uranium rush ahead

Hi all,

Not a big poster but have followed PEN and your threads with great interest for a while. To me PEN has a very interesting future ahead and I intend to hold for the long term.

Anyway, thought you might take interest in the article below. Fascinating read from the eureka report. Enjoy.


Rio joins uranium rush

By Tim Treadgold

March 6, 2009

PORTFOLIO POINT: Rio swoops on two African uranium explorers, as Japanese and Canadian interests buy into the sector.

Looking across the resources sector it’s not all asset sales, job losses and Chinese rescues. In fact, at Rio Tinto – a mining company that has all three issues on the line troubled corporation has found time to orchestrate a complex $130 million share raid on a pair of uranium explorers.

Two reasons underpin Rio Tinto’s investment in locally listed Extract Resources and London-listed Kalahari Minerals. Demand for uranium remains strong, even if the short-term price has fallen, and the targeted pair own the Rossing South prospect, which is next to Rio Tinto’s big Rossing mine in the southern African country of Namibia.

Separately, it's worth noting Rio is expanding is uranium activities around the world: Last month the company signed a deal with the Kingdom of Jordan to explore for uranium in the Middle Eastern country which has an estimated 130,000 tonnes of uranium and wants to build its own nuclear power stations.

For investors with an eye for hidden gems in the resources sector there is a third reason to take an interest in Rio Tinto’s uranium raid. It’s not alone.

On Monday (March 2) a Japanese consortium paid $76 million for a 35% stake in an undeveloped Australian uranium deposit owned by a Canadian company, and in mid-February a well-connected Canadian investment company boosted its investment in Mantra Resources, another Australian-listed company with its best assets in Africa.

The corporate deals are spread across continents, involve multiple owners and have, until spotted by Eureka Report, passed largely unnoticed.

But the three events have a common link and a message for the market: interest in uranium is growing again, even if the short-term price remains at a relatively lowly $US45 a pound: At that price the commodity is tracking close to its recent lows set in October last year and a long way short of the 2007 peak price of $US130.

Yet despite the price retreat, which has been suffered by most commodities, uranium has remained in steady demand from existing nuclear-power plants and from the ongoing growth in the nuclear power industry as it regains credibility, and carbon-rich fossil fuels become less acceptable.

Before getting too excited, and before looking in detail at the deals, it’s important to remember that uranium production is a politically and environmentally sensitive industry, and that it is the non-mining issues that make investment in uranium a case of “buy when exploring and sell when production is mentioned”.

On the ASX that means take a look at stocks such as:

· Mantra (MRU), which has an advanced exploration project in Tanzania, impeccable corporate connections and a management team with record of knowing when to take the cash and sell. Over the past five weeks Mantra has effectively doubled from 67¢ to recent trades at $1.31, a strong performance but with a long way short of last year’s pre-crash high of $4.

· Extract (EXT), the local entry point into Rio Tinto’s curious game at a time it is supposed to be selling assets, not buying. Extract has also effectively doubled since late January, rising from $1.33 to sales on Tuesday as high as $2.68 before slipping to $2.53.

· Toro Energy (TOE), a company which has suffered because of its close association with the troubled OZ Minerals but which has several advanced uranium exploration projects in the Northern Territory, one of the few places in Australia which encourages uranium mining. Toro is stuck in the doldrums despite announcing on Tuesday a doubling of the uranium resource at its Napperby project in the NT. It is trading around 9.2¢, close to a 12-month low.

· Energy and Minerals Australia (EMA), a relative newcomer but owner of the second-biggest uranium resource in WA that complies with the industry’s JORC (Joint Ore Reserves Committee) standards. In mid-January it reported a maiden resource of 24,520 tonnes of uranium at its Mulga Rock project, a discovery originally made by Japanese explorers in the 1970s and then abandoned because of Australia’s strict anti-uranium policies. Since mid-January EMA has risen from 17¢ to 22¢ but remains well short of last year’s peak of 85¢.


There are other uranium explorers worth closer scrutiny but the key tests are:
(1) whether they actually have a resource;
(2) whether it is in a legal jurisdiction that permits uranium mining; and
(3) whether management is in the game to make a quick profit by selling early, or keen to spend the next 10 years trying to start a mine – which can be a rather dreary, expensive, and fruitless hobby as once a step is taken into production you leave the mining industry and enter the highly-specialised nuclear power industry.