This is what I've been talking about...

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.

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.

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.

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.

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.

Ready to run?

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

RENO, NV (Mineweb.com) --In analysis published this week, BMO Capital Markets Global Portfolio Strategist Donald G.M. Coxe advocates investment clients seriously research the future of nuclear power and consider investing in uranium.

http://www.mineweb.net/mining_finance/337750.htm

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