It’s not
1998 anymore. In that year, Casey Research Chairman Doug Casey first recommended
a then little-known commodity: uranium. The metal was trading in the single
digits, with few except nuclear engineers and ivory tower academics paying
any attention to it.
Fast forward to 2007. Uranium prices
have exploded nearly tenfold to $85/lb, and appear poised to go even higher
as growing global demand for nuclear power taxes an already tight supply
of yellowcake. In 1998 there were less than 10 publicly traded companies
exploring for uranium. Today—by many estimates—there are hundreds.
Yet, while the future for uranium
metal looks bright, the outlook for many of the stocks is less certain.
To be blunt, most of today’s uranium issues are overhyped and overpriced,
exposing investors to the ever-growing risk of a pullback in share prices.
This dichotomy—great commodity, so-so
stocks—presents a significant investment challenge. Simply put, investors
looking to profit from the outpouring of interest in yellowcake today must
be far more creative than previously if they hope to uncover sub-sectors
of the uranium space that haven’t already been overinflated by the hurricane
wind of promotion. A tall order to be sure, but one that we at the Casey
Energy Speculator have been digging deep on for several months.
.
Below, we
discuss three areas where investors can still find value largely unrecognized
by the lumpeninvestoriat—the kind of potential that can lead to double-
and even triple-digit gains once those beyond the leading edge of the bell
curve catch on and start piling in.
#1: Basement-hosted Deposits
Every uranium investor is probably
already aware of the flooding problems at the Cigar Lake mine in northern
Saskatchewan. The mine—which was slated to produce 16% of world mined uranium
supply—was plunged into doubt in October 2006 after water began gushing
into the underground workings.
The problem is that the Cigar Lake
ore is hosted in sandstone—a rock type through which water flows easily,
to the detriment of engineers. But not all deposits in Saskatchewan’s prolific
Athabasca Basin are sandstone-hosted. Some uranium occurs in so-called
“basement” rocks—more competent, drier layers beneath the sandstone. The
problem is that many basement deposits are deep, which increases mining
costs.
But it’s a lesser-known fact that
more accessible basement ores are found outside of the Athabasca Basin
proper. In these outlying areas, the sandstone that once covered the basement
has been eroded, making deposits easier to get at. In fact, one of the
Basin’s largest mines—Key Lake—was found in such a setting.
But while basement deposits are extremely
prospective, they have been largely ignored by investors, who focus more
on those companies working the thick of things in the middle of the Basin.
The basement deposits have been ignored largely because most of the recent
mines have been found underneath the sandstone and so exploration has tended
to focus there. In addition, until recently, scientific understanding of
basement deposits was also poor, but considerable advancements have been
made over the past 20 years, since the last uranium cycle. Therein lies
the opportunity. Many companies with prospective basement deposits have
none of this upside factored into their share price, meaning we can take
a low-cost ride on the potential of such plays.
One of our favorites is JNR Resources’
Way Lake project. The property has yielded phenomenally high-grade samples
(greater than 40% U3O8), and yet many investors have never heard of the
play. That will likely change this summer when JNR (sym: JNN. TSX-V) begins
drilling. Some high-grade intersections are a distinct possibility and
could well bring investors running to this company and others working the
basement, including Hathor Exploration (HAT.TSX-V, Triex Minerals (TXM.TSX-V),
and Forum Uranium (FDC.TSX-V).
#2: Low
Grade Makes a Comeback
For years, low uranium prices meant
that exploration companies searched mainly for high-gradeS ores—the type
of deposits that all but guarantee a profit even during downturns in the
market. But with prices rising, the industry is now realizing that lower-grade
deposits may be important sources of yellowcake. After all, such ores are
very profitable with uranium at multi-year price highs.
In fact, one of the world’s largest
uranium mines—Rossing, Namibia—works a bulk tonnage target at grades less
than 0.1% U3O8. It’s no wonder that a number of companies are now quietly
looking for the next Rossing. Where might such a mega-deposit be found?
Perhaps very close to home. The province of Quebec has long been known
to host so-called pegmatite uranium deposits—similar to the geology of
Rossing.
A few explorers have been catching
our attention with potentially high-impact targets in this region. For
example, Uracan Resources (URC. TSX-V) has assembled a prospective land
package in southern Quebec, with trenching yielding results of 0.2% U3O8
over as much as 40 meters. The company will be drilling aggressively in
2007 to prove up a resource, which shows signs of being sizeable.
And the coming year may see the discovery
of a completely new Rossing-type deposit in northern Quebec. Quebec experts
Azimut Exploration (AZM.TSX-V) along with partner Northwestern Mineral
Ventures (NWT.TSX-V) spotted the potential in the area a few years ago,
confirming their hypothesis through sampling in 2006 at the North Rae project
which yielded assays of up to 0.5% U3O8—ten times the average grade at
the Rossing deposit. And like Rossing, the North Rae mineralized system
appears to extend over several tens of kilometers, giving it potential
for huge ore reserves.
The initial drill program on the
target will be completed during the coming season, possibly representing
a turning point and driving home to investors that Quebec has the potential
to host a world-class deposit. (We’ll be paying very close attention to
the progress of the drill program in the pages of the Casey Energy Speculator).
#3: Go
Where No Company Has Gone Before
The recent uranium boom has led the
new crop of explorers to nearly every country on the planet. Wherever there
are available yellowcake deposits, junior companies have lined up to stake
land, swing scintillometers and Swiss-cheese the ground with drill holes.
The key word being available. While
many nations are open to uranium exploration, there are several localities
where authorities have been less inviting. Two of the most significant
are India and Brazil. Both have known deposits of significant scale—in
fact, Indian drills have cut high-grade uranium up to 10% U3O8.
And yet officials in these countries
have not been granting exploration licenses. At least not yet. In recent
conversations with Indian government officials, we’ve learned that the
country may soon be opening up to exploration, with talks already underway
with several companies already well positioned to lead the charge into
India’s high-grade basins.
Another emerging district we are
keeping an eye on is the African island of Madagascar. Although the nation’s
geology is extremely prospective for uranium, the country was effectively
closed to exploration for much of the past century due to an oppressive
dictatorship. But with the changes in that country’s government over the
last decade, we are starting to see permits being granted. Already a number
of companies have accumulated significant land packages and we expect the
news to start flowing sooner rather than later.
While there is no question that the
easy profits in uranium have been made, the big money is yet to come… you
just need to know where to look. And if you sign up for a trial subscription
to the Casey Energy Speculator right now, Doug will send you a special
report containing the research he’s done on 5 Uranium Winners he thinks
have the potential to deliver big gains.
