Tag: investing

Investors Chasing Uranium Mining Stocks, Again: A Favorite Emerges

Fifty years ago, uranium fever hit Wall Street. It was then just a few years after a Navajo shepherd in New Mexico, by the name of Paddy Martinez, discovered ìyellow rocksî on his property, mistaking them at first for gold. An avalanche of 1950s dollars (more valuable than the ones we have today) poured into mutual funds and uranium mining stocks, sending their values to astronomical levels. Get ready for dÈj‡ vu all over again, as Yogi Berra once said. Trend spotter, James Dines, editor of The Dines Letter, believes uranium mining stocks could become just as hot, or hotter, than the Internet stocks of the 1990s. (Editorís note: StockInterview.com interviewed James Dines on July 20, 2004, when he forecast a ìbuying panic in uranium.î Since then, spot uranium (U3 08) prices have nearly doubled. Over the past 35 years, Dines has successfully predicted mega trends in gold, internet, palladium and uranium price movements). And now investors are chasing uranium mining stocks again.

A look at industry leader, Cameco (NYSE: CCJ), which money manager Robert Mitchell called the ìSaudi Arabia of uranium,î shows a three-year gain of more than 700 percent. Over the past few years, Australian-traded Paladin Resources, skyrocketed from under a dime to over $2/share (A$). A recent Forbes magazine cover story, entitled Going Nuclear, analyzed uraniumís recent price surge, ìOne reason the price of uranium should keep escalating is that producers are only starting to ramp up to meet the strong demand. Utilities globally need 180 million pounds of uranium annually, but at this point a mere 108 million pounds are coming out of the ground.î

Why the sudden jump? A Morgan Stanley institutional report, published in December 2004, explained that through the 1990s, uranium oxide prices stayed low because surplus uranium came into the market from weapons decommissioning. That surplus inventory worked its way through the market. The Morgan Stanley analyst forecast a ìdeep supply-side shortageî of uranium, citing that new mining production hasnít yet come online to remedy the deficit. In the year-ago forecast, the uranium deficit was expected to grow to nearly 20 million pounds this year (from a surplus of 6 million pounds in 2003), and then leap to a peak deficit of more than 35 million pounds in 2006. Deficits in excess of 30 million pounds were also anticipated for 2007 and 2008. According to the Morgan Stanley analyst, $50/pound may be possible in the spot price for uranium oxide, known in the trade as ìyellowcake.î

Mining Newsletters Favor Strathmore Minerals

Whatís that mean for uranium stocks? Higher prices should be anticipated as more investors, mutual funds and hedge funds search out the best returns. While the lionís share of investment dollars is likely to chase Camecoís price higher, the robust percentage gains in that stock may have already peaked. Generally, new money searches for well-capitalized junior mining stocks with solid uranium projects in their portfolio. One of those most frequently recommended among mining newsletter writers is Strathmore Minerals Corp, trading on the Toronto Venture Exchange (ticker symbol STM.V). Prominent among Strathmoreís projects are in-situ leach mining operations proposed for Wyoming and New Mexico, plus an aggressive exploration program in the worldís richest uranium areas, Saskatchewanís Athabasca Basin (home to uranium mining giant, Cameco).

In September, letter writer Lawrence Roulston of Resource Opportunities recommended Canadian-based Strathmore Minerals (TSX-V: STM), writing, ìThe company is systematically adding value to the projects most likely to be significant in the near term, especially those with near-term production potential.î Also in September, Resource World contributing editor, Alf Stewart, wrote, ìThe two deposits Strathmore is developing were ëcherry pickedí from the inventory of Kerr McGee, largest private explorer of uranium prior to that industry grinding to a halt in the early 1980s. As these properties are largely drilled off, Strathmore may be considered more of a uranium development company than an explorer.î This past June, money manager Adrian Day recommended uranium stocks in his research report, writing, ìSo I am focusing on four main areas in uranium, with one or two buys in eachÖ top exploration companies that have the goods and are likely to bring properties into production. Strathmore Minerals, with technically strong management, lots of properties, and a strong balance sheet, is arguably the best.î

New Uranium Discovery in the Athabasca Basin?

Hereís one of the stronger reasons why investors might anticipate a strong rally in Strathmoreís share price over the coming twelve months: In a November 16th news release (http://biz.yahoo.com/bw/051116/20051116005591.html?.v=1), Strathmore Minerals announced a discrete conductor, more than 30 miles long, after completing an airborne geophysical survey on the companyís Davy Lake property, in the north central portion of the Athabasca Basin. According to the companyís news release, ìThe conductor’s profile response indicates a deep and in places, broad source.î

Virtually all the significant unconformity uranium deposits known in the Athabasca Basin are directly associated with fault structures associated with graphitic conductors. Deposits such as Key Lake, Cigar Lake and McArthur River were found by drilling electromagnetic conductors located within magnetic lows.

In an interview with Jody Dahrouge, of Edmonton-based Dahrouge Geological Consulting Ltd, he told StockInterview.com, ìEarly indications are that this conductor is similar with other known uranium deposits, graphitic conductors with magnetic lows.î On a scale of one to ten, Dahrouge rated the Davy Lake conductor a ten. ìIt is a long conductor, cut by structures, with deep depth and associated by a late fault,î explained Dahrouge. ìIt is a high quality conductor that continues to depth, and it is typical of those occurring that are associated with known uranium deposits.î Dahrouge described how the MegaTem II airborne geophysical survey was able to pinpoint the conductor as shallow as 600 meters and running deep to 1200 meters. Dahrouge made comparisons to other uranium deposits in the Athabasca Basin. ìThe Sue Deposit near McLean Lake is associated with an electromagnetic conductor that is approximately 2.6 kilometers long,î he said. ìBased on our work at Waterbury Lake, we identified an 8 kilometers long conductor associated with the Midwest Deposit(s). The ‘P2’ conductor at McArthur River is approximately 13 kilometers long. This feature was first identified in 1984, by a ground Deep EM Survey. The Shea Creek deposits, located south of Cluff Lake, are associated with an approximately 25 kilometers long conductor, known as the Saskatoon Lake Conductor.î Dahrouge added, ìThese deposits are located at depths similar to what we expect at Davy Lake.î

What is probably most significant is Strathmoreís gamble, by exploring away from the eastern parts of the Athabasca Basin, some 300 kilometers from the eastern Athabasca Basin, where the major discoveries have been made. ìIt was virtually unexplored,î Dahrouge said with excitement in his voice. ìItís really virgin ground.î While there is ample evidence suggesting multiple uranium deposits in the Athabasca Basin, other junior exploration companies are looking at the shallow parts of the eastern basin, which may not likely yield economic uranium ore. One pundit acidly questioned some of the current exploration activity in the Athabasca region, ìAre they really re-flying old ground thatís already been flown a hundred times, or are they just releasing old data to save money?î Dahrouge pointed out that the uranium appears to be running deeper for many of the newer discoveries, as he believes the Davy Lake property might hold true for Strathmore Minerals in the north central part of the Athabasca Basin.

Important features in many Athabascan uranium deposits are the cross-cutting fault zones. Dahrouge confirmed the Davy Lake conductor has cross-cutting fault zones with a sinistral (left-sided) fault about halfway along its length. According to Dahrouge, there is also a ìconductor extension which crosses the fault from west to east and ëflowsí out into a small, sub-circular magnetic low.î As with many of the Athabascan uranium deposits, which tend to be found between overlying sedimentary units and underlying basement rocks, the Davy Lake conductor fits the bill. Strathmore Mineralís president, David Miller, told StockInterview.com, ìthe 50-plus kilometer geophysical anomaly appears to indicate a basement conductor.î However, Mr. Miller tempered the exhilaration in the air, ìA geophysical anomaly does not make an ore body. These exciting initial results will be followed up with infill geophysical lines, followed by ground geophysics, followed by shallow drilling, looking for alteration. When we have narrowed the target to drill, we will pull in the big rigs and test the conductor at the unconformity.î Dahrouge remains excited about the Davy Lake conductor, and said, ìClearly this represents an excellent exploration target for unconformity type uranium deposits.

What does all that mean? It could explain why Strathmore Minerals might well be on the road to a world-class uranium discovery as further exploration more clearly defines how valuable those newly discovered conductors might become. Meanwhile, Strathmoreís New Mexico and Wyoming properties (amounting to potentially several million pounds of uranium resource) are in the preparatory phase of the permitting process. As the spot uranium price inches forward to the widely accepted short-term target above $40/pound, several of Strathmore Mineralís properties may become instantly more valuable to a utility company who will someday need the companyís uranium oxide to fuel their nuclear reactor.

 

Mining

Are There Any Great, New Mining Stocks Left?

Where are the hot and cold spots around the world for resource investors? The stampeding bull market in commodities has investors reaching for new ideas. Highly respected newsletter writer Lawrence Roulston of “Resource Opportunities” favors Canada, Alaska and China for investing in mining and energy companies.

StockInterview: Let’s get the cold spots out of the way so investors are forewarned about which countries to avoid.

Lawrence Roulston:
A lot of the (mining) companies that went overseas in decades back are recognizing the political difficulties with dealing in some jurisdictions. These include places like Indonesia, Columbia, and several of the African countries, such as Congo, Sudan and Eritrea. All of those places where there are great geological prospects, but are more and more risky to deal in. I think some of that mining is coming back closer to home, which is right here in Canada.

StockInterview: So Canada is on your “favorite countries” list?

Lawrence Roulston:
At the very top of the list would be Canada. As of right now, taking into account the geological potential, political situation, infrastructure and all the other issues, I would (highly) rate Canada and British Columbia. They have had decades of work. But for the last decade, there hasn’t been very much going on. The companies are just coming back and picking up with what’s been going on. Similarly, Ontario, Quebec – tremendous geological potential – and it’s been kind of ignored for a long time. Canada is now the most important place in the world for diamonds, representing 50 percent on exploration spending for diamonds.

StockInterview: Is there a specific mineral or metal that makes Canada especially appealing?

Lawrence Roulston:
It’s the whole gambit. Canada has always been one of the top metal producers, and it’s coming back to life. Of course, gold is at the top of the list, but also base metals and uranium. The Athabasca Basin in northern Saskatchewan is far and away the most important area to be looking at, geologically. It’s currently the biggest source of uranium and contains the highest grade deposit. There are other uranium prospective areas in Canada that are just emerging. The Thelon Basin in the Northwest Territories, north of the Athabasca Basin, is very similar, geologically, to the Athabasca Basin. It had some work done in the 1970s, and it’s been pretty much ignored until very recently. Going a little further north to Hornby Basin, it is a similar kind of situation. In Labrador, the central mineral belt is just emerging as a very important place to be looking for uranium.

StockInterview: Do you have any favorite companies, which you are following and which have good prospects?

Lawrence Roulston:
NovaGold Resources (TSX: NG; Amex: NG), for example, with the Galore Creek. It’s a billion ton deposit with enormous metal content. (Editor’s Note: Galore Creek has been called one of the largest and highest grade undeveloped porphyry-related gold-silver-copper deposits in North America.)

StockInterview: What is another of your favorite areas, which has gone largely undetected during this bull market?

Lawrence Roulston:
Nevada would be at the top of the list of anywhere in the world to be working and Alaska right behind it. There is huge potential in Alaska. Mining companies have only scratched the surface of exploration up there. Two of the largest metal deposits in the world are in Alaska. These are both discoveries going back decades, but work over the last couple of years has brought them to the point where they’re now recognized as among the largest metal deposits in the world: Donlin Creek, a 25-plus million ounce gold deposit, and the Pebble deposit, held by Northern Dynasty (TSX: NDM). The Pebble deposit is significantly larger than, and of comparable grade to, Ivanhoe’s (NYSE: IVN) Oyu Tolgoi (copper-gold) deposit in Mongolia. (Editor’s Note: The Donlin Creek project is a joint venture between NovaGold and Barrick Gold.)

StockInterview: Anywhere else in the world where you can find a great, but still “new” resource investment opportunity, in light of how hard the commodities bull has been stampeding the past few years?

Lawrence Roulston:
Often the better value to be had, or the better opportunity, is in being a little bit out of step with the crowd. One of the areas offering some outstanding opportunities is China.
China has done a tremendous amount of geological work, over the last few decades, but all from the perspective of finding, and then quickly developing, small deposits. There has been very little effort devoted to taking a bigger picture type look at China. The companies that have been able to take a kind of bigger picture look at China have begun to develop what I think are going to be some pretty spectacular results over time.

StockInterview: Isn’t it tough, though, doing business in China?

Lawrence Roulston:
There is still a perception out there that China is a difficult place to do business. Most people from the west walk into China cold and try to do a deal. It would be impossible for them. But, for western companies that are able to team up with groups that are well established within China – so that they’re able to find their way through the system over there – then there are outstanding opportunities. There are mountains of geological information – all in Chinese, of course. You’ve got to be able to work within that system and get the information, know how to put the deals together.

StockInterview: What do you mean by “knowing how to put the deals together?”

Lawrence Roulston:
If I was to go over to China and try to do a deal to get access to a coalbed methane property, I wouldn’t have a clue about how to begin. On the other hand, I could walk into the Petroleum Club in Calgary, and meet a half dozen guys and talk to them. I could build on my leads, and probably in a day be talking about a deal. When you go into China, unless you have somebody on your team that can get into the system and deal with the people, because of language issues, cultural issues and just having access to the information and knowing what sort of terms that they might be looking for… It’s a different culture from every perspective, and not the least of which is a different way of doing business.

StockInterview: In your April issue, you recommended one company, which overcame those hurdles, meets your criteria and already has a coalbed methane deal in China.

Lawrence Roulston:
Pacific Asia China Energy (TSX: PCE) established connections in China. They can draw on their contacts and their network. They can get into see the right people, where they can actually talk seriously about doing deals, and have an enormous leg up over somebody that walked in cold and tried to establish and build contacts and put a deal together. I think it is an absolutely outstanding opportunity that they’ve seized on.

StockInterview: There are many coalbed methane opportunities in Alberta. Why look to China?

Lawrence Roulston:
One of the things that makes China interesting is the entry cost to get into a coalbed methane (CBM) play in China is fairly modest. For example, to go to Alberta, or anywhere in the United States, and get access to the exploration rights, or exploitation rights, is enormously expensive. In China, they walked in and, for a fairly modest up-front commitment, obtained a control position in a CBM prospect.

StockInterview: How does Pacific Asia China Energy’s coalbed methane property in Guizhou, China rate against other coalbed methane plays?

Lawrence Roulston:
I think it’s an outstanding opportunity. Chinese government agencies have done an enormous amount of work at delineating the coal. To be able to step into that amount of data as a starting point to build up their CBM resource? The bottom line is that they’re not out there looking for coal. They know exactly where the material is, and they’re able to quickly start defining the issues like recoverability. They’re drilling in order to establish the basic physical parameters of the flow rates and the content within the coal. I think the companies which are able to effectively exploit the CBM technology in China are going to be the pioneers in that area.

StockInterview: To Americans, any business in China might appear to be “pioneering,” since most of still think of China as a third world country.

Lawrence Roulston:
I’ve been to China many times and I’ve been to parts of China where most people, as tourists, would never get anywhere near, because I go there to look at mineral exploration projects and mining projects. I’ve been to every corner of the country as well as the major cities. What I see happening everywhere I go is a pace of development that I’ve never seen anywhere else in my life, anywhere in the world. That is, 1.3 billion people are going from a basically rural farm-based economy to a modern industrial economy at a pace that has just never before been conceived.

StockInterview: How do you quantify that?

Lawrence Roulston:
This is a number that most people won’t get, and you won’t get until you’ve been over there and have seen it. There are 300 million people in China that are already well into the middle class. By middle class, I am comparing (the Chinese middle class) to the same absolute standards as we would apply in Canada or the United States in terms of dollars in your bank account, value of your house and your car, and everything else. There are 300 million people that have already achieved that status, which is more than the people at that status in North America. There are another 1 billion people who are busting their butts to get to that level.

StockInterview: But isn’t the rest of the world’s rural population just as industrious and ambitious?

Lawrence Roulston:
I’ve been in Africa, the Middle East, Asia and Latin America. If you go into any of those areas and you walk into the small towns, a lot of people are sitting around drinking coffee, crying the blues and complaining about how terrible life is. Go into a similar area in China, and the people are out working in the fields. In the middle of winter, they’re fixing up their fences, the dams and terraces, and clearing rocks, removing trees and stuff like that. It’s a high level of industry I’ve never seen in any other part of the world. So it goes from that ground level right up to the entrepreneurs, and the guys who are building the high rise condominium complexes in Shanghai.

StockInterview: How long will it take before American investors realize the impact China has on the global economy?

Lawrence Roulston:
It’s going to happen in a gradual way. I think those that keep their heads buried in the sand are going to get left behind as the world pulls ahead. I would suggest any investor in any company ask the question of the company: “Is that company involved in some way in China?” There are a lot of North American companies that have a very significant presence in China in terms of doing business over there, of getting established, of selling products or manufacturing products in China.

StockInterview: Why is China so important with regards to this commodities bull market, and are there still opportunities for investors?

Lawrence Roulston:
There is a lot of geological potential, and there is the perception that it’s difficult. Therefore, there isn’t yet a big crowd of people over there chasing after deals. The flip side of it is that China and its neighbors in southeast Asia, representing 3 billion people, are going through the modern industrialization process. That is going to continue to create a massive demand for metals for, I believe, a decade or probably even a couple of decades into the future.

StockInterview: And most likely, the U.S. investor is going to be left behind or the last one into the pond?

Lawrence Roulston:
The bottom line is that Americans tend to be more inward focused. The other evening I was having dinner with an oil man from Texas who had spent a lot of time in China. He had seen China first hand and was very bullish. I asked him, “How many of your countrymen do you think really get it about China?” And he responded, “Oh, about five.” Then he said, “Congress doesn’t get it, investors don’t get it and the man in the street doesn’t get it.” Americans just don’t understand what’s happening over there yet.