco (NYSE: CCJ) decided to price uranium in Canadian dollars? “Cameco’s long-term contracts are coming up for renewals,” explained Miller. “It might make economic sense for Cameco to sell uranium in Canadian dollars, and it’s something they should consider. If the dollar falls hard, it would decrease Cameco’s revenue stream if prices and contracts remain in U.S. dollars.” Miller added, “A lower U.S. dollar would also make U.S.-produced uranium more attractively priced.”A uranium price, which has soared by more than 500 percent, has yet to seriously shake up the mindset of U.S. utilities, even in the context of a rapidly growing uranium supply deficit. Another worry might now be registering on their radar screens: uranium imports from three of the world largest uranium producers may not be available later this decade. Russia’s hints at expanding their nuclear industry by about 300 percent, as reported by the Moscow Times in an article entitled “Putin Revives Nuclear Alliance,” on January 13th, could impact the current supply of uranium to U.S. utilities from Kazakhstan. According to the U.S. Energy Information Administration, Kazakhstan supplied more than 4 million pounds of uranium to U.S. utilities in 2004, nearly 10 percent of all foreign uranium purchased. If Russia’s nuclear alliance materializes with Kazakhstan and also includes Uzbekistan, U.S. utilities might lose access to about 8 million pounds of uranium annually. Domestically, the U.S. uranium mining industry only supplied 10.2 million pounds to owners of U.S. civilian nuclear power reactors in 2003. Neither Kyrgyzstan nor the Ukraine reported their uranium supply statistics for 2004, but they would reportedly be part of Russian’s new alliance. A year ago, Russian announced a deal to supply Iran with enriched uranium at the $800-million Bushehr nuclear facility being constructed in that country. Russia hopes to construct, over time, up to twenty more nuclear power plants in Iran. Uranium consumption alone by Iran to power those nuclear reactors would exhaust Russia’s current mining production of about 30 million pounds annually. One might wonder if that uranium transaction will be based in euros instead of dollars.
Source: Energy Information Administration: Form EIA-858 "Uranium Marketing Annual Survey" (2003-2004).
How likely would it be that other commodities might be priced in a currency, other than the U.S. dollar? Austria-based financial analyst Toni Straka, who writes The Prudent Investor wondered in his article, entitled “Killing the dollar in Iran,” (August 26, 2005; Asia Times) “Could the proposed Iranian oil bourse (IOB) become the catalyst for a significant blow to the influential position the US dollar enjoys?” Straka suggested in that same article, “A decline of the dollar's position in oil trading might also open the floodgates in other commodity markets where the dollar is the medium of exchange but where the US has only a minority market share.” A cursory study of diverse articles, focused around the IOB, strongly suggest that sometime after March 20th, if Iran does launch their Oil Bourse, the dollar might find itself sinking below its March 2005 low on a course taking it beneath a December 2004 bottom.China’s relationship with Iran may also be alarming for the U.S. dollar in the context of a euro invoicing for oil. In 2004, China became Iran’s top oil customer with the signing of a $100 billion oil pipeline deal. News reports suggest there may be two or more deals to have Iran export to China over 350 million tons of liquefied natural gas and 150,000 barrels of crude oil per day, over a 25-year period. Invoiced in euros, instead of U.S. dollars, purchases of that magnitude could create more than a bit of geopolitical economic friction.
Last week, China indicated the country may diversify its foreign exchange reserves, possibly in a controlled diversification process, to prevent a collapse of the U.S. dollar. Director-General of the research bureau for the People’s Bank of China, Tang Xu, recently announced it was “unlikely that China would reduce its current dollar assets to increase the proportion of other assets.” At the same time, he cautioned no one “is willing to put all of their eggs in one basket.” How’s that sound for a mixed message? According to the Xinhua news agency, China now holds $818.9 billion in foreign exchange reserves. London’s Financial Times estimated, “China is now on course to accumulate more than $1,000bn (US$1 trillion) in foreign exchange by the end of this year – a total that would surpass Japan, which had $847bn in reserves at the end of December.” In all likelihood, Japan, South Korea and Taiwan would also reduce their U.S. dollar holdings to follow China’s lead should they aggressively begin selling.Questions worrying many financial analysts revolve around the condition of the US Dollar. M-3 is in overdrive. Over the past 6 weeks, over $177.8 billion has been added into the U.S. economy. In raw and non-seasonally adjusted numbers, that number is jumped by more than $293 billion, during the past three months. By using the past quarter as a benchmark, M3 is on a pace to add $1.2 trillion of stimulation flooding into the economy in a twelve-month period. Sometime in March, the U.S. Federal Reserve will stop reporting M3. The recent Federal Reserve flooding may also explain the spectacular rally in the DJIA above the 11,000 level, and an action that has continued to help fuel the precious metals bull market.
Bearish currency speculators argue the current petrodollar system unfairly benefits the U.S. and often describe how the U.S. continues to print greenbacks without exporting commodities or manufactured goods, by paying for them with issuance of more dollars and Treasuries. As the argument goes, the U.S. controls the world oil market through the dollar. An exodus from dollars, perhaps even its loss as the world’s reserve currency, would certainly provide a turbulent market scenario for oil speculators. That would very likely spill over into other commodity markets. As David Miller has suggested, it could very well accelerate the price rise of spot uranium. |
January 16, 2006 |
Uranium Sector Consolidation Picking Up Steam:
U.S. and Australian Uranium Projects Targeted
Uranium industry insiders are often savvier than the ordinary retail investor when it comes to identifying and valuing uranium assets. The ‘when’ and the ‘where’ are just as important in the purchasing process as how of much should be bought. The few companies, who got in early and inexpensively purchased properties (often drilled, sometimes heavily drilled) which others previously abandoned and sold off at bargain prices, are now the same uranium insiders looking at undervalued companies with “pounds in the ground” assets they can snap up. And they are taking action before the price of uranium surges above US$40/pound. If these insiders believe certain uranium assets are overlooked and undervalued, within the context of how much longer the uranium bull market will run, then there may be another price ride higher up the stock charts for the more serious junior uranium players. Recent acquisitions and consolidations might signal investors as to which doorstep good news might soon arrive.
Since mid November, when Energy Metals (TSX: EMC) announced interest in acquiring Standard Uranium (TSX: URN) and Quincy Energy (TSX: QUI), others have joined in the race to build up their portfolio of uranium assets. Following the San Francisco Gold show in late November, Pinetree Capital (TSE: PNP) acquired what might later become more than 10 percent of Kilgore Minerals (TSX: KAU). In late December, Strathmore Minerals announced the company retained National Bank Financial “as its exclusive financial adviser to review transaction alternatives to maximize shareholder value from its uranium assets in the United States, Canada and Peru.” Before and since then, multiple news reports suggested Strathmore Minerals (TSX: STM; Other OTC: STHJF) may be up for sale, or may entertain selling its U.S. assets (See StockInterview “Market Outlook Journal,” January 9th) “if the price is right,” according to an interview with Strathmore’s CEO, Devinder Randhawa. The interview first appeared in the Wall Street-based “Mergers and Acquisitions Report” on January 9th. This past Friday, Strathmore’s CEO and president, David Miller, were in Toronto in confidential meetings with National Bank Financial.
This past week, two Toronto-based uranium juniors announced they were pursuing Australian Stock Exchange-listed uranium companies, as either a significant shareholder or a buyout. Another denied its core Australian project was being taken over. For those not familiar with the geography of that tiny continent, the Aussie states of South Australia and the Northern Territory host three top uranium producing mines: Ranger, Olympic Dam and Beverley. Combined, these mines produced more than 21 million pounds of uranium in 2004. In 2003 and 2004, Australia supplied approximately that same number of pounds to U.S. owned and operated civilian nuclear reactors, and provided more than 20 percent of all the uranium purchased from non-U.S. suppliers.
By many considered to host the world’s largest uranium resource, South Australia’s Olympic Dam reportedly mined more than 8.7 million pounds of uranium in 2004. (See map below) Beverley, the world’s largest ISL uranium mine and which produced more than 2 million pounds in 2004, is also in South Australia. That continent/country’s largest producer, the Ranger mine which yielded more than 10 million pounds in 2004, is in the Northern Territories. Also in the Northern Territories are the Jabiluka and Koongarra uranium deposits, as well as the former producing mines, Rum Jungle, South Alligator and Nabarlek.
Australia hosts several significant uranium deposits, including the world’s largest, Olympic Dam.
On January 10th, Mega Uranium Ltd (TSX: MGA) announced the company “entered into an agreement with Australian Stock Exchange-listed Hindmarsh Resources Ltd. (ASX: HMR), whereby Mega, or a wholly owned subsidiary of Mega, will offer to acquire all of the issued shares and options of Hindmarsh for a total consideration of 3.63 million Mega shares in a conditional off-market takeover offer.” As a result of their acquisition, Mega Uranium will obtain interests in what is reportedly prospective uranium ground in both South Australia and the Northern Territory.
According to Hindmarsh’s news releases, the company’s holdings extend over 9,500 square kilometers in South Australia. The company’s projects are in the area of current and historic uranium mines at Beverley, Radium Hill and Mt. Painter. On its website, Hindmarsh reports it has existing drilled sandstone-hosted uranium projects with extensive paleochannels, similar to the Beverley and Honeymoon deposits, with drill intercepts up to economic levels, plus the potential for iron-oxide-copper-gold-uranium (IOCGU) deposit, respectively similar to Olympic Dam. As part of the deal, Mega Uranium reported it would also acquire Hindmarsh’s (Australian dollar) cash reserves of approximately US$1.87 million equivalent.
Beverly ISL Pilot Plant located in South Australia between the Olympic Dam copper-uranium mine and the Honeymoon uranium deposit.
On January 12th, SXR Uranium One (TSE: SXR) CEO Neal Froneman announced in a company news release that earlier talks with interested parties from China about the company’s Honeymoon uranium project in Australia “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.” But Froneman added, “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.” He also noted that he “cannot prejudge that (the board’s) decision.”
On January 13th, Laramide Resources Ltd (TSX: LAM) announced the company has become the lead investor in the newly named Uranium Equities Ltd. Previously named Bullion Minerals Ltd (ASX: BLN), the company held a portfolio of gold and base metals projects, which will be spun off. The mining portfolio shift occurred, this past June, when Bullion announced it had obtained 14 separate uranium projects in Western Australia, Queensland and the Northern Territory. Twelve of the Western Australia projects with sixteen exploration license applications cover more than 3,000 square kilometers in that state, and are reportedly prospective for sandstone-hosted or surficial calcrete-hosted uranium deposits. The Perth, Australia-based company now holds a portfolio of 19 uranium projects over 10,000 square kilometers in those same states. The largest property holding is found in the Northern Territory (more than 4,900 square kilometers) about 50 to 100 kilometers to the southeast of the Ranger uranium mine and the Jabiluka and Koongarra deposits. Laramide endeavors to become UEL’s largest single shareholder, pending shareholder and regulatory approvals.
Also on January 13th, a third Toronto-based firm, Pinetree Capital (TSE: PNP), announced the company purchased about 2.5 percent of the common shares of Monster Copper Corp (TSX: MNS), a uranium exploration company. Monster Copper and Santoy Resources (TSX: SAN) have a joint venture on the Mustang Lake property in the Central Mineral Belt of Labrador, near the Michelin uranium deposit, an historic resource where 18.3 million pounds of uranium have reportedly been identified. Santoy’s field investigations confirmed the mineralized nature and distribution of radioactive boulders on the property. Further drilling is planned for late February or early March, depending upon weather conditions.
Clearly, junior uranium companies, with strong uranium prospects or undervalued uranium deposits, are on the Toronto radar screen. The two strongest areas appear to the United States and Australia, and to a lesser extent, Labrador. Who will be the next consolidation, investment, or takeover candidates? Judging on the recent spate of announcements, the next “when” might be imminent. |
January 9, 2006 |
Strathmore Minerals Takeover Talks Reported
Rumors of takeover talks or a consolidation involving Strathmore Minerals (TSX: STM; Other OTC: STHJF) have been given more credence by the reputable, Wall Street-based Mergers & Acquisitions Report. Associate editor, Joshua Hamerman, interviewed Strathmore’s Chief Executive Devinder Randhawa in an article published today, confirming there had been talk between interested parties and Strathmore. Since late December, when Strathmore announced in a news release that it had retained National Bank Financial and was reviewing its strategic options, takeover rumors have been spreading across the Internet and reported in various publications. The M&A Report noted one competitor, Energy Metals Corporation (TSX: EMC), may be interested in Strathmore’s US assets, specifically their uranium holdings in New Mexico and Wyoming. Last week, Strathmore announced an independent geological report found one New Mexico property held nearly double the uranium resource previously reported.
Mr. Randhawa told the Mergers & Acquisitions Report he would consider a sale of the company’s U.S. assets if the price was right. Strathmore’s CEO, who is also chairman of the board and founder of the uranium company, confirmed there was outside interest in his company, which led to hiring National Bank Financial. He explained to the reporter, “I thought we needed to have the best advisors in the industry help us evaluate the alternatives available to us.” The bank’s managing directors declined to comment to the newsletter about any takeover discussions or the sale of Strathmore’s U.S. assets.
In his interview, Randhawa echoed Sprott Asset Management research analyst Kevin Bambrough’s remarks, which were reported in StockInterview.com a week ago, “If you want to get the attention of large hedge fund managers, the general belief is that you have to have a US$1 billion market cap.” Bambrough had told StockInterview.com, in an article published January 4th, “I think the market could really use more large cap uranium companies, since large fund managers currently can really only look to Cameco (NYSE: CCJ) and Energy Resources of Australia (ASX: ERA) to get exposure to the uranium market.” Bambrough added, “There are several junior companies that should come together to form large uranium companies to leverage their extremely valuable skilled personnel, lower the exorbitant costs of permitting and exploration, and achieving other economies of scale.” (Editor’s Note: Click here to view the January 4th article) Bambrough disclosed Sprott Asset Management held a large position in Strathmore Minerals, “Of the companies that we own, we own a larger percentage of Strathmore Minerals than almost any other company.” He added, “We think they’ve got some great properties. They were guys who got into the game very early, and who have skills as they do with David Miller (president and chief operating officer of Strathmore Minerals) in understanding the uranium business."
Energy Metals has been actively pursuing the consolidation within the junior uranium stocks, having announced a letters of intent to acquire Standard Uranium Inc. and Quincy Energy Corp, in mid November. In early December, Energy Metals announced it had acquired 16 New Mexico state leases, which are considered to hold uranium mineralization. Those leases are in New Mexico’s McKinley County in one of the world’s premier uranium mining districts, the Grants Uranium District. Historically, it has been the largest producing area in the United States, with production in excess of 340 million pounds. The most promising of Strathmore Mineral’s properties are found in this district, including the Church Rock property, in which the independent report announced the significant increase in uranium resources.
Widely followed gold letter writer, Robert Bishop, forecast a consolidation in the uranium sector in his end-of-the-year message to subscribers, naming Strathmore Minerals as a possible candidate. Earlier Canaccord’s David Pescod wrote, “We talked to Dev Randhawa of Strathmore Minerals because Strathmore seemed to be the one company on most people’s list as an obvious take-out target. When we talked to Dev, obviously he wouldn’t be adverse to a take-out as long as the price is right, and he even gives us a 50/50 bet that they won’t be around in the next six to twelve months.” Since then, various investors have speculated on Internet chat boards who might take over Strathmore Minerals and a possible takeover price.
Last Thursday, respected journalist Dorothy Kosich of Nevada-based Mineweb.com wondered out loud in her article, entitled Uranium Radiates Investment Heat, “As Mineweb has followed Strathmore for a few months, the focus on the junior explorationist as a possible takeover target has grown. Another possible clue: in the past, Mineweb has found Strathmore President and COO David Miller to be very accessible and accommodating. Lately, Miller, also a Wyoming legislator, has not returned our calls.”
Randhawa confirmed that National Bank was hired for a minimum of three months to review the company’s options, and had told StockInterview.com, “National Bank has the best technical team and will help us reach the right decision to maximize the benefit to our shareholders.” Florida-based Free Market News reported on January 5th, “Strathmore is a ripe take over candidate in the ever consolidating junior uranium sector. The questions that remain are when, by whom and for how much? A few names come to mind but for now we will be waiting and watching.” California-based Cohen Independent Research Group set a price target of C$4.29/share for Strathmore Minerals, based upon the current spot uranium price.
Numerous publications have suggested the uranium sector is in the midst of a mercurial consolidation phase. As would be expected, prices of various uranium stocks are soaring outside their technically acceptable trading range. Caution is advised for speculators with weak stomachs during such frenzies. |
January 4, 2006 |
Uranium Price Rise Getting Wider Audience
Happy New Year! Uranium is getting a broader audience coming into 2006. It's almost becoming part of the culture, as were the Internet high-fliers of 1999. Witness some Brit humor in London's Sunday Times on New Year's Day, "The indicator for the second half of the year will be the rush to watch the English cricket team attempt to retain the Ashes Down Under. Tickets go on sale on January 10 and, if you can get one, the return will outperform equities and even the soaring price of uranium."
Seriously, uranium is getting more than a passing nod as each month slips by. A year end review and 2006 Outlook by Canada's Globe and Mail noted, "The energy group also soared as oil and gas reached record levels, while coal and uranium prices rocketed." In the U.S. The Globe and Mail repeated itself on Tuesday, announcing the top picks of UBS Securities, one of which is Cameco (NYSE: CCJ; Toronto: CCO).
Barron's rang in the New Year with commentary by Spencer Jakab, who wrote in an article entitled, Goin' Fission for Uranium, "…even at current prices, the cost of fuel for nuclear power is far below that of fossil-based alternatives, price increases won't derail demand." The Barron's article followed coverage by The Street.com's Real Money contributor, Howard Simons, who wrote, "It is probably safe to assume given the increasing capacity utilization of existing plants and their increasing output since 1990 that nuclear power could have accounted for 25%-30% of total U.S. electricity generation, had we not ceased building new plants. And given electricity's increasing role in the natural gas market, natural gas prices would no doubt be lower today had we kept adding nuclear capacity." Mr. Simons crowned his article entitled, Investors' Nuclear Option, by showing a chart of rising uranium prices, calling it the "Ultimate Hot Commodity."Well, isn't it? |
December 12, 2005 |
Uranium Sector Headed for Consolidation
Spot uranium prices are quickly heading to the $40 level (last week at $35.25/pound). That’s attracting investors to uranium stocks in a very big way. Market capitalizations of some exploration companies have now broken through $100 million, while others are rapidly approaching that altitude. Major Toronto (and other) funds invested heavily into the uranium bull market. Rumors indicate the large funds are pushing uranium juniors in which they heavily invested to consolidate. In Bob Bishop’s commentary, found in his most recent Gold Mining Stock Report, he believes major funds are encouraging such a roll-up for a consolidated entity so it would be large enough to trade on the New York Stock Exchange. The company name he believes keeps coming up in such discussions is one in which Bishop is a shareholder: Strathmore Minerals (STM.V, Other OTC, Pink Sheets: STHJF). Nothing makes a stock soar high like the speculation of a takeover, especially if there are multiple acquisition-minded companies.
Mr. Bishop also mentioned he would not be surprised if a deal materialized between Strathmore Minerals and China. As many who follow uranium stocks know, China is eager to acquire a reliable supply for its civilian nuclear power plans. Reports indicate these are the most ambitious plans since the United States began building nuclear power plants in the 1950s. At least a handful of reports suggest China will build a lot more nuclear power plants than what has already been announced. No one is suggesting a deal between Strathmore Minerals and China is imminent, and Mr. Bishop clearly stated he did not know if one was imminent or not. But with all of China’s interest in uranium in the two hottest markets, Canada and Australia, one has to wonder about Strathmore in the Chinese equation. Why have Strathmore executives made multiple trips to China during the past year? Strathmore’s recent conductor discovery at Davy Lake in Canada’s Athabasca Basin, its strong portfolio in Wyoming and New Mexico, and its very well-connected management would be multiple jewels for a growing uranium company.
We’re forecasting a strong uranium market for investors in the first half of 2006. Investors have quickly turned to uranium stocks instead of the junior gold stocks during the fourth quarter, and especially since last month’s gold conference in San Francisco. That could explain why gold exploration stocks are barely treading water while spot gold has traded decisively above $500/ounce since December 1st. Uranium stocks are clearly an investor’s preferred vehicle for the time being. This should likely intensify through early March at the Toronto PDAC. James Dines of The Dines Letter has loudly proclaimed that uranium stocks may out-perform internet stocks of the late 1990s. If that’s the case, then fasten your seatbelts! |
December 2, 2005 |
China’s ambassador to Australia rattled that country’s mining industry this week at a speech given to a packed audience at the Melbourne Mining Club. Madame Fu Ying. She roughed up the mining audience, when asked about China’s buying Australian uranium, by responding that her country wanted reliable suppliers. China has made it quite clear it intends to double it nuclear power capacity by 2010 to meet its soaring electricity demands. It has been pursuing Australian uranium after Chinese companies lost out to BHP Billiton in buying WMC’s Olympic Dam mine, but Madame Fu’s concerns about iron ore pricing may put a damper on Aussie uranium oxide. Rio Tinto and BHP Billiton presently argue for higher iron ore pricing, and China may take its hunt for uranium elsewhere.
Where would China satisfy its appetite for uranium? It would not be preposterous for China to consider Canada’s Athabasca Basin as an alternative to Aussie uranium. There are numerous exploration companies in the hunt for a new uranium discovery. The world’s richest uranium grades are found in Saskatchewan’s Athabasca Basin. It may be time for investors to ponder how much of a factor China would play in the current uranium bull market with regards to advancing exploration projects. |
November 16, 2005 |
A wall of money is coming into a commodity near you, according to a top South African metals analyst. Demand for platinum sent its spot price to the highest level since March 1980, and some analysts are forecasting $1,000 platinum over the next six months. But, one of the bigger stories not finding its way into the mainstream media is what has happened to the price of uranium. Spot uranium prices jumped by about 300 percent over the past 30 months. That may be only the beginning. In a recent interview with David Miller, a Wyoming legislator and former International Atomic Energy Agency consultant, he wouldn't be surprised if they doubled again. Editor's Note: StockInterview.com interviewed Mr. Miller when uranium prices were still in their teens.
A newspaper report from Asia indicated that Merrill Lynch is suggesting utility companies are hoarding their uranium inventory fearing another price spike in the earth's 48th most abundant element.
Nuclear anti-activists are howling over Stewart Brand's recent endorsement of nuclear energy, and they may well become a turning point in the global momentum for nuclear-generated electricity. After all, it was Brand who invented the Whole Earth Catalog that changed an entire generation, and who set the foundation for internet news websites with WELL (which preceded Wired).
The far greater story surrounds Yucca Mountain. After the U.S. House of Representatives cut funding to $450 million for the Yucca Mountain nuclear waste facility, an old story made the rounds again. Lawmakers earmarked $50 million to research establishing a spent nuclear fuel recycling plant. This may mark a significant turning point in the Nuclear Age. In 1975, former Atomic Energy Commission chairperson, Dr. Dixie Lee Ray, proposed the concept of nuclear energy as a sort of renewable energy. After all, only a small percentage of uranium is utilized during the nuclear fuel cycle. Re-using the fuel rod, as the French continue to do, would make economic sense and further extend the power generation of this natural resource.
Unfortunately, this was during the Cold War and unseemly worries over terrorism and nuclear energy safety led to moratoriums under the Ford and Carter presidential administrations. That may change as the insatiable global appetite for electricity becomes more ravenous. Would you enjoy being one of the approximately 2 billion persons on this planet that live (every day, not on a camping trip or brief vacation) without a single kilowatt of electricity?
Paul Wilson, associate professor of engineering at the University of Wisconsin (Madison), told one newspaper, "There is a lot of interest in Washington in nuclear fuel reprocessing." The point being made is that nuclear power plants can overcome the one-time use of "spent nuclear rods" and streamline the nuclear fuel cycle. That would reduce the overall storage of the nuclear waste and give a big sigh of relief to nuclear power plants who are waiting for a repository for their spent fuel.
According to the Daily Cardinal newspaper, "Recycling nuclear fuel involves removing unused uranium elements from 'spent' nuclear fuel and recasting rods to be again placed inside a nuclear reactor. Current reprocessing technology can perform this task, but it is inefficient and not cost-effective for the nuclear industry." |
October 28, 2005 |
Market to Tumble? Some pundits are forecasting Black Monday for Halloween. The DJIA chart suggests they may be right.
Marc Faber's "Boom, Doom and Gloom" Report is looking for a crash. Said Faber, "It could be dramatic. Since 2002, all asset prices - stocks, bonds, commodities and real estate - have become inflated, so we might experience at some point a relatively powerful correction." Where is Faber putting his money? "I'm short copper, and while there is never any certainty, my feeling is copper has a 40% downside risk in the next six months," he announced to Dow Jones. Are we going to get blindsided? Faber isn't as certain, but he did say, "Sometimes markets correct without a meaningful trigger; it's just liquidation. Once all the passengers of a ship are on one side, it doesn't take a big wave to tilt the ship."
So what does Faber believe in? "I'd be a buyer of physical uranium (rather than equities)...you can store it in a warehouse," he announced. story |
October 25, 2005 |
It's not yet the uranium bull market that's caught everyone's attention, but the fervor is growing more noticeable. On Monday, it was announced the Namibian Mines and Energy Minister told his country's national assembly that Namibia should develop its eight known uranium deposits into mines.
Over the weekend, China's newest nuclear power plant started operations. Located north of Shanghai, Tianwan could accommodate eight generators, which will eventually have a combined capacity of up to 10 million kilowatts. According to the Xinhua News Agency, it is expected to generate 60 billion to 70 billion kilowatt hours of electricity a year, when it is completed. Nuclear power only accounts for 2.3 per cent of electricity generated in China, though the percentage is about six times that in highly industrialized regions near Shanghai and in southern China, near Hong Kong. China has announced plans to build 31 nuclear power stations by 2020.
Perhaps the latest trend has emerged in Australia with uranium mining. The aboriginal people are now interested in uranium mining. The Northern Land Council, which represents aborigines in Australia's Northern Territory, Monday called for an open debate of uranium-related issues."The scientific community broadly accepts that the release of carbon dioxide and other greenhouse gases is contributing to global warming," said Council Chairman John Daly. "The only responsible course is that Australia carefully consider all options, including uranium mining for overseas nuclear power."
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October 20, 2005 |
As yet another major hurricane heads toward the Gulf Coast, I can't help but notice the coincidence of news headlines around the world clamoring for nuclear energy as an alternative to fossil fuels. More politicians are making the connection between greenhouse gas emissions and the horrifying climate changes of the past two years. In most developed countries, the largest greenhouse gas emissions are generated by the electricity and heat sectors, closely followed by the transport sector. Everyone appears to be chasing China, which vows to spend $50 billion in building 30 nuclear reactors in their country by 2020.
Twenty-five Members of the European Parliament signed a joint declaration Wednesday and announced that nuclear energy should play a central role in the European Union's battle against climate change. Electricity makes the world go around, and developed nations have come to realize that as their populations grow and demand more electricity, they will need alternatives to crude oil as an energy source. (More than one-third of all primary energy consumed by the United States goes into producing and delivering electricity.) By 2020, according to a European Parliament resolution, 60 percent of the European Union's electricity demands are to be supplied by ultra-low or non carbon emitting and CO2 neutral energy technologies. Increasingly, they are including nuclear energy as one of those technologies that generate extremely low greenhouse gas emissions.
Around the same time, Venezuelan Vice President Jose Vicente Rangel declared that Venezuela should develop nuclear energy "since oil was a non-renewable almost used up resource." News reports suggest Venezuela may be trying to acquire a nuclear reactor from Argentina and/or nuclear energy assistance from Brazil. Senor Rangel was adamant that Venezuela would not rule out alternatives to oil as an energy source for his country.
Worldwide, Vietnam and Nigeria are hopping upon the nuclear energy bandwagon. India scored points with the United States by faulting Iran's nuclear activities in a recent vote at the International Atomic Energy Agency. India's reward is backing by the Bush Administration to fast track a landmark civilian nuclear deal with that country.
Even the country in which nuclear energy opponents found a poster boy with the Chernobyl accident, the majority of Russians now believe nuclear energy should be developed (59 percent) compared to a quarter who oppose the idea.
The article below originally appeared in the New York Times earlier this year:
China Promotes Another Boom: Nuclear Power |
October 19, 2005 |
A dramatic increase in North American holiday jewelry sales could drive gold through the $500 level before year end, or in early 2006. That would add to the greater than expected gold jewelry demand in India seen earlier this year. According to the Jewellery Consumer Opinion Council, one-third of consumers surveyed said they would spend more on jewelry or watches this year than in 2004. Four in five were “very likely” to make a purchase, with 63 percent planning to spend between $200 and $2000 on their jewelry purchase.
News about more nuclear reactors and developments within the nuclear energy industry are now describing a world seeking alternatives to fossil fuels. China has been seeking approval to explore for, and mine, uranium in Australia for export to help fuel new reactors it hopes to build over the next decade. Two weeks ago, Rio Tinto announced it formed a centralized marketing unit for its Australian uranium. British newspapers now hint that Prime Minister Blair may be keener on nuclear energy than two years earlier. His chief scientific adviser, Sir David King, may be his prime influence (see Sir King’s most recent lecture excerpt about energy and climate change: http://www.ost.gov.uk/about_ost/summerlunch.pdf). This past weekend’s news reports (The Observer, London) suggest the UK may be privatizing its country’s Atomic Energy Agency. |
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