Wednesday, June 13, 2007

Western Aussie thoughts on Uranium stocks

Among the companies he follows are Berkeley Resources (which is exploring in Spain and has formed an alliance with France's Areva, the world leader in nuclear power development); Energy Metals, which has a high-grade deposit in the Northern Territory and is a possible takeover target; Nova Energy, 57 per cent owned by Oxiana, which has two Western Australian projects that could be out of blocks as soon as state bans on mining are lifted; and Uranex -- not for its fashionable Tanzanian exploration so much as much for its Thatcher Soak deposit in Western Australia, once explored by BP and now shaping up as the flagship project for the company.

Wilson's tips for investing in uranium stocks are:

* They should be unhedged, so they get full exposure to the soaring spot price once in production.

* They must have exploration upside. In other words, they will have already found something but can value-add by extending the size of that resource with more drilling.

* Preferably, the projects are advanced and the company has started ticking off the milestones on the road to production. A Joint Oil Reserves Committee (which sets Australian standards for resource findings) resource would be a good start.

* They have the potential to be taken over, particularly if the company is at the grassroots end of the spectrum, realising value for shareholders.

Warwick Grigor wears several hats. He sits on the boards of Monaro Mining and Peninsula Minerals and he analyses the companies through his Far East Capital investment business. He says the biggest trap for new players is being impressed by a company announcing it has "radiometric anomalies". Think geiger counter making that squawky noise.

All that means is that there may be some trace of uranium, a mineral that is pervasive and widespread. The radiometric response is not an indicator that there's an economic amount of uranium underneath.

And investors should look for companies that have done some systematic exploration.

"Isolated assays mean zilch," he says.

"Investors have to stop getting excited by these isolated assays."

Grigor argues that 90 per cent of uranium companies are not yet in a position to say they have a mineable proposition. Only when they have a bank of drill intersections are companies in a position to talk with any certainty.

However, Grigor has shifted ground on the economic threshold of projects.

As he says in his latest uranium review, sent out to clients, he had to recant his view of two years ago (when uranium was only $US30/ lb) that a deposit needed to have a minimum average grade of 0.07 per cent.

"Now, with the rise in price, even grades as low as 0.04 per cent could be profitable," he says.

Grigor ranks 23 companies as either being in production or being well on the way to that state. Some of those are -- in his view -- already fully priced.

These include Summit Resources, Toro Energy, Marathon Resources (which is starting a scoping study on its Mt Gee deposit), Arafura Resources and Berkeley Resources.

The ones he would buy now are: his own Monaro Mining, which he argues has undervalued prospects in Kyrgyzstan; Uranium King, which has projects in Nevada and New Mexico (and the Americans support uranium mining); and Contact Resources, with its project in Peru.

Grant Craighead, an analyst with Stock Resource, says one point investors should keep in mind is whether a company has geologists who know uranium well.

There are not too many of those around, and they are getting on in years, given that we went for more than 20 years without exploration for the mineral.

"There is a limited pool of talent -- to be an expert on uranium, you'd have to be at least 55," he says.

Craighead has put his own money into Energy Metals (as well as recommending it to clients).

That company has a high-grade resource at Bigrlyi in the Northern Territory which, with a new drilling program about to start, is likely to get much bigger. More importantly, though, Craighead smells a takeover in the wind.

Canada's Denison Mines is a shareholder and is keen to get a foothold in Australia. It is about to see another of its takeover bids collapse.

All the signs point to Denison then switching its takeover energies to Energy Metals.



Contact Resources ............ Undervalued Peru deposit

Monaro Mining ................... Undervalued Kyrgrzstan project

Uranium King ..................... US projects

Impact Minerals ................. Inexpensive but good project

Peninsula Mining ............... New project in Wyoming

Paradigm Gold ................... Cheap buy in Queensland

Erongo Energy ................... Namibia shaping up

Xstate Resources ............... US exposure

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