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Wednesday
Jun102009

Uranium One Incorporated Dynastic Complications

UUU Chart 11 jun 09.JPG

Chart courtesy of Stockcharts


Uranium One Incorporated (UUU) is trying to come out from under a cloud that reads like a script for a day time TV soap opera with allegations of behind the scenes corruption and a dynastic approach to leadership.

The arrest of the former head of the nuclear state company who is being charged for selling vast amounts of the states assets for a nominal sum and pocketing the proceeds has led to various investigations being instigated. The question is did Uranium One buy some of these properties illegally or not, which brings us to the debate on Stars and Dogs featured on the business television programme BNN today.

Angela Wiebeck, executive director - Head of KeyClient Group, UBS was asked to judge the situation as to whether she would be a bull or a bear on UUU. Now we are in Kazakhstan where the 24 year old grandson of the President is head of one of the countries biggest banks and his three daughters are in charge of the media, energy and construction sectors.

Well the political situation was just too much for Angela Wiebeck who came out as bearish on this one.

Just click here to catch the nine minute clip.

Also take into account that this country has been under Russian rule for three generations and now has to adjust to a western style of capitalism.

UUU has started to recover as we can see from the above chart but the political uncertainty remains so expect a few more gyrations in the stock price before this one settles down.

We did mention when this story broke that it could be worth a punt on 27th May 2009 when we wrote “If all is well this could be a wonderful buying opportunity for those who are quick and have all the facts before them” if you took such a punt please write and let us why you thought UUU was a reasonable investment at the time and if you have an exit strategy just how you intend to play this one.


Have a good one.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.














Tuesday
Jun092009

Alberta Tar Sands and Nuclear Power

Syncrude 2.JPG


This is an interesting conundrum, how does Alberta meet the demands for more oil without resorting to nuclear power to generate the energy required to match the expansion programmes of the Tar Sands projects in and around Fort McMurray. It also begs the question of why not move directly to nuclear power as a form of energy and minimize the the dependence on oil.

According to the Alberta Energy and Utilities Board, Alberta's oil sand deposits contain approximately 1.7 trillion barrels of bitumen, of which over 175 billion are recoverable with current technology, and 315 billion barrels are utimately recoverable with technological advances. The Athasbasca Oil Sands Deposit is, by itself, the largest petroleum resource in the world.


Anyway we found this article in the Herald Tribune today that we hope that you may find interesting and informative.

Herald Tribune 10 jun 09.JPG

The issues surrounding oil production from the tar sands and nuclear power plants being proposed in Alberta are integrally woven together, says journalist Andrew Nikiforuk.

The Calgary-based business journalist was in Grande Prairie Thursday to give a presentation at the Golden Age Centre based on his latest book, Tar Sands: Dirty Oil and the Future of the Continent.

Sponsored by the National Farmers Union, it followed similar presentations in Dawson Creek, sponsored by the Peace River Organic Producers Association, and in Peace River, which was sponsored by the Peace River Environmental Society.

The issues surrounding the tar sands and the nuclear power proposals weave together, said to Nikiforuk, as he believes one is motivating the other.

Nikiforuk opened by stating the tar sands have changed Alberta forever.
“We’re a very different place than we were 10 years ago. You can’t have 700,000 people pour into the province, and come here not to make a living but to make a killing, and not have that change the nature of things,” said Nikiforuk.

He said the province started at 600,000 barrels of oil in the mid-1990s, is at 1.3 million barrels now, and there’s talk of about jumping to 3.5 million, if not higher (5 or 6.5 million barrels), in the future.

He said this would bring the province close to Saudi Arabia, where production is nine million barrels a day.

The amount of energy used for this level of production is staggering, and not currently coming from sustainable sources.

“Every day, we use enough gas to heat 6,000,000 homes, and to replace that natural gas consumption would take 20 nuclear reactors, according to the Canadian Parliament and their report ... in 2007,” said Nikiforuk.

“Of course, there’s another solution – slow down and don’t produce as much. That doesn’t seem to be on the table, but that should be part of the national discussion,” he later added.
Nikiforuk cited multiple reports that seem to suggest fossil fuel production could well be headed toward nuclear in Alberta.

One of those, from a 2007 presentation in Japan, suggested a requirement of a 30% increase in energy to match the major ongoing expansion of the tar sands, stating nuclear reactors are proven large-scale thermal energy producers.

But Nikiforuk pointed out, based on material from contrary reports, the shift to nuclear to power operations in the tar sands is problematic.

He questions Alberta’s ability to deal with nuclear waste.

He also questions the costs associated with maintenance, and other, peripheral items such as security at nuclear power plant locations.

He also brought up Chernobyl.
“The legacy of that is still ongoing ... you have an accident – something goes wrong – and you’re living with the consequences for a long, long time. It is not an oil spill – it is something totally different,” said Nikiforuk.

But the main question Nikiforuk raised at the end of his nearly two-hour presentation is the very one he wants those who come out to listen to him speak to start asking was where are the reports on renewable power, economic risk and the alternatives of solar power, wind power, biomass or whatever else?

He said thus far, we have only seen the reports on nuclear power.
“We’re going to become the world’s first country to use nuclear power not to get off fossil fuels ... but we want to use nuclear power to accelerate bitumen production. I would argue that there is a huge reputational risk to doing that,” said Nikiforuk.

“The first country that uses nuclear power to accelerate fossil fuel production won’t be welcome in the global community for long.”

Some of those in attendance have been trying to generate awareness of their own, and see Nikiforuk’s visit as a much-needed additional voice.
“He’s got credentials,” said Tyler Cruickshank, a member of the local activism group, Stop Poisoning Our Communities.

“The people see SPOC as just a bunch of kids who are just kind of trying to rebel.
“The way I see it, he’s the bridge between the business people and the people who are environmentalists ... we’re always fighting at each other ... and he’s just like ‘this is the brass tax – these are the facts.’ ”

Cruickshank said his attendance was as much about getting educated as anything else.
“He might be able to help us understand something, so that we can make others understand it a little bit better ...” said Cruickshank.

“I eventually want to be up there speaking to people, because I’m passionate about what I believe in. If you don’t fight for it, nobody else will.”

Spot uranium chart 10 June 09.JPG


Its a long time since I have lived and worked in that part of the world so if any of our readership who are closer to the situation than we are, please feel free to add your two cents worth and bring us up to date.














Have a good one.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

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Syncrude.JPG
Thursday
Jun042009

Fronteer Development Group Incorporated Up 100% in 6 Weeks

FRG Chart 05 jun 09.JPG


Chart courtesy of Stockcharts

Fronteer Development Group Incorporated (FRG) has doubled since the 20th April 2009 having absorbed Aurora Energy Resources Incorporated recently making it a two pronged play of both gold and uranium. Aurora has a 100% owned uranium portfolio in the Central Mineral Belt (CMB), is underpinned by the Michelin uranium deposit which contains a Measured and Indicated Mineral Resource of 67,434,000 pounds U3O8 and an additional Inferred Mineral Resource of 35,465,000 pounds U3O8 (read more…)
Thursday
Jun042009

Special Income Report: Yields Of Over 40% Anyone?


How does a 41.99% yield sound?


With central banks slashing interest rates and blue chip companies chopping dividends, generating a decent income in this market environment can be a difficult task.

However, despite what the mainstream investment media may be saying, it is still possible to earn an attractive, sustainable income with your capital – and the yield will probably top what one could expect even when interest rates were at their highs and blue chip stocks were enjoying great earnings at the peak of the bull market.

To find out more, simply click here to read the full article.
Thursday
May282009

Uranium-Stocks: Portfolio Update 28 May 2009

Uranium Spot Price 28 May 09.JPG

Chart courtesy of TradeTech.

The uranium spot price stands at $50/lb with the long-term price of uranium trading at $70/lb as reported by TradeTech.

We are pleased to report that many of the uranium stocks have moved to higher ground since our last update a few months ago bringing some relief to our battered portfolio.



From time to time we do intend to make the occasional acquisition as and when the opportunities present themselves and have a number of exciting prospects on the watch list such as Extract Resources on the ASX.

Here follows our portfolio update as of 28 May 2009:

Denison Mines Corporation – Buy
Bought on 6th January 2009 for $1.66, a uranium stock that we had watched for some time but for various reasons we had never managed to purchase it. We are happy to own some of this stock and believe it to be a good quality acquisition, DNN closed at $1.82 yesterday

Crosshair Exploration and Mining Corporation – Buy
We never expected to see Crosshair trade as low as it is today so we acquired some on 6th January 2009 at a cost of $0.25, again we are pleased to own this uranium stock despite the price falling back over the last few months. CXX closed at $0.27 yesterday.

Cameco Corporation – Watch
This uranium heavyweight closed yesterday at $25.68 having been around $15.61 at the last time of the last update. This rapid rise tempted us into buying PUT options in anticipation of a correction. We bought the June 09 $25.00 PUTs for $1.40 per contract (CCJRE) on Cameco Corporation (CCJ) and they closed yesterday at $0.90. If Cameco keeps going up we will have to sell these contracts at a loss, but for now we will hold.

RPT Uranium Corporation – Hold.
We bought RPT on the 19th February 2007 for $0.42 and sold it for $0.62 on the 13th June 2007 for a profit of 47.6% in 4 months. We then bought it back at around 50 cents, however RPT closed yesterday at $0.145 up slightly from last time.

Uranium Participation Limited – Hold
Another improving stock since our last portfolio update, now trading at $7.90 as compared with $6.35 at the last update . We bought at $11.97 on 21 November 2006 so still in the red with this trade with a long climb ahead.

Strateco Resources Incorporated – Hold
We made a small investment in RSC at $2.30 but it crashed to $0.48 a few months ago, has started to recover slightly to close at $0.96 yesterday. So its still fingers crossed for this one.

Laramide Resources Limited – Buy
We bought LAM at $5.78 on the 28 July 2006 so again we are still in the red with this one, it was trading at 97 cents recently however has started to recover and closed yesterday at $1.87 having experienced some extreme volatility . When we were sitting on a paper profit of around 80% we sold half of our position in order to buy other uranium stocks, as we needed a bigger spread of stocks at the time.

Mega Uranium Limited
– Buy
We bought MEGA at around $4.0 on 27 July 2006. MGA was trading at $0.72 recently and closed yesterday $1.76, again a very volatile uranium stock.

Khan Resources Ltd
- Hold
We bought Khan on the 5th March at $3.63 and it has since dropped to lower levels due to licensing issues with the Mongolian regulators. So, in anticipation of Khans management team finding a resolution to this problem we decided to buy again. (See Khan Resources: A speculative buy) the stock rallied and we took a profit of 15% in a matter of days before the stock fell back again. Khan is still having a torrid time and was trading at $0.165 recently but it closed yesterday at $0.425.

Aurora Energy Resources
Has now been devoured by FRG which is both a gold and uranium play and we have included it in the gold portfolio.

Strathmore Mineral Corporation - Hold
We bought STM on the 14th April 2007 at $4.96 and it traded as low as $0.24, however, it closed yesterday at $0.58 still a very disappointing performance indeed and extremely volatile.

Ur-Energy
- Hold
We bought Ur-Energy on the 23rd April 2007 at $4.75 and we also bought again on the 24th August 2007 when we acquired more stock at $3.03, it closed yesterday at $1.60, having traded for sub 40 cents recently.

Other than sit tight through these torrid times, there is little we can do right now. This situation is improving as we can see by the increase in most of the stock prices, so we will just have to hold on until the argument for nuclear power begins to take center stage again and gives the uranium price a boost. We do believe that the worst is behind us now, so now is the time to be looking to acquire a few more of your favorite uranium stocks as this tiny sector begins a slow course of recovery.

Have a good one.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

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For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

Uran chart from u308.JPG
Wednesday
May272009

Uranium One Incorporated Drops 40%!

UUU chart 28 May 09.JPG

Chart courtesy of StockCharts.


The stock price of Uranium One Incorporated (UUU) fell out of bed today with a massive 40 million shares traded as the stock dropped almost 40%.

Scanning the air waves we have picked up the following article carried by oilweek.





TORONTO _ Uranium One Inc. (TSX:UUU) remained halted Wednesday afternoon, following a 30 per cent in its stock value with more than 10 million shares traded within minutes. The company said later it´s aware of media reports that its interest in the Kyzylkum joint venture may be one of the matters at the Kazatomprom, a state-owned uranium mining company, under investigation by Kazakh authorities.



BNN had this to say:

The former Soviet republic, which is home to a fifth of global uranium reserves, has accused a former head of state-owned uranium producer Kazatomprom, Mukhtar Dzhakishev, of illegally selling deposits to foreign companies.

Kazakhstan has indicated that one deal in question was the sale of a 30-percent stake in the owner of the country's largest uranium mine, Khorasan, although it did not specify the buyer. It said the stake was sold for 15.6 million tenge ($104,000 US).



Listening to the interview with Jean Nortier, President and CEO of Uranium One the situation appears to be one of confusion between the authorities and Kazatomprom, a state-owned uranium mining company. It could take a few days to unravel this matter before trading can re-commence, so we will keep a watchful eye as the situation unfolds. If all is well this could be a wonderful buying opportunity for those who are quick and have all the facts before them.

Click here to it on BNN.









Have a good one.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.


Monday
May252009

Extract Resources Limited Fails to Open

EXT Logo 26 May 09.JPG

Extract Resources Limited (ASX & TSX: EXT) failed to open for trading today on the Australian Stock Exchange. Apparently it is in dispute with its major shareholder Kalahari Minerals. (AIM: KAH).

Digging a little deeper we have this article carried by Proactiveinvestors.co.uk

Extract Resources (ASX & TSX: EXT) requested a trading halt in its shares on the ASX today, citing a "dispute with its major shareholder", AIM listed Kalahari Minerals (AIM: KAH). Extract said it was seeking advice on the matter and expects to advise the market before Wednesday 27th May 2009.

Extract Resources principal asset is its 100% owned Husab Uranium Project in Namibia which contains two known uranium deposit areas: Rossing South; and Ida Dome. In January Extract announced an initial resource estimate, following JORC Code and Canadian NI43-101 guidelines, for Zone 1 of the Rossing South project in Namibia, of 108 million pounds U308 at a grade of 430 ppm.

Kalahari Minerals recently raised approximately £17.89 million before expenses to maintain or possibly increase its 38.68% stake in Extract Resources.

There are several other significant stakeholders in both Extract Resources and Kalahari Minerals. Rio Tinto (LSE:RIO) holds a 15.8% stake in Kalahari Minerals and a 15.6% stake in Extract. Niger Uranium (AIM:URU) holds a 15.5% stake in Kalahari Minerals, while Emerging Metals (AIM:EML) has a 9.84% interest. Stephen Dattles, Co-Chairman of Emerging Metals is also Chairman of Polo Resources (AIM: PRL), which holds a 5.7% stake in Extract Resources.



Kalahari Minerals trades on the AIM section of the London Stock Exchange under the symbol of KAH.

Hopefully our Aussie readers will be closer to the action than we are and will enlighten us further on this matter. Until then we can only watch for a news release to bring us up to speed. That said, this legal battle needs to be resolved quickly and amicably as soon as possible to limit the damage to investor confidence.

Have a good one.



For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.


Sunday
May242009

Cameco Corporation Options Update 15 May 09

ccj options update chart 25 May 09.JPG




Chart courtesy of StockCharts.com

Just a quick note to update you on the progress of June 09 $25.00 PUTs that we purchased for $1.40 per contract (CCJRE) on Cameco Corporation (CCJ) recently.

Our assessment was that Cameco had ran ahead of itself as the above chart shows and that a pull back is now imminent. The trade started well when it closed up 40% the following day, however, Cameco's stock price has since recovered resulting in the value of the PUTs dropping back to close at $0.95 on Friday. These options expire on 20th June 2009 so we don't have a lot of time for the trade to work in our favour.

We are still looking for Cameco's stock price to ease and head lower towards the $20.00 level, the MACD and the STO are heading south and the RSI remains high.

We will watch the action after the holiday in the US and if Cameco continues to improve than we will sell these contracts at a loss and go back to the sidelines. If the stock price does start to decline then the value of the PUTs should appreciate fairly quickly, so we may need to move fast.

Options are extremely volatile so please limit the amount of cash that you place into this sort of trade as you could lose it all if it goes wrong.
Sleep tight.

For those readers who are new to this site and are interested in the nuclear power sector that is currently coming back to life, you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.
Friday
May222009

Simon Tonkin: Uranium Supply-Demand to Remain Tight

Simon Tonkin, of Thomas Weisel Partners discusses Uranium Supply-Demand in this exclusive interview with The Energy Report who have kindly allowed us to carry it in full.
Simon Tonkin 22 May 09.JPG
Source: The Energy Report 05/21/2009
http://www.theenergyreport.com/pub/na_u/894

A worldwide dearth of uranium mines and highly skilled metallurgical teams to mine it has investors seeing yellow (cake, that is). "The thing with uranium is it's easy to dig up but hard to get out," says Simon Tonkin, who covers base metals, including uranium, at Thomas Weisel Partners. In this exclusive interview with The Energy Report, Simon discusses emerging challenges in the uranium sector and the deficits he foresees in the global race for supply.

The Energy Report: Simon, why have the uranium stocks made such a nice move in the last week or two when oil's been coming down? I thought part of what was driving the uranium stocks in the previous cycle was the ever-spiraling upward price of oil, making more and more people want to look to alternatives (one being uranium). Could you comment on that?

Simon Tonkin: First of all, I think the supply-demand picture looks tight. We're forecasting deficits to about 2013 and, potentially, if Cigar Lake—the biggest undeveloped uranium deposit in the world—doesn't come online, then we could see deficits further out than that. Secondly, there's a scarcity of uranium mines throughout the world. Most of them are owned by big companies like BHP Billiton Ltd. (NYSE:BHP) (ASX:BHP) (PK SHEETS:BHPLF), Kazatomprom, Cameco Corp. (TSX:CCO), and Rio Tinto (NYSE:RTP).

Most recently what we have seen in the uranium space is the power utilities coming in to buy stakes in uranium producers to potentially guarantee supply. We've seen the Japanese and Koreans come and buy stakes in uranium mines, and last week the Chinese said they are interested in buying stakes in mines and, a while back, the Indians also indicated that they were looking at that. So it's these emerging economies with big reactor plants that are buying up stakes in uranium mines and projects. That's actually sparked the market to realize supply is potentially scarce.

The thing with uranium is it's easy to dig up, but it's hard to get it out. It's the processing that's the key to getting the actual uranium out. Each deposit is fairly unique in terms of its processing, and getting a good metallurgical team together to actually recover the uranium is most important.

TER: I would assume there'd be a shortage of those types of people with this pullback. Are there people available?

ST: There is a shortage of people with good metallurgical skills, but, obviously, once a really good guy irons out some of the issues, then he may be needed somewhere else and Mega Uranium has one of those guys.

TER: Is Mega Uranium Ltd. (TSX:MGA) on your coverage list?

ST: Yes, it's on my coverage list. Mega has the Lake Maitland Project in Western Australia (WA). Western Australia had an election in September 2008, and the Liberal party won. They were pro-uranium, so they got rid of the anti-uranium government and Lake Maitland represents, potentially, one of the first new uranium mines in WA. The government is very supportive of uranium mining, and they're working towards getting uranium mines permitted to start bringing some royalties and revenues into the state.

TER: I thought Australia had a three-mine policy. Remind me how that policy works.

ST: Originally in 1983, the Labor party government restricted the number of mines in Australia to three and, basically, it stayed like that for over 20 years until the Labor party had a convention in 2007. At that point they overturned this policy, so it opened up the potential to develop uranium mines in Australia. The opposition leader at the time and now Australia’s Prime Minister, Kevin Rudd, basically said it's up to the states to decide on whether they mine uranium or not, and then the Western Australia election reversed the ban there.

Queensland still has a ban on uranium mining and everywhere else is pro-uranium. So Martin Ferguson, the Federal Resources Minister, came out about a month ago and said that Queensland will change its mind eventually. So the current Labor government is supportive of uranium mining. It's actually the State Premier, Anna Bligh, who has voiced her opposition to uranium mining because she believes it will create only 150 jobs, long term. That was according to the Deloitte study. However, there are potentially thousands of jobs created during the construction period. She was referring more to the longer-term period.

TER: Are mines just coming into production this year, or is there a delay while they get their permits and start up? I'm thinking about Mega, which you were referring to earlier.

ST: Mega is a while off yet—it will be 2012. They're still working on the definitive feasibility study. But the two closest mines to production are Alliance's Four Mile Project, which is permitted, and Honeymoon, which is owed by Uranium One. So they're the two closest ones and they're both in South Australia, where Olympic Dam is currently the last copper-uranium mine and provides most of BHP's uranium production. I've done a full report on the companies we think are going to be in production next in Australia.

I'd like to talk a bit more about Mega before moving on to other companies. It could potentially be the first new uranium mine in Western Australia. We recently visited the site and were impressed by the potential for lower operating and capital costs. One of the most positive things about Mega is that the Japanese are looking to take a 35% stake in the Lake Maitland project and that's for $49 million U.S. The capital costs of the project are around $85.1mn; so, effectively, with that $49 and the cash position of Mega, they could virtually afford to develop this project. This is the key focus for them and they're spending around $20 million on the project this year to bring it up to do the definitive feasibility study, which is due in Q1 of 2010.

The other thing that could come into play is consolidation in the region because there's a number of other uranium hopefuls in the region. BHP's Yeelirrie is in there. The largest undeveloped uranium deposit in Western Australia. I think there are some opportunities around for Mega, especially if they're the first mover in the region. They may be able to process other deposits around the area. Longer term, they've got a couple of projects in Queensland if the government decides to change their anti-uranium stance. We think they will in the next 12 to 24 months; we're saying more longer term.

TER: What about some other names in the Australian uranium space that you like?

ST: In the Australian uranium space, we have Toro Energy Ltd. (ASX:TOE) (not covered), which is fairly close to Mega Uranium—about 60 kilometers away. We have Energy Metals (not covered), which has the Bigrlyi Project in the Northern Territory. Uranium Equities Ltd. (ASX:UEQ) (not covered), out of South Australia, is quite interesting. They have developed a process to get uranium out of phosphates for fertilizers and they're working closely with a large U.S. firm; that has potential. They want to start off around 5 million pounds per annum of uranium, and then move up towards 20 million pounds. Twenty million pounds represents around 15% of global production, so it could be significant. But, again, it's further down the track.

Basically, there are three uranium mines in Australia. The first one is Ranger, which is owned by ERA, and it's in production. Ranger produces around 13.1 million pounds per annum and is 68%-owned by Rio Tinto.

Then we have the Beverly Mine, a U.S. company, which is an ISL (in situ leaching) operation. It is owned by Quasar and General Dynamics. Beverly's almost mined out, and that's where the Four Mile Project, owned by Alliance and Quasar, comes into play. Basically, Beverly's nearly done, so they need to go onto the next deposit, which is right next door. Four Mile is permitted and they're working to go into production by either the end of the year or early next year.

Olympic Dam, the largest copper-uranium deposit in the world, is owned by BHP. It has very unique iron ore copper, gold and uranium and produces around 4,000 tons per quarter.

So those three mines are the producers in Australia. Moving on to the next-nearest producers that I mentioned before are the Four Mile Project owned by Alliance and Quasar, which is near Beverly, and the Honeymoon Project owned by Uranium One. Both of these are slated for early 2010.

After those we move on to companies like Mega and several Western Australia companies that are the uranium hopefuls, looking to be the next producers. Western Australia certainly has a large resource base.

The largest project there is Yeelirrie. Yeelirrie is a calcrete deposit. It's located a little ways from Mega. Also, we have Toro Energy about 60 kilometers to the north of Mega and they also have a calcrete deposit there. These calcretes are very close to surface and fairly easy to mine. As I said before, the processing is the key to get this stuff out, the metallurgical properties; and each deposit is potentially different, so they have to adjust the processing facility to handle the different types of ore.

TER: Could you go over your stocks that you have over-weighted ratings on, ones you'd like to point out to our readers?

ST: Yes. I've got a number of overweight stocks. One of the companies I have been following since last August, when I initiated coverage of the uranium space, is Extract Resources Ltd. (TSX:EXT) (ASX:EXT) based in Western Australia. They're in the Rossing South deposit in Namibia. The Rossing South deposit is located roughly 7 kilometers south of the Rossing mine, which is Rio Tinto's mine in Namibia. That mine produces around 9 million pounds per annum, and Extract made a very exciting discovery in early 2008—drilling 108 million pounds of uranium in the first zone. The grades are 430 parts per million. This makes it the highest-grade uranium deposit in Namibia. Rio Tinto took some interest in the deposit; they actually own around a 20% stake in the combined Extract because Kalahari owns 39% of Extract and Rio owns a bit of both. There's good potential there for 100 million pounds and that will take this resource over 200 million pounds, which potentially makes it the biggest uranium discovery in the world in the last 20 years.

TER: Another name you want to bring up?

ST: We've recently increased our price targets in the last week on Paladin Energy Ltd. (TSX:PDN) (ASX:PDN). They've got some good projects and they're doing all the right things. John Borshoff's got over 30 years of experience in uranium and has Langer Heinrich in Namibia, and they're just starting out Kayelekera in Malawi. The diversification of the projects is a positive thing. They're looking at producing 3.7 million pounds from Langer Heinrich Stage II and then 3.3 million pounds from Kayelekera, but they're only earning 85% of Kayelekera because of the government. So Paladin's got a good jurisdiction in Namibia, they've got a quality management team, and they have quality assets in Queensland as well. .

I also like Uranium One (TSX:UUU). They are in Kazakhstan, which is a little more risky, but the positive for them is that they have the in-situ leach deposits. Akdala and South Inkai are both in production now and they are low cost. They're between $16 and $22 a pound compared to Paladin, which is more like $25 to $30 a pound. So you can see there are big advantages there. The other thing that's been a real positive for Uranium One is that the Japanese have come in to take 20% (subject to finalization) of the company, and they have a large cash balance of around $400 million. With that money, they are also looking around to potentially acquire further production assets. The other thing that Uranium One has going for it is that the Honeymoon Project should be in production in 2010. That should provide a million pounds per annum.

TER: What about Bannerman Resources Ltd. (TSX:BAN) (ASX:BMN)?

ST: Yes. Bannerman's really interesting in that it's right next door to Extract. The positive thing about Bannerman is it doesn't have a cornerstone shareholder per se. No one has their finger on it, but Clive Jones and Nathan McMahon do own a fair whack of Bannerman, and they also own 20% of the project that Bannerman doesn't own. Bannerman's got around 126 million pounds of uranium in the Etango deposit. The grade on their resource is around 200 parts per million below that of Extract but, if they increase the cutoff then we get grade at around 275 parts per million; but the resource comes down to around 54 million pounds. So I think there's potential there for a starter pit and the new CEO, Len Jubber, is quite a good operator. He's got a plan to get this thing developed and his first big milestone will be the pre-feasibility study in the middle of the year. Then we should see a definitive feasibility study by the end of the year. Early 2010 we'll see the results from that.

TER: Back to your original comments about supply and demand and how supply is getting tighter and tighter and demand is increasing—what about a play with Uranium Participation Corp. (TSX:U)? Isn't that a straight play on uranium?

ST: Yes, Uranium Participation Corp. owns around 5.4 million pounds of uranium equivalent. So, all these uranium mining companies have the technical risks that go along with having a mine. They've had their fair share of issues they've had to deal and risks for investors. The beauty of Uranium Participation Corp. is that it has none of those risks and you're basically investing in a share in 5.4 million pounds of uranium. Uranium Participation Corp. should run with the spot price, which it has increased. I think it's $6 to around $7.50. With the spot price moving, it could be a safer investment for an operational uranium company. I have a 12-month target price of $10.

TER: I see two more companies that I'm familiar with that are not in the energy space on your list. One is Quadra Mining Ltd. (TSX:QUA) and the other is GlobeStar Mining Corp. (TSX:GMI). Any words of wisdom there?

ST: GlobeStar is in the Dominican Republic. They've got the Cerro de Maimón deposit and they're producing around 30 million pounds of copper this year. This is a good little project; it's quite high grade. The company is doing a bit of drilling around the mine with potential to find sort of parallel ore bodies. I haven't seen the stock price today, but at 70 cents the stock has got a fairly good return there; and they seemed to hit their targets in Q1. We're still waiting on the financials to come out, but certainly their production targets were met. There were some issues with the oxide circuit, but that was made up by higher grades in the sulphide circuit. I think GlobeStar is a good little play.

Quadra's a more solid, larger company. It's got a market cap of between $500 and $600 million. They've got an aggressive acquisition strategy. They just picked up Centenario, which owns the Franke deposit down in Chile—a good fit for them. This year they're going to produce 150 million pounds, but with Franke it'll be more like 220. These guys want to get 500 million pounds of copper by acquisition. They have the team to build mines, and they are searching to add pounds.

TER: Thank you, Simon, this has been great.

Simon Tonkin covers base metals including uranium at Thomas Weisel Partners. He came to Thomas Weisel Partners in January 2008 as part of the Westwind Partners acquisition, after joining the firm in 2007. Simon is based in Toronto. Previously, he was a Resources Analyst at Hartleys Ltd., Australia, from 2003 through 2007. He was a Resources Associate at Hartleys from 1999 through 2002. Simon received a Graduate Diploma of Applied Finance and Investment from the Financial Services Institute of Australasia, Perth, and a B. Ed. Degree (first class honors) from Edith Cowan University, Perth.

Thomas Weisel Partners LLC or an affiliate has managed or co-managed a public offering of securities over the past 12 months for the following company or companies: Bannerman Resources Limited; CIC Energy Corp.; GlobeStar Mining Corporation.

Thomas Weisel Partners LLC or an affiliate has received compensation for investment banking services from the following company or companies mentioned in this report over the past 12 months: Bannerman Resources Limited; CIC Energy Corp.; GlobeStar Mining Corporation.

Thomas Weisel Partners LLC or an affiliate expects to receive or intends to seek compensation for investment banking services from the following company or companies mentioned in this report over the next three months: Bannerman Resources Limited; CIC Energy Corp.; Extract Resources Limited; GlobeStar Mining Corporation; Quadra Mining Limited.

Thomas Weisel Partners LLC or an affiliate has provided or is currently providing investment banking services to the following company or companies mentioned in this report during the past 12 months: Bannerman Resources Limited; CIC Energy Corp.; GlobeStar Mining Corporation.

The analyst has viewed the material operations of the following company or companies mentioned in this report during a recent site visit. The following company or companies mentioned in this report paid for a portion of the trip: CIC Energy Corp.

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Saturday
May162009

Where is the Price of Oil Going?

crude storage 16 May 09.JPG

This mornings mail bag contains this article penned by Marin Katusa, Senior Editor, Casey Energy Opportunities which we hope that you enjoy.

What a difference a year makes.

While March lions and April showers were at work in 2008, so were these factors in the U.S. and global economies:

The Dow Jones Industrial Average remained steady above 12,000.

The leading indicator of existing home sales was down over 21% from the previous year, and the official unemployment rate was just beginning its upward creep by crossing the 5% mark.

The first official admissions of the “R” word. In early April 2008, the International Monetary Fund (IMF) declared a 25% chance of a global recession, and Federal Reserve Chairman Ben Bernanke told Congress that gross domestic product “could even contract slightly.”

The novelty of bailouts began. Bernanke also assured Congress that the Fed's emergency authorization of a loan against $29 billion of Bear Stearns assets wasn't putting taxpayer money at risk: “I feel reasonably confident that we'll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that.”

The dollar's six-year slide against the euro, hitting its lowest ever at $1.60 in late April. It also fell below the 7-yuan mark in China for the first time.

And oil, comfortably above $100/barrel, was heading for its summer crest of $147.

A scant 12 months later, the Dow is trying to stagger back from a plunge to 6,500. Home sales are hinting a possible turnaround, unemployment (even the official, conservative figures) is expected to reach double digits before long, “recession” and “bailout” are household words (often accompanied by four-letter ones), the dollar is recovering... and a barrel of oil is worth half that hundred dollars. Hardly worth pulling out of the ground.

What happened? And even more important for us as investors, what's going to happen?

The Casey Energy Opportunities team pulled together the pieces of the oil sector picture that other sources tend to scatter or ignore. We’ll give you a broader understanding of the drivers within the oil industry, the markets in which they operate, and how you can use that knowledge to push your profits upward.

The Oil Industry Now: A Rock, a Hard Place, and a Supply Glut That Isn't

Everyone who drives a car or heats a home with petroleum has welcomed the fall in oil prices from their high in the summer of 2008.


While it's hard to argue that filling your tank at $2 per gallon is a lot easier on the wallet than $4 or $5 per gallon, the broader economic effects of such low oil prices are troubling.

Leading the concerns is the drop in oil exploration and drilling that accompany a drop in price. Below the $50/barrel mark – and for many companies the bar is closer to $65 even for conventional fields – oil producers typically spend more money getting oil out of the ground than they can recoup by selling it. At the same time, turbulent financial markets have tightened credit. These two factors have pressured producers to allocate exploration budgets away from drilling projects and toward meeting debt obligations and day-to-day operating costs instead.

The plunge in prices has consumed the cash buffers of even the major oil companies. ConocoPhillips, for example, announced in January that along with eliminating 1,300 jobs and writing down $34 billion in assets, it was also planning to cut its 2009 investment budget by 18%. Exploration projects are part of both writedowns and spending cuts. The results of curtailed exploration are two-fold. First, some oil companies will be simply unable to survive the economic crisis. Second, supply in the longer term is being sacrificed to stay afloat now.

Storage facilities are bulging. The chart below shows the contents of the Cushing, OK, storage facility — where NYMEX deliveries take place — have recently doubled from their average 2008 volume. Along with a host of other facilities around the world, it got this way because of an unusually dramatic contango at the beginning of 2009. (A contango is a kind of market inversion, when the current [spot] price dips lower than the future price.)


In January, the spot price of oil plummeted as low as $37/barrel, while futures for July delivery were trading for $52. That meant if an oil company could buy and store product for seven months, it could lay out $37/barrel and be guaranteed a profit of $15 – or 40%, minus costs – in July. And indeed the buying frenzy took off, reinforcing the decision to turn off the drills.

So for the moment, we are artificially flush with oil, and demand has dropped as the global economy will likely shrink for the first time since World War II. It’s no surprise that oil prices have been staying down.

Many analysts say we won't feel the effects of declining exploration for a few years. But the numbers are emerging already. According to the U.S. Energy Information Administration (EIA), non-OPEC countries demonstrated an average annual growth in supply of 570,000 barrels/day from 2000 through 2007. In contrast, they recorded a drop last year of some 300,000 barrels/day.

At the same time, OPEC appears to be conforming to its production cuts of 4.2 million barrels/day, begun in September 2008. The oil cartel is known to announce cuts that its members don't actually follow; it's in their economic best interest, if only in the short term, to sell all they can. But this time, oil has plunged far below levels to sustain their economies. Even Saudi Arabia expects to run a budget deficit this year.

OPEC, which produces about 40% of the world's oil, would like to see prices around $75/barrel, at least. But the fragile global economy would have a difficult time absorbing such a price at the moment, and the cartel decided against further production cuts when it met in March. In fact, some three weeks later, Saudi Arabia actually announced a price cut on all its grades of crude to European, North American, and Mediterranean markets – a dramatic attempt to spur demand amidst high inventories.

So, entwined as it is with the economy, the oil industry is currently in a conundrum. The fix it requires – higher prices for its product – will choke the framework in which it operates.

At the same time, we've got supply problems ahead.


How Did We Get Here Anyway?

Like many aspects of the markets, movements in price are driven partly by real factors and partly by perception. Rags-to-riches-to-rags-to-riches Texas oilwoman Sue Sanders summed it up when she noted wryly in her 1940 autobiography that “nothing succeeds like reports of success.”

Last year's run-up of oil was no exception: part real, part report. Some of the real factors:

The weak U.S. dollar. The United States is not the only country that buys oil in U.S. dollars. The price per barrel is pegged to it, in fact. When the dollar is weak, the cost of U.S. exports drops; and indeed by December 2008, the U.S. trade deficit had fallen to its lowest in nearly six years ($39.9 billion, according to U.S. Commerce Department data). However, a weak dollar means it takes more dollars to buy a barrel of oil. Global concerns over the strength of the U.S. economy, including America's ever-rising level of debt, had undermined the dollar to the point that OPEC members began to murmur about dumping it for the euro or a basket of currencies.

Geopolitical turbulence in oil-producing countries. The Iraq war, oil-related militancy in Nigeria, and Iran-Israel-U.S. posturing over nuclear issues were hotspots in the first half of 2008. The average nightly news covered casualties in Iraq, but industry watchers tracked attacks on pipelines and oil facilities. Likewise, in Nigeria, sabotage and oil worker kidnappings by militant groups such as the Movement for the Emancipation of the Niger Delta (MEND) regularly shut down facilities to repair, negotiate, or improve security. And as spring warmed up, so did the war of words between Iran and Israel. By early July, Iran had gone so far to indicate it would move against shipping in the Persian Gulf if attacked. The United States would have moved next, of course... thus driving up the price of oil in the jittery oil markets, which depend on Persian Gulf shipping lanes.

Unusually low crude and gasoline supplies entering the 2008 summer driving season. In early April, the EIA reported significant drops in supply – gasoline declined by 4.53 million barrels and crude oil by 3.2 million barrels, a one-two blow that surprised and worried industry watchers. Behind the gasoline slump were lower refinery margins, called crack spreads. In mid-March, when refineries would normally be coming off their maintenance schedules to churn out gasoline for summer driving, the margin for turning a barrel of crude into gasoline was negative for the first time in three years. Refineries sought profits in other oil products, and the markets responded to the expected imbalance in supply and demand.

High demand. China is a stand-out here, and for more than its usual energy appetite. China has a penchant for aiming to break records – from its goals in five-year plans and building projects to its haul of Olympic medals – and in the first half of 2008, it was visited by some dramatic examples: a great earthquake and major snowstorms, events that disrupted the country’s energy industry. Combine that with the fact that China was also preparing for the Beijing Olympics in August, and it’s easy to understand why it was buying oil very heavily until mid-summer.

On the perception side of price drivers, it's hard to overlook the fact that the market push stayed strong in the face of increasingly gloomy economic data. Casey Research was earlier than most in predicting the economic crash (we published reports such as “The Coming Currency Crisis” in June 2006), but by spring 2008, even officialdom was dancing around the word recession.

Normally, news of burgeoning foreclosures, plummeting home sales, spiking personal and business bankruptcies, rising unemployment, and other economic indicators would tend to exert a bearish influence. After all, consumers generate 70% of U.S. economic activity, and if they stop or cut back on driving to work or the shopping mall, telephone relatives or business partners instead of flying out to see them, reduce purchases of items containing plastics, turn down the thermostat, and other weather-the-storm measures, oil consumption should decline.

It took months for all these drivers to realign – but as we all know, they did, and then some. The chicken-and-egg debate, whether oil's sky shot triggered or portended the economic debacle in the closing months of 2008, will require more distance and data to resolve. But it's true that the dollar had started its comeback by mid-summer, supply had caught up, geopolitics had settled a bit, China backed off on its buying, no major hurricanes hit – but economic realities did.

Meanwhile, Congress jumped up and down and cried “Speculators!” “OPEC!” “Oil producers!” in tidy sound bites.


The Next Big Plays: Where You Need to Be

Oil companies are influenced by the range of market drivers and economic conditions according to size. The junior oil producers, those with market capitalizations of $250 million or less, have the small-business advantage of flexibility when times are good. These times aren't good, of course, and even well-managed juniors with good projects are in trouble. Their vulnerability is in the credit market. You’ve likely heard of credit lines being revoked and refinancings denied to people with impeccable credit. Now imagine pitching a drill project without a wallet full of assets ready to lay on the table.

Mid-tier producers, with market caps between $250 million to $2 billion, will look to mergers and acquisitions to survive. The majors ($2-20 billion market cap) and Big Oil (over $20 billion) will also be shopping. With low oil prices shutting down exploration, development, and even production, these companies will be looking to replace their reserves instead by purchasing smaller, solid companies with proven production. It's simply cheaper.

We see two ways to profit from this trend.

First, we buy shares in undervalued, producing companies that are profitable even below $40/barrel, are best of peer, and own large reserves. These are the companies that Big Oil will be looking to acquire. One such company, an oil sands producer, is currently a part of the Casey Energy Opportunities portfolio.

Second, we believe that owning a potential consolidator is the best position. As debt load and low commodity prices overtake them, junior producers will be forced to consolidate their projects. We currently own one such candidate, and are scouting for others with such muscle. Consolidators will be purchasing projects from the bank at 25 to 30 cents on the dollar.

Our tactics have already paid off handsomely in the last six months: all our recent recommendations have been on fire. A few tripled their value, and one generated a return of 540%.

As we’ve seen, supply problems are looming, no matter what timetable of Peak Oil you may believe in. With increased demand inevitably come higher prices. Our approach at Casey Energy Opportunities positions us to take advantage of the trend in both the short and longer term. And we guide our subscribers not only when to buy or sell, but also when to take profits and a “Casey Free Ride” to eliminate risk.

We’d like to offer you the opportunity to kick the tires of Casey Energy Opportunities RISK-FREE for 90 days, with 100% money-back guarantee. Click here to give it a try.


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