Investing in Uranium
Dave Forest - Thu 02 Nov, 2006
...Investors that havent already done so should be taking this chance to position themselves in quality uranium issues...
- The uranium industry is reeling. On October 23, Cameco,
the world’s largest yellowcake producer, announced that
its Cigar Lake mine had sprung a leak. Early attempts to
seal the affected area failed, and the underground
workings are now completely flooded.
- This is a pivotal development. Cigar Lake is the world’s
largest undeveloped uranium deposit, holding 232 million
pounds U3O8 at a grade of 19%. Production from the mine
was supposed to begin in early 2008; at peak, it was
thought that the mine would have provided 17% of world
uranium supply.
- In short, this is one of the few projects that could
make a significant difference for the uranium market...or,
it was.
- Cigar Lake’s future is now in doubt. Although Cameco’s
management put on a brave face – saying the company is
"committed to develop plans to remediate the project" – we
spoke with several uranium professionals in Saskatchewan
who told us they now believe the mine may well be lost
completely.
- At the very least, the flood will push back start-up for
a minimum of one year, assuring that supply will be even
tighter than anticipated over the next several years.
- Considering that the market had little breathing room,
even anticipating Cigar Lake’s fresh supplies, the
situation verges on crisis. A further significant jump in
the spot price over the coming weeks is a possibility.
- At the risk of hyperbole, the loss of Cigar could kick
off a spectacular run for uranium stocks. Although share
prices for uranium exploration companies have had stellar
gains over the last three years (greater than 1,000% in a
number of cases) a $5 or $10 jump in the uranium spot
price over the coming months could touch off buying of
even greater proportions.
- A frenzy reminiscent of tech stocks in the late 1990s is
brewing.
- Investors that haven’t already done so should be taking
this chance to position themselves in quality uranium
issues. While a uranium furor will lift all boats (at
least at first), the truly spectacular gains will come
from those companies that have the management expertise
and prospective projects needed to produce a discovery
during the bull run.
- With the price of uranium now over $60 – and millions of
new investors clambering to get a piece of the action –
any company that comes up with a discovery stands to make
huge returns for investors, nearly overnight. And if
recent events at Cigar Lake kick the market into
overdrive, gains could be of the once-in-a-lifetime
variety.
- Buying junior mining stocks is always a risky
proposition, especially when you’re trying to buy them in
a sector that is as hot as uranium is right now. But
there’s also huge potential. Resource investors cannot
afford to guess.
- You’ve got to do your research. You’ve go to take the
time to understand the difference between a mining company
that is little more than a paper shuffle and one that has
excellent properties with scale and grade in the right
geological setting.
- As the importance of the crisis at Cigar Lake becomes
apparent, uranium stocks could continue soaring...
Regards,
Dave Forest
for The Daily Reckoning
