Crisis at Cigar Lake: Time to Back Up the Truck on Uranium Stocks?
By Dave Forest
31 Oct 2006 at 10:48 AM EST
STOWE, Vermont (Casey Research Advertorial) -- 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 they are “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 with Cigar Lake’s supply, the situation verges on crisis. Especially in that a good deal of Cigar Lake’s output was already sold forward. Those buyers - who thought they had locked in supply - may well be forced to go to the spot market to buy. A further significant jump in the spot price over the coming weeks is a distinct 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.
Take UEX Corp, for example. In June 2005, when uranium stocks in general were enjoying excellent gains, the company reported a staggering drill intercept of 58.3% U3O8 from its Shea Creek property. The stock jumped 80% in a single day. Less than three months later it was up 180%.
And that was when uranium was selling for $30 per pound. With the price 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.
Which companies have the right stuff to cash in? JNR Resources, one of the companies we’ve been following on behalf of subscribers to our Casey Energy Speculator newsletter, recently reported tantalizing surface samples of up to 48% U3O8 from its Way Lake project in Saskatchewan’s Athabasca Basin. Drilling is planned shortly. Although our subscribers have already made a tidy 85% return on JNR since our initial recommendation, we’re holding on. As the stars continue to align for a uranium mania, an 85% gain will look miniscule.
Of course, we’re not betting the farm on that one company. Another of our followed stocks is a micro-cap explorer sandwiched between uranium majors Cameco and Cogema in the uranium-rich southeast Athabasca Basin. Yet another is pioneering a new uranium district in Quebec. A major producer recently staked land surrounding this company’s projects - meaning that the world’s best uranium finders believe the geology is ripe for a discovery. We made 100% on this stock in 6 weeks, and we’re looking for more.
There is much that needs to be said about the universe of junior uranium explorers, the vast majority of which are little more than promotional exercises, but for now we’ll just say that taking the time to understand the difference between a paper shuffle and a well-run company with scale and grade in the right geological setting is time well spent. As the importance of the crisis at Cigar Lake becomes apparent, these stocks are going to the moon.
Copyright © Casey Research 2006
Dave Forest is Editor of the Casey Energy Speculator. To learn more about the Casey Energy Speculator, including how to sign up for a no-risk trial subscription, visit www.caseyresearch.com.
Tuesday, October 31, 2006
Junior U's
A couple of months ago, I posted about uranium juniors in general and Strathmore in particular as an example. Well, the setups that I saw then have had follow-through with a vengeance that even I find startling. What was already a strong fundamental situation got taken to a whole new level with the accident at Cigar Lake. Dr. Michael Berry likened it to the Aurelian discovery and that comparison has merit in that there is an immediate fundamental revaluation occuring. It was specific to Aurelian but applies across the sector in the uraniums, granted that the upward revaluations will be more warranted in some situations than others.
Sunday, October 29, 2006
Golden thoughts...
From an article by David Vaughn at Kitco:
"[Rick Rule] now believes that gold and silver stocks are about to go "silly" on the upside... maybe the silliest he has seen in his long career.” “Coupled with strength in the metals, he fully concurs with Doug Casey’s views that we are on the verge of the bull market of a lifetime."
I found this noteworthy as Rick Rule tends to be fairly skeptical about valuations, so if he thinks that there is a huge rally coming, it tends to give one pause. The article also has some worthwhile observations on the increasing institutional participation in the resources sector.
"[Rick Rule] now believes that gold and silver stocks are about to go "silly" on the upside... maybe the silliest he has seen in his long career.” “Coupled with strength in the metals, he fully concurs with Doug Casey’s views that we are on the verge of the bull market of a lifetime."
I found this noteworthy as Rick Rule tends to be fairly skeptical about valuations, so if he thinks that there is a huge rally coming, it tends to give one pause. The article also has some worthwhile observations on the increasing institutional participation in the resources sector.
Reflections on Aurelian
Here is a post from Bob Brummell at StockHouse contemplating Aurelian:
I just spent the evening reading through ARU's property notes and Dr. Sillitoes report. A few thoughts come to mind after studying it.
I just spent the evening reading through ARU's property notes and Dr. Sillitoes report. A few thoughts come to mind after studying it.
1. The Aurelian people have done a tremendous job reporting their exploration activities on various prospects. It's incredibly well written and has a genuine flavour to it. There is no puffery. It's straightforward. No hype and no bullchit. A joy to read.
2. I hope shareholders have patience. It's obvious a tremendous amount of high potential, high value exploration remains to be done. Aurelian needs time. Realistically, it could take several years. It's not something that should be rushed. Fact is that impatience and rushing could result in tremendous lost rewards.
3. There's no need to worry about dilution or burn rate. If management elects to explore further, they could easily raise another $25 - $30 million by issuing just 1 million shares. So why rush with potential so high.
4. My hat's off to Aurelian's geological team. They've done excellent grass roots work. Although not stated, I'd guess conditions at times were rugged.
On another note, I have a hunch the new boys on the block must be an irritation. Perhaps ARU is challenging some of the nonsense. Perhaps that's why GML issued a retraction and clarification about how close their border is to FDN. It's much more than the 300 metres they were claiming.
Lastly, El Condor may produce more than a mine. It's quite possible we are looking at a new mining camp hosting several mines. They likely won't match FDN's stature but who knows at this point. They could be very substantial.
Bob
Posted here originally.
Saturday, October 28, 2006
Friday, October 27, 2006
Coxe weighs in on uranium...
Don Coxe was early on the base metals, early on the oil sands and now is early (relatively) on uranium. His clients are institutional, pension funds and hedge funds and the market cap of the uranium sector is tiny. This could result in outsized gains.
BMO’s Don Coxe favors uranium, gold, platinum stocks
By: Dorothy Kosich
Posted: '27-OCT-06 07:00' GMT © Mineweb 1997-2006
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Tuesday, October 24, 2006
Follow-up on Cigar Lake
Yesterday, I posted the news about Cigar Lake and my initial response. After having had a chance to read a bit more and digest the news, it is even bigger than I had first thought. The mine opening may take much longer than a year and this will impact 30% of the supply on which the market was depending. This article from StockInterview is worth reading very carefully:
Cameco’s Cigar Lake Mine Drowning:
Where Will U.S. Utilities Get Uranium Now?
Sprott Market Strategist:
Some May Sign $100 Long-Term Contracts
Monday, October 23, 2006
Production delay at Cigar Lake...
To most people, this would not be a notable news item. If you have been studying the uranium market, though, it is one that merits close attention. Cigar Lake is in the area of the Athabasca Basin where the richest uranium mines in the world are located. Given that the market is already very tight (if price is a valid indicator), then this delay will have significant ramifications. Perhaps it is already priced in, to some extent, but it will be worth keeping tabs on the uranium price over the next few weeks, at least...
Cameco Announces Construction Setback at Cigar Lake Project
Monday October 23, 4:11 am ET
SASKATOON, SASKATCHEWAN--(MARKET WIRE)--Oct 23, 2006 -- Cameco Corporation (TSX:CCO.TO - News)(NYSE:CCJ - News) reported today that Cigar Lake mine construction is expected to be delayed by at least a year after the mine experienced a significant water inflow following a rock fall and a portion of the underground development was allowed to fill with water. Production startup was previously planned for early 2008. The remainder of the underground area remains dry. Cameco is operator and majority owner of the Cigar Lake uranium project located in northern Saskatchewan.
The incident began at 1:10 p.m. on Sunday, October 22, 2006, in the future production area that previously had been dry. As a precautionary measure, non-essential personnel were temporarily evacuated. There were no injuries and there was no impact on the environment.
At 8:45 p.m., in accordance with existing contingency plans, the company decided to close two bulkhead doors to contain the water inflow within the future mining area. The mine shaft (shaft #1), future processing area, pumps, refuge station and heat exchanger for freezing the ore are being protected from the inflow and will be monitored as the pressure builds up behind the bulkhead doors.
Cameco will be developing plans to restore access to this area which will provide a better estimate of construction scheduling and likely startup date of production. At this point, the construction delay is estimated to be at least a year. This incident is not expected to impact reserves at Cigar Lake.
Given the expected delay in construction, the capital cost is expected to be significantly higher. We will provide an estimate of these costs once the remediation plans have been developed. We will also update our production forecast for Cigar Lake at that time.
Cameco has supply interruption protection in its contracts providing the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a meaningful shortfall in planned production. This language protects about three-quarters of current contracted volumes. This percentage will rise as old contracts expire. All contracts also contain standard force majeure protection.
The baseload contracts put in place to support the development of Cigar Lake also contain supply interruption language, which allows Cameco to reduce, defer or terminate Cigar Lake product deliveries in the event of any delay or shortfall in Cigar Lake production.
Given the foregoing contractual protections, Cameco is adequately positioned to meet its contractual obligations.
The Cigar Lake project is located 660 kilometres north of Saskatoon with a workforce of about 650 during the construction phase. The Cigar Lake mine is owned by Cameco Corporation (50%), AREVA Resources Canada Inc. (37%), Idemitsu Uranium Exploration Canada Ltd. (8%), TEPCO Resources Inc. (5%).
Cameco, with its head office in Saskatoon, Saskatchewan, is the world's largest uranium producer. The company's uranium products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today. Cameco's shares trade on the Toronto and New York stock exchanges.
CONFERENCE CALL INFORMATION
We invite you to join us in a conference call at 11:30 a.m. Eastern time (9:30 a.m. Saskatoon time) today, October 23, 2006 to discuss this news release. The call will be open to all members of the investment community. Members of the media will be invited to ask questions at the end of the call. In order to join the conference call today, please dial (416) 644-3414 or (800) 814-4862 (Canada and US). An operator will put your call through. Please pass this invitation to colleagues in your organization who have an interest in Cameco.
A recorded version of the proceedings will be available: on our web site, cameco.com, shortly after the call, and on post view until midnight, Eastern time, Monday, November 13 by calling (416) 640-1917 or (877) 289-8525; (Passcode: 21207525).
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Statements contained in this news release which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences, without limiting the generality of the following, include: volatility and sensitivity to market prices for uranium, electricity in Ontario and gold; the impact of the sales volume of uranium, conversion services, electricity generated and gold; competition; the impact of change in foreign currency exchange rates and interest rates; imprecision in reserve estimates; environmental and safety risks including increased regulatory burdens; unexpected geological or hydrological conditions; political risks arising from operating in certain developing countries; a possible deterioration in political support for nuclear energy; changes in government regulations and policies, including trade laws and policies; demand for nuclear power; replacement of production and failure to obtain necessary permits and approvals from government authorities; legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry in Ontario; Ontario electricity rate regulations; weather and other natural phenomena; ability to maintain and further improve positive labour relations; operating performance of the facilities; success of planned development projects; and other development and operating risks.
Although Cameco believes that the assumptions inherit in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this report. Cameco disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Contact:
Contacts:
Cameco Corporation
Investor & media inquiries
Alice Wong
(306) 956-6337
Investor inquiries
Bob Lillie
(306) 956-6639
Media inquiries
Lyle Krahn
(306) 956-6316
Website: http://www.cameco.com
Cameco Announces Construction Setback at Cigar Lake Project
Monday October 23, 4:11 am ET
SASKATOON, SASKATCHEWAN--(MARKET WIRE)--Oct 23, 2006 -- Cameco Corporation (TSX:CCO.TO - News)(NYSE:CCJ - News) reported today that Cigar Lake mine construction is expected to be delayed by at least a year after the mine experienced a significant water inflow following a rock fall and a portion of the underground development was allowed to fill with water. Production startup was previously planned for early 2008. The remainder of the underground area remains dry. Cameco is operator and majority owner of the Cigar Lake uranium project located in northern Saskatchewan.
The incident began at 1:10 p.m. on Sunday, October 22, 2006, in the future production area that previously had been dry. As a precautionary measure, non-essential personnel were temporarily evacuated. There were no injuries and there was no impact on the environment.
At 8:45 p.m., in accordance with existing contingency plans, the company decided to close two bulkhead doors to contain the water inflow within the future mining area. The mine shaft (shaft #1), future processing area, pumps, refuge station and heat exchanger for freezing the ore are being protected from the inflow and will be monitored as the pressure builds up behind the bulkhead doors.
Cameco will be developing plans to restore access to this area which will provide a better estimate of construction scheduling and likely startup date of production. At this point, the construction delay is estimated to be at least a year. This incident is not expected to impact reserves at Cigar Lake.
Given the expected delay in construction, the capital cost is expected to be significantly higher. We will provide an estimate of these costs once the remediation plans have been developed. We will also update our production forecast for Cigar Lake at that time.
Cameco has supply interruption protection in its contracts providing the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a meaningful shortfall in planned production. This language protects about three-quarters of current contracted volumes. This percentage will rise as old contracts expire. All contracts also contain standard force majeure protection.
The baseload contracts put in place to support the development of Cigar Lake also contain supply interruption language, which allows Cameco to reduce, defer or terminate Cigar Lake product deliveries in the event of any delay or shortfall in Cigar Lake production.
Given the foregoing contractual protections, Cameco is adequately positioned to meet its contractual obligations.
The Cigar Lake project is located 660 kilometres north of Saskatoon with a workforce of about 650 during the construction phase. The Cigar Lake mine is owned by Cameco Corporation (50%), AREVA Resources Canada Inc. (37%), Idemitsu Uranium Exploration Canada Ltd. (8%), TEPCO Resources Inc. (5%).
Cameco, with its head office in Saskatoon, Saskatchewan, is the world's largest uranium producer. The company's uranium products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today. Cameco's shares trade on the Toronto and New York stock exchanges.
CONFERENCE CALL INFORMATION
We invite you to join us in a conference call at 11:30 a.m. Eastern time (9:30 a.m. Saskatoon time) today, October 23, 2006 to discuss this news release. The call will be open to all members of the investment community. Members of the media will be invited to ask questions at the end of the call. In order to join the conference call today, please dial (416) 644-3414 or (800) 814-4862 (Canada and US). An operator will put your call through. Please pass this invitation to colleagues in your organization who have an interest in Cameco.
A recorded version of the proceedings will be available: on our web site, cameco.com, shortly after the call, and on post view until midnight, Eastern time, Monday, November 13 by calling (416) 640-1917 or (877) 289-8525; (Passcode: 21207525).
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Statements contained in this news release which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences, without limiting the generality of the following, include: volatility and sensitivity to market prices for uranium, electricity in Ontario and gold; the impact of the sales volume of uranium, conversion services, electricity generated and gold; competition; the impact of change in foreign currency exchange rates and interest rates; imprecision in reserve estimates; environmental and safety risks including increased regulatory burdens; unexpected geological or hydrological conditions; political risks arising from operating in certain developing countries; a possible deterioration in political support for nuclear energy; changes in government regulations and policies, including trade laws and policies; demand for nuclear power; replacement of production and failure to obtain necessary permits and approvals from government authorities; legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry in Ontario; Ontario electricity rate regulations; weather and other natural phenomena; ability to maintain and further improve positive labour relations; operating performance of the facilities; success of planned development projects; and other development and operating risks.
Although Cameco believes that the assumptions inherit in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this report. Cameco disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Contact:
Contacts:
Cameco Corporation
Investor & media inquiries
Alice Wong
(306) 956-6337
Investor inquiries
Bob Lillie
(306) 956-6639
Media inquiries
Lyle Krahn
(306) 956-6316
Website: http://www.cameco.com
Wednesday, October 18, 2006
Under the scope...
This morning I went to visit one of the private companies I am backing. They just received their electron microscope a couple of weeks ago, so I went to check it out. That's about all I can say about them right now, everything is under tight wraps. Within a couple of months, there should be more latitude to talk about what they are doing. Could be a blockbuster...
Friday, October 13, 2006
Breakout or fakeout?
Today was a significant day in the natural resources sector. After a major headfake in September that gave a false signal that the traditional fall rally was underway, natural resources stocks have been retrenching ever since. Whether today marked a turn or just another headfake can only be concluded after the fact. What can be said though, is that price and volume action was strong across the board. Price and volume action was encouraging in oil stocks, uranium stocks, base metal stocks and precious metal stocks. The action cut across market caps, too, lifting the seniors, mid-tiers and juniors.
Valutrader on Silicon Investor put today's action in historical perspective:
Nothing is for certain, but FWIW an historical pattern worth noting is that after a strong breakout Friday like today and a short pullback after the gold market closes
1. they run the stocks up into the close
2. there is a burst up Monday morning which is sold
3. Monday and Tuesday drift lower
4. Wednesday firms
5. Thursday and Friday push higher
As always, we'll see.
On breakout days like today, the juniors tend to rocket off the bottom. Even though these stocks are doing little more than recovering recently lost ground, looking at the percentage gains discourages those who have traded out from buying back in, as it feels like chasing. Here are a handful of my best performers today:
DNT.TO 15.38%
PEZ.V 23.26%
SCM.V 12.58%
UC.V 10.20%
UPC.V 16.67%
Without a doubt there are now some gaps on these charts that may have to get filled, but that would also be consistent with the scenario laid out by Valutrader. If this move is for real, then these gains show where these stocks are headed. Also, even though the summer is over, the drilling programs are not. If significant results can be produced during a time when market conditions are favorable, then the impact on share price appreciation can be magnified. Let's see what happens next week...
Valutrader on Silicon Investor put today's action in historical perspective:
Nothing is for certain, but FWIW an historical pattern worth noting is that after a strong breakout Friday like today and a short pullback after the gold market closes
1. they run the stocks up into the close
2. there is a burst up Monday morning which is sold
3. Monday and Tuesday drift lower
4. Wednesday firms
5. Thursday and Friday push higher
As always, we'll see.
On breakout days like today, the juniors tend to rocket off the bottom. Even though these stocks are doing little more than recovering recently lost ground, looking at the percentage gains discourages those who have traded out from buying back in, as it feels like chasing. Here are a handful of my best performers today:
DNT.TO 15.38%
PEZ.V 23.26%
SCM.V 12.58%
UC.V 10.20%
UPC.V 16.67%
Without a doubt there are now some gaps on these charts that may have to get filled, but that would also be consistent with the scenario laid out by Valutrader. If this move is for real, then these gains show where these stocks are headed. Also, even though the summer is over, the drilling programs are not. If significant results can be produced during a time when market conditions are favorable, then the impact on share price appreciation can be magnified. Let's see what happens next week...
Thursday, October 12, 2006
Bears on parade...
Sentiment can be a useful indicator, as psychology is a critical element in the market. According to a recent article, stubbornly bullish gold advisor have been relenting to the sell-off:
"The Hulbert Gold Newsletter Sentiment Index, which represents the average gold market exposure among a subset of short-term gold-timing newsletters, stood at a reading of minus 25% on Wednesday night (10/11/06). That's not far off the all-time low, and it's a dramatic change from the stubborn bullishness that gold-timers displayed when the current downleg began, in September."
http://www.siliconinvestor.com/readmsg.aspx?msgid=22903506
"The Hulbert Gold Newsletter Sentiment Index, which represents the average gold market exposure among a subset of short-term gold-timing newsletters, stood at a reading of minus 25% on Wednesday night (10/11/06). That's not far off the all-time low, and it's a dramatic change from the stubborn bullishness that gold-timers displayed when the current downleg began, in September."
http://www.siliconinvestor.com/readmsg.aspx?msgid=22903506
Tuesday, October 03, 2006
Uranium juniors...
I've been spending time over the last week looking at uranium juniors. Yesterday I added to my position in Forum Uranium. I am typically not too keen on averaging down, but I believe it is the right thing to do in this case. Forum is a well-run company that has some highly-prospective properties (don't they all?) in the Athabasca Basin and the Thelon Basin. They are just starting a drill program on their Key Lake Road project in the Athabasca and I have heard that they like what they see. Unlike PM's uranium explorers are able to run a scintillometer over the core as soon as it comes out of the ground. This is no substitute for an assay, but if there is significant radiation, it will show up on the meter.
Last week I attended the Toronto Resource Investors Conference. One of the companies that I thought was worth a closer look is Universal Uranium. Like Forum, Universal has a solid team in place. They have a fair amount of cash and properties in Utah, Labrador, Arizona and Colorado. They are about to kick off an 18-hole drill program on their property in Lisbon Valley, Utah. This area is host to a number of historical uranium mines. One of the more well-known mines is Mi Vida, discovered by Charlie Steen. Mark Steen, Charlie's son, works with Universal and got them involved in the Utah properties. They have a crew up in Labrador as well that is turning up some good initial results with their field work. If they can get the property adequately prepped before winter, they will be able to drill it. Otherwise, it will have to wait until spring. Utah and Arizona can be worked year-round. The stock has been steamrolled over the past several months and despite the fact that the downtrend has not yet been broken, I started a position thinking that the worst is probably over.
Last week I attended the Toronto Resource Investors Conference. One of the companies that I thought was worth a closer look is Universal Uranium. Like Forum, Universal has a solid team in place. They have a fair amount of cash and properties in Utah, Labrador, Arizona and Colorado. They are about to kick off an 18-hole drill program on their property in Lisbon Valley, Utah. This area is host to a number of historical uranium mines. One of the more well-known mines is Mi Vida, discovered by Charlie Steen. Mark Steen, Charlie's son, works with Universal and got them involved in the Utah properties. They have a crew up in Labrador as well that is turning up some good initial results with their field work. If they can get the property adequately prepped before winter, they will be able to drill it. Otherwise, it will have to wait until spring. Utah and Arizona can be worked year-round. The stock has been steamrolled over the past several months and despite the fact that the downtrend has not yet been broken, I started a position thinking that the worst is probably over.
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