Western Nuclear renaissance hits trouble in Areva costs overuns

The prospect from uranium prices are massive, but you need a line of credit to build new reactors...in the west that will be a problem going forward...

The cracks are showing in the latest atomic showpiece, writes James Kanter.

AS THE world fights climate change by seeking cleaner sources of energy, governments would do well to consider this cautionary tale of a new-generation nuclear reactor site.

The massive power plant under construction on the Finnish island of Olkiluoto was supposed to be the showpiece of a nuclear renaissance. The most powerful reactor built to date, its modular design was supposed to make it faster and cheaper to build. And it was supposed to be safer, too.

But after four years of construction and thousands of defects and deficiencies, the reactor's €3 billion price tag ($A5.2 billion) has climbed at least 50 per cent. And while it was meant to be finished this northern summer, Areva, the French company building it, is no longer willing to say when it will go online.

While the US nuclear industry has predicted clear sailing after its first plants are built, and the debate about nuclear power is returning to the agenda in Australia, the problems in Europe suggest big obstacles ahead.

A new fleet of reactors would be standardised down to the carpeting and wallpaper and that standardisation would lead to big savings, the theory goes. But early experience suggests these reactors will be no easier or cheaper to build than those of a generation ago, when cost overruns — and then accidents at Three Mile Island and Chernobyl — ended the previous nuclear construction boom.

In Flamanville, France, a clone of the Finnish reactor is also behind schedule and over budget. In America, the European experience is causing concern.

"A number of US companies have looked with trepidation on the situation in Finland," said Paul Joskow, a professor of economics at the Massachusetts Institute of Technology. "The roll-out of new nuclear reactors will be a good deal slower than a lot of people were assuming."

For nuclear power to have a high impact on reducing greenhouse gases, an average of 12 reactors would have to be built worldwide each year until 2030, according to the Nuclear Energy Agency at the Organisation for Economic Co-operation and Development. Right now, there are not even enough reactors under construction to replace those reaching the end of their lives.

And of the 45 reactors being built, 22 have encountered construction delays, according to an analysis prepared this year for the German Government by Mycle Schneider, an energy analyst and a critic of the nuclear industry. He added that nine did not have official start-up dates.

Most of the new construction is in China and Russia, where strong central governments have made nuclear energy a national priority. India wants new nuclear technologies to reduce its reliance on imported uranium.

The US generates about one-fifth of its electricity from 104 reactors, most built in the 1960s and 1970s.

France gets about 80 per cent of its power from 58 reactors, but has not completed a new reactor since 1999.

After designing an updated plant with German participation in the 1990s, the French had trouble selling it at home because of a saturated market and opposition from Green Party members in the government.

So Areva, the largely state-owned energy company, turned to Finland, where utilities and energy-hungry industries such as pulp and paper had been lobbying for 15 years for more nuclear power. The project was initially budgeted at $A4.9 billion and Teollisuuden Voima, the Finnish utility, pledged it would be ready in time to help Finland meet its greenhouse gas targets under the Kyoto treaty.

Areva promised electricity could be generated more cheaply than from natural gas plants. Areva also said its model would deliver 1600 megawatts, or about 10 per cent of Finland's power.

In 2001, the parliament narrowly approved a reactor at Olkiluoto, an island on the Baltic Sea. Construction began four years later. Serious problems arose over the vast concrete base slab for the foundation of the reactor building, which the country's Radiation and Nuclear Safety Authority found too porous and prone to corrosion. Since then, the authority has blamed Areva for allowing inexperienced subcontractors to drill holes in the wrong places on a vast steel container that seals the reactor. In December, the authority warned Areva that "the lack of professional knowledge of some persons" at Areva was holding up work on safety systems.

Areva has acknowledged that the cost of a new reactor today would be as much as €6 billion, double the price offered to the Finns. Areva announced a steep drop in earnings last year, which it blamed mostly on mounting losses from the project.

In addition, nuclear safety inspectors in France have found cracks in the concrete base and steel reinforcements in the wrong places at the site in Flamanville. They also warned the utility building the reactor that welders working on the steel container were not properly qualified.

On top of such problems come the recession, weaker energy demand, tight credit and uncertainty over future policies, said Caren Byrd, an executive director at the global utility and power group at Morgan Stanley in New York.

"The warning lights now are flashing more brightly than just a year ago about the cost of new nuclear," she said.

NEW YORK TIMES

Time to buy Uranium stocks ~ Even UNX has signs of life

China's need for uranium could be worth billions to Australia following an announcement it will start building five extra power plants this year.

This comes on top of 24 already under construction and 11 that are in operation.

Australia offers the most obvious solution to a shortage of uranium to fulfil its nuclear power ambitions, according to a Chinese analyst.

``There are not enough uranium resources in China to support the aggressive nuclear power development plan for the next 20 to 30 years,'' Professor Liu Deshun, of China's Institute of Nuclear and Energy Technology told Fairfax Media.

``Australia has the uranium resources that could be exported and in China we have the demand.''

The fast-tracking of China's nuclear power plans stems from mounting concerns about climate change, energy security and the more immediate task of kick-starting the economy.

Minister for Resources Martin Ferguson told Fairfax he welcomed China's move to fast-track nuclear power.

``It is this government's policy to encourage the further development of the Australian uranium industry,'' he said.

The move could prove a windfall for WA, following the Liberal government's ending of a ban on uranium mining in the state shortly after their win in the September state election.

1000 new reactor builds by 2050

Deutsche Bank Uranium Sector: Using IEA's 2050 IEA calls for 1000 new reactor builds by 2050 - Thanks to a subscriber for this enlightening report by Paul Young, Joel Crane and Brendan Fitzpatrick which focuses on Australian uranium companies. The full report is posted in the Subscriber's Area but here is a section:

Energy mix targets we estimate that uranium demand could increase by 215% under the ACT Scenario, and by 290% under the BLUE scenario, to 243kt and 300kt of U3O8 per annum respectively (see Figures 3 and 4). Even if either scenario is achieved, which is heavily reliant on international legislation and government willingness to adopt and embrace change, we believe that world is on the verge of a uranium renaissance. In our opinion, the financial markets continue to underestimate the potential for a rapid increase in uranium demand going forward. Saying that, we do acknowledge that the increase in demand may be slow, and we forecast just a 2% demand increase between 2008 and 2010, but a 17% increase between 2010 and 2015.

In our opinion, the biggest impediment to achieving the IEA's ACT and BLUE targets is not global legislation change but the potential inability of uranium supply to respond to a likely spike in demand from 2015 onwards. To put it into context, the world's largest uranium development project is the well documented expansion of the Olympic Dam mine, located in South Australia, with a total uranium resource (measured, indicated, inferred) of ~2,240kt of uranium. We believe that the proposed expansion of Olympic Dam involving a large open cut mine and expanded processing facilities could deliver an additional 15ktpa of uranium from 2016 onwards. However, the world would need to find and develop an additional ten Olympic Dam sized mines by 2050 to supply sufficient uranium to the world's nuclear reactors under the ACT scenario and an additional 15 Olympic Dam sized mines under the BLUE scenario. Severe under investment in the uranium sector has resulted in few if any significant new uranium discoveries since 1980. Therefore we believe that supply could struggle to respond to the potential increase in uranium demand between 2010 and 2050.

We note that uranium is significantly underperforming other energy commodities in 2008 (shown in Figure 6). In our opinion, the current spot price of US$59/lb may not be high enough to encourage new uranium supply, from both greenfields and brownfields projects, particularly from projects in high cost construction countries such as Canada, Australia and the US.

Over the past week Ux Consulting has reported that two utilities are seeking uranium in the spot market (one for 100,000 pounds and the other for 300,000 pounds), and that they may have found suppliers only willing to offer at or above the $60 level. We believe that continual supply issues and the likelihood of increased demand from utilities should drive the spot price higher in 3Q 2008.

My view - The speculative excesses that fuelled the massive run up in uranium-related companies ended when the commodity price had its first downtick, following a spectacular advance which climaxed in 2007. We have long said that uranium is the best of the long-term energy plays; however it remains in a predictable medium-term correction which has yet to bottom conclusively. A large number of speculative stocks were IPOed on the back of the initial run-up, and those that had much less uranium than they claimed have disappeared during this correction. Stocks with no earnings remain considerably higher risk than those with a steady income, in this, or any other sector.

Since mid-2007 uranium has more than halved and remains in a medium-term downtrend which is losing momentum. An upward dynamic would indicate that at least a short-term floor has been reached; while a sustained move above $95 is needed to break the progression of lower highs and suggest that the bulls are regaining the upper hand.

All of the companies mentioned in this report can be found in the Chart Library. While most uranium related equities are unlikely to outperform other commodity related stocks, before the uranium price shows signs that it is recovering, a number have weathered the current drawdown better than others.

URANEX kinda looks promising..

A couple of weeks ago Deutsche Bank bobbed up with a Buy on Uranex – the same mob that Stokes is punting on.

MD was amused to see the research note titled "Getting in Early".

No latecomer tag for this broker – it is getting in on the ground floor!

Could someone please tell Deutsche that the uranium boom has been running for a couple of years now? And Perth-based Uranex, a spin-off from Goldstream Mining, listed in October 2005.

The company is exploring for uranium at the Bahi prospect in Tanzania and Thatcher Soak in Western Australia.

The latter prospect has the obvious hurdle of being located in WA, where Premier Alan Carpenter is still firmly opposed to uranium.

And it is remote, being further inland from BHP's Yeelirrie project, to the east of Meekatharra.

But it does have at least one thing going for it: a resource estimate.

BP discovered the deposit in 1972 and calculated 6000 tonnes of uranium oxide.

However, different assaying techniques gave a resource as big as 15,000t (15 million tonnes of ore grading 1000 parts per million yellowcake), Deutsche Bank notes.

"In our opinion, one of the most appealing features of the Thatcher Soak deposit is that around 80% of the carnotite deposit is located within 6m of the surface," the broker says.

This provides the opportunity for the company to achieve "very low" mining and development costs, compared with competing deposits, it reckons.

The broker has a 12-month price target of $3.05, compared with the recent share price of $1.63.

Critical to Uranex's fortunes is an 8000m drilling program that started May 8 at Thatcher Soak. It will investigate the quality of the deposit and explore for extensions.

The other determining factor, of course, is the uranium price.

No fears there, according to yet another investment bank – Australia's own Macquarie.

The latter reckons that uranium will peak at $US150 per pound in late 2007, up from a record $125/lb in mid-May.

The window of opportunity could shut relatively quickly, though.

By the end of the decade, Macquarie expects the market to have moved into surplus as new supplies from Kazakhstan, Africa and Canada come onstream.

Still, that gives another six months, at least, of rising uranium (and share) prices for the Johnny-come-lately brigade.

Uranium sea change -- (News Ltd)

STAND by for a uranium sea change -- the end of the big tenement land rush and the start of serious exploration.

This means, according to Far East Capital's Warwick Grigor, that the race is now on among the 150 or so locally listed uranium companies to find a resource while the metal's price is still in its peak phase.

Mr Grigor, who charts hundreds of resource juniors on a daily basis, said that the potential uranium supplies to be brought on to the market by Canadians and others could eventually see the price go back below $US100 a pound. The metal was still holding strong at $US120/lb last week.

But if the land rush phase is just about over, it's ending with a bang as both established explorers and latecomers scramble for projects.

And Africa seems to be the latest favourite.

In recent days, Crossland Uranium Mines has expanded its search to West Africa by joining a Canadian explorer to pick up 5000sqkm in Burkina Faso; Murchison United has begun drilling in Guinea and is raising another $6.6 million; Western Uranium has hired consultants to find it uranium projects in Africa; recent entrants New Age Exploration and Palace Resources have jointly gone hunting uranium in countries ranging from Sierra Leone to Mali; and NGM Resources is acquiring three uranium leases in Niger, a country where Canadians and Chinese companies have also been pouncing on uranium leads.

Also joining the ranks of the uranium players is Marmota Energy, a float being spun out of Monax Mining. Xenolith Gold has plumped for "nearology" and acquired tenements close to advanced projects held by Nova Energy, while oil and gas junior Rawson Resources is going looking for yellowcake opportunities in Texas, Utah, New Mexico and Colorado.

Mr Grigor, in his client note on uranium, said the uranium boom was now fact, no longer fantasy.

"This is a bull market based on hard factual economics, not fantasies and what-ifs," he wrote. "At these uranium prices, there are enormous cash flows that can be made."

And he now likes many of the companies that, two years ago, he dismissed as marginal players. These were the players with low- grade resources but -- with the quadrupling of the uranium price in that time -- had now been placed in an enviable position.

"If the uranium price keeps rising, these companies will shine even more," he added.

Mr Grigor expects the new exploration phase to last about two years, after which investors would be much better educated.

The more serious companies would be moving toward production, but the majority of exploration stocks would probably have withered on the vine.

Far East Capital's rankings have now been expanded to include two more companies in the potential producer category, Alliance Resources and Bannerman Resources.

Alliance has a stake in a 15,000 tonne resource in South Australia while last week a European consortium bought a large stake in Bannerman as that company looked to develop uranium mining in Namibia.

Geoscience Australia -overview of exploration

Australia has more low-cost uranium in deposits than any other country, but finding it is not easy. While the price for uranium has been low, little was found but now exploration is starting to increase.


Australia has the largest share of the world's "reasonably assured resources" of uranium, with approximately 27% of the total resource. This is recoverable for less than US$80/kg.

There are about 85 uranium deposits in Australia, including about 20 that have been mined out or partly mined. However, approximately 94% of Australia's uranium resources that are recoverable at less than US$80/kg are within the following seven large deposits.

* Olympic Dam and Beverley in South Australia;

* Ranger in the Alligator Rivers region of the Northern Territory;

* Jabiluka and Koongarra in the Northern Territory (mining of these deposits requires approval from traditional owners); and

* Kintyre and Yeelirrie in Western Australia (mining of these deposits requires a change in state government policy.

Olympic Dam is the world's largest known uranium deposit, containing about 21% of the world's uranium resources recoverable at less than US$80/kg. Additional resources are being delineated as exploration drilling continues in the south-eastern part of the deposit. The uranium grades at Olympic Dam are very low, averaging 300-400 parts per million, but the deposit also contains copper and gold, which makes the recovery of uranium economical.

During 2005, Australia produced uranium from three uranium mines: Ranger (5906 tonnes U^sub 3^O^sub 8^), Olympic Dam (4335 tonnes U^sub 3^0^sub 8^) and Beverley (977 tonnes U^sub 3^O^sub 8^).

The record total production of 11,218 tonnes represented approximately 23% of world uranium production in 2005, the second largest level behind Canada with 28%. Although there are a number of undeveloped deposits in Western Australia, the Northern Territory, South Australia and Queensland, current state government policies only allow uranium mining in the Northern Territory and South Australia.

Australia has no significant demand for uranium, and all mine production is exported under nuclear safeguard agreements with importing countries.

Uranium Exploration

All exploration for uranium and other minerals in Australia is carried out by private companies. However, the federal and state governments carry out continent-wide geological mapping and airborne radiometric and magnetic surveys. A continental network of gravity measurements is also provided by governments as well as specialised studies of specific mineralised regions.

All of these investigations contribute towards various databases of "pre-competitive information" that are compiled to attract mineral exploration to Australia. In August 2006, the federal government announced the allocation of $134 million to Geoscience Australia over a 5-year period through its new energy security initiative for the acquisition of continentwide geoscientific data to assist companies select favourable areas for exploration of energy sources including petroleum, uranium, thorium and geothermal energy.

The main difference between exploration for uranium and other minerals is the application of geophysical radiometric techniques to detect uranium mineralisation at all stages of exploration and mining including:

* airborne and ground radiometric surveys to detect presence of uranium. Such techniques generally can only detect uranium radiation very close to the surface;

* probes to measure gamma radiation in drill holes and prompt fission neutron probes to estimate uranium grades in drill holes; and

* radiometric ore sorting in mining operations to separate uranium ore from waste rock.

However, in general, exploration for uranium does not differ greatly from techniques used in the search for other types of mineral deposits, and is organised in several stages that often merge and overlap. These techniques involve:

* global scale exploration:

- explorers consider areas that are known to be geologically favourable for uranium mineralisation, the amount of geological information available in the country, as well as the political stability of a particular country, mining regulations and taxation regimes, existing infrastructure (roads, ports etc.) and environmental factors that would affect mining if a deposit was found;

* regional scale exploration (usually hundreds to thousands of square kilometres):

- this begins with a literature search, particularly of any previous exploration results and reconnaissance surveys;

- geologically favourable areas are selected on the basis of broad regional geological criteria and are secured by exploration licence tenements;

- exploration methods at this stage include airborne radiometric and magnetic surveys, regional mapping and geochemical surveys, rock sampling and identification of rock samples' formation conditions.

* semi-regional area selection for more detailed work (tens to hundreds of square kilometres):

- results of regional scale exploration are used to reduce the size of an exploration area to smaller locations for more detailed, and usually more expensive, investigation;

- exploration methods include detailed mapping, geochemical mapping and ground geophysical surveys as well as airborne surveys such as airborne electromagnetic surveys followed by exploration drilling.

* prospect-scale delineation and evaluation of uranium mineralisation detected in the semiregional exploration (usually up to only a few square kilometres per prospect and takes place only if uranium mineralisation has been established). Exploration activities at this stage centre on an assessment of uranium mineralisation and include:

- detailed assessment drilling to establish the size of the deposit, often including digging trenches and limited underground workings to ascertain the formation of the mineralised body and consider mining options;

- studies of uranium ore mineralogy, metallurgical studies, bulk sampling and pilot plant metallurgical test to determine the appropriate method to process the ore;

- feasibility studies to establish the profitability of the mining operation;

- appropriate environmental studies and government approvals for mining the deposit.

* a mine development stage:

- make a decision to mine the deposit based on the results of feasibility and environmental studies and mining conditions specified by government authorities;

- proceed to develop the mine and commence mining activities; and * mine closure:

- rehabilitate the mine site once the mining of the deposit is completed.

Chance Discoveries

Explorers may find a uranium deposit while looking for deposits of other minerals. The best example of this is Olympic Dam, where explorers were using magnetic and gravity anomalies along with satellite imagery to identify an area in South Australia for a certain style of copper deposit that required testing by expensive deep drilling.

As a result, a previously unknown type of deposit of copper, gold and uranium was discovered. Geologists are continuing to investigate the Olympic Dam deposit to develop a better understanding of its signatures, which could then be used to discover other similar deposits.

The likelihood of explorers finding uranium deposits while looking for other mineral deposits depends on:

* the type of exploration techniques being used. A variety of mineral deposits could be detected with geochemical and some geophysical surveys. While some exploration programs will target a particular type of mineral deposit, a lookout will be kept for other closely associated deposits types that can be detected by the same methods;

* the type of area being explored. Some areas are not geologically favourable for any uranium deposits; and

* some deposits are polymetallic, such as Olympic Dam, Jabiluka and Nolan's Bore, which contain a combination of minerals

Uranium Exploration in Australia

There was a resurgence in uranium exploration in Australia in 2005 with expenditure of $41.09 million, a threefold increase on the $13.96 million expenditure the previous year.

The number of companies actively exploring for uranium increased from five at the start of 2004 to more than 34 by late 2005. The proportions of total expenditure on exploration in each jurisdiction were:

* South Australia (42%);

* Northern Territory (37%);

* Queensland (15%); and

* Western Australia (6%).

The combined expenditures in South Australia and the Northern Territory accounted for almost 80% of Australia's total. The main areas (in terms of expenditure) are given in Figure 3. They are:

* the Gawler Craton-Stuart Shelf region, tertiary palaeochannel sediments of the Frome Embayment, and palaeochannels overlying the Gawler Craton in South Australia;

* the Alligator Rivers region and western Arnhem Land, and the Ngalia Basin (including the Napperby project in Tertiary sediments overlying the Ngalia Basin) in the Northern Territory; and

* Mount Isa province in Queensland.

Further details on Australia's uranium exploration can be accessed in the Geoscience Australia publication Australia's Identified Mineral Resources at www.ga.gov.au:8500/ image_cache/GA7036.pdf

Australia's Most Likely Regions

Figure 3 shows areas that are geologically favourable for uranium and were being explored for uranium deposits in 2005. Areas of particular interest include:

* the Gawler Craton area in South Australia, which has the Olympic Dam deposit ("hematite breccia" type) that holds about 70% of Australia's uranium resources. Explorers are looking for more Olympic Damtype deposits in the area. Other areas considered favourable for Olympic Dam-type deposits include the Curnamona Craton (Mt Painter area) of South Australia and the Georgetown and Mount Isa regions in Queensland;

* the Arnhem Land and Rum Jungle areas in the Northern Territory, where companies are exploring for "unconformity-related" uranium deposits similar to those at Ranger and Jabiluka, the second most important type of uranium deposit in Australia with about 18% of the country's uranium resources;

* the Frome Embayment in South Australia is the most important area in Australia for sandstone-type uranium deposits such as the Beverley deposit. This type of deposit accounts for about 4% of Australia's uranium resources and is the most widespread; and

* the north-east Yilgarn area around the Yeelirrie and Lake Way uranium deposits in Western Australia is a promising area for "calcrete" deposits, which account for about 3-4% of Australia's uranium resources.

Recent Discoveries

The last major uranium discovery was Kintyre in Western Australia in 1985.

The discovery of uranium deposits depends on the level of funding allocated to carry out exploration. This depends on the demand and the price, which in turn is determined by the perceived supply. During the late 1960s through until the early 1980s there was a perceived shortage of uranium, which was followed by an oversupply and a sharp downturn in uranium exploration.

If explorers are looking in areas that are geologically favourable for uranium deposits, more funds will be allocated to exploration and more deposits will be found. During recent years there has been increasing concern that there will be a world shortage of uranium for nuclear electricity generators, resulting in a quadrupling of the uranium price to more than US$50/lb. This has been accompanied by a corresponding sharp increase in uranium exploration expenditure.

In constant dollars, expenditure of $41.09 million in 2005 was the highest annual expenditure on uranium exploration in Australia since 1988. However, this is less than half the comparative level of expenditure during the peak years between the late 1960s and the early 1980s, when most of the significant deposits were discovered.

From the early 1980s to 2004, when uranium prices were depressed, there was relatively little exploration either in Australia or globally. Apart from Kintyre, no significant uranium deposits were found during this period.

The recent surge in uranium exploration expenditure has led to the first recent significant uranium discovery, the Beverley 4 Mile, in 2005.

It is of interest to note that Australia's uranium resources have continued to grow for more than 20 years from discoveries made prior to 1985 despite increasing mining since 1976. In particular a lot of additional resources have been discovered in the course of ongoing exploration at Olympic Dam.

Apart from high levels of exploration expenditure, the surge of uranium discoveries also was due to a combination of additional factors including extensive highresolution, low-level airborne radiometric surveys, which picked up uranium deposits emitting radioactivity because they were exposed at the surface.

Among these deposits were Ranger, Nabarlek and Koongarra in the Northern Territory and Yeelirrie in Western Australia. The discoveries led to a better geological understanding of these deposits, and deposit "models" were developed by geologists to assist in the recognition of geological clues that indicate where certain types of deposits are present.

Conversely, the lean period of uranium discoveries from the early 1980s until about 2003 was exacerbated by other factors such as:

* government policies from 1983 to 1996 restricting uranium mining to three mines, which curtailed exploration activity because any discoveries could not be mined. Uranium mining is still prohibited in Western Australia and Queensland, and uranium exploration is not allowed in New South Wales and Victoria;

* decreasing land access to some prime uranium areas, such as the Kakadu National Park in the Northern Territory; and

* as "easily discoverable" uranium deposits are found, it becomes increasingly more difficult and more expensive to find deeply concealed uranium deposits. This is particularly the case for Australia, where about 70-80% of the continent is covered by a veneer of deeply weathered barren rock, making it even more difficult and expensive for explorers to "see through" the barren cover to search for hidden uranium deposits.

Significant factors assisting the discovery of uranium and other mineral deposits are the availability of regional geological, geophysical and geochemical data acquired by government agencies such as Geoscience Australia and state and territory geological agencies.

The data minimises the risk for explorers in areas such as Olympic Dam, where the deposit is concealed by 325 metres of rock but was discovered partly because of the interpretation of regional geophysical data acquired by Geoscience Australia's predecessor, the Bureau of Mineral Resources. Yeelirrie also was found because of the interpretation of regional radiometric data.

It was a similar case for the large uranium deposits at Ranger and Jabiluka in the Northern Territory, which were found when explorers were attracted to the area by their interpretation of the regional geological mapping.

Many of the early discoveries were found in areas of little surface cover, so the rate of uranium discoveries diminished as the value of the old data from the regional geological mapping and geophysical surveys were exhausted. The challenge for future discoveries is to assist explorers with more sophisticated regional data provided by government agencies, which allow explorers to look through the cover and locate uranium deposits below the surface layer covering 70-80% of Australia.

The geophysical and geochemical programs being launched by Geoscience Australia during the next 5 years through the federal government's $134 million new energy security initiative will play an important role in the discovery of new uranium, thorium and geothermal energy as well as other mineral deposits in the future.

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.

RED HOT TIPS

WARWICK GRIGOR'S WATCHLIST

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

Grandich also sees $200 an Oz Uranium

Peter Grandich sees uranium climbing to US$200, financial players yet to take profits
With the spot price for uranium rising further in the wake of two auctions last week, and another major deal with sxr Uranium One Inc.’s $1.6-billion friendly bid for Energy Metals Corp., surging investor interest in the sector continues unabated.

But is the end of this bull market for the nuclear fuel near?

Not if you ask Peter Grandich, author of The Grandich Letter, who attributes rising prices to tight uranium supplies.

Although he thinks we’re past the halfway point for uranium equities, he thinks uranium prices will rise to US$200 per pound. Market monitors Ux Consulting and TradeTech recently raised their spot prices to US$135 per pound and US$138 respectively, while long-term prices are at US$95 for both groups.

Mr. Grandich expected that a hedge fund or Uranium Participation Corp., which buys physical uranium, might have taken some profits by now and actually sold some uranium. But they haven’t.

“By them not doing that yet, it convinces me that the US$200 target is more reasonable than we could even have imagined just six months ago,” he said, adding that some of these players got into the uranium play early at US$30 or US$40 or less.

“It’s very hard to pass up on 300% and 400% gains, and they are doing that at the moment.”

What about the suggestion that uranium speculators may be driving up spot prices to boost the value of their mining stocks?

While the amount of institutional money out there makes these sort of manipulations relatively easy, Mr. Grandich thinks this was more likely a year or two ago because shares had not yet risen dramatically. He also pointed out that since the beginning of 2007, uranium prices have climbed, but many uranium stocks have corrected.

Not only does Mr. Grandich expect there will be more consolidation in the uranium sector among current producers, he thinks advanced-stage exploration companies will also be acquired in the next stage of deals as prices continue to rise.

As far as the ‘nuclear renaissaince’ sxr Uranium One chief executive Neal Froneman expects in the U.S., Mr. Grandich thinks the recognition of an acute need for energy both globally and in the U.S., has opened the door again for nuclear energy to become a viable energy source there.

“If someone were to have told me as late as three or four year ago that anywhere in the continental United States we would have been speaking about a nuclear plant again, I would have told them ‘not in my lifetime’ and I’m 51 year old.”