A Uranium Feeding Frenzy! (by Sean Brodrick) 4/18/2007 8:00:00 AM
You think the fact that uranium prices have more than doubled in the past 12 months is something? Just wait! I hope you have your safety belt on, because this could be the ride of your life. Here's why …
There's a feeding frenzy going on in Australian uranium stocks right now. For example, two of the best uranium companies in the world, Areva and Paladin Resources, fiercely bid against each other for another company (and its resources).
Larger miners are generally very conservative. So the fact that these two companies are throwing so much money around, tells me that uranium — which recently hit $113 per pound — has a long, LO-O-O-NG way to go.
Plus, the latest news on a second flooded uranium mine came out — it looks very bullish for prices. And if that's not enough, another brand new development on Monday could shift uranium prices into overdrive! I'm talking about the fact that uranium futures will soon be available right here in the U.S.
More on these two developments in a moment. First, let me tell you a little more about the feeding frenzy …
A Uranium Soap Opera From Down Under
Australian miners are waiting with baited breath for the Australian Labor Party to hold its Congress at the end of this month. The group is expected to drop its opposition to new uranium mines, which would signal the start of a new uranium boom in Australia.
However, the bigger companies aren't just sitting on their hands … they're busy snapping up smaller fish. Right now, Summit Resources is one of those fish. It's sitting on at least 37.9 million pounds of uranium … probably double that. And it expects to be producing uranium yellowcake (and vanadium cake) at its Mount Isa location by mid-2010.
Paladin, one of the bidders, already bought out Valhalla Uranium, Summit's partner at Mt. Isa. Summit promptly sued Paladin. So Paladin just turned around and offered A$1 billion (about US$832.6 million) for Summit!
Summit's response: "No way!" And then along came a white knight in the form of French nuclear power giant Areva. It signed a deal to control up to 18% of Summit for $292 million.
Why was Areva interested in jumping into this knife fight? Areva needs good, near-term producing mines. After all, its Canadian subsidiary has a 37% stake in the Cigar Lake Mine that I've been telling you about — where a disastrous flood pushed back its uranium production by at least two years.
With Areva galloping in to the rescue, Paladin changed horses. It sweetened the deal, raising its bid 22% to A$1.2 billion. Surprising just about everyone, Summit's board agreed to the deal.
Now, I still think they're selling themselves cheap. Mind you, I recommended Summit to my Red-Hot Asian Tigers portfolio two months ago and they didn't do too badly. Yesterday, I told them to exit with between 41% and 61.7% gains … on one stock … in just two months … without futures or options.
I'm not trying to toot my own horn … I'm just trying to show the explosive potential of these uranium stocks!
And this Summit deal is just the latest in a string of mergers in the uranium industry: IUC merged with Denison … Denison then bid for OmegaCorp … Sxr Uranium One gobbled up larger rival UrAsia Energy … the list goes on. By my count, there were about 16 mergers and acquisitions in the uranium field in just the last year!
Again, these smart operators wouldn't be paying top dollar for uranium resources unless they thought uranium prices were headed much higher. And you know what? I think they're right!
Latest News from Ranger Mine Signals Higher Prices
Previously, I told you how the Ranger Mine in Australia, which produces a tenth of the world's uranium supply, was flooded by a cyclone, making it the second water-related uranium mining disaster in about five months. [Editor's note: See "Uranium tops $90 a pound!"]
Ranger is owned by Energy Resources of Australia, and the company already warned that production would suffer. On Monday, we got the details — ERA said first-quarter output of the fuel fell 28% to 1,006 metric tonnes from a year ago.
What's more, the company says that output will fall next year as high water levels restrict access into 2008!
So the uranium supply/demand squeeze — already tight — is going to get much tighter. In fact, some analysts say mine supply won't meet global demand until at least 2017.
You read that right — that's a 10-year bull market!
Now, let's talk about the new development that could be like rocket fuel for uranium prices …
Get Ready for U.S. Uranium Futures!
The New York Mercantile Exchange (NYMEX) said on Monday that it signed an agreement to introduce uranium futures on its electronic platforms next month.
NYMEX Chairman Richard Schaeffer told reporters, "We expect to create a benchmark contract for this important and underserved global market."
I think this is where speculators are going to get involved in uranium with both hands. Uranium futures could put us at $500 per pound in the blink of an eye! Because they'll give hedge funds a way to trade in and out of uranium easily.
Traders and speculators might not trust uranium futures at first. They'll be as illiquid as granite. But once things get going, man oh man, we could see some altitude very quickly.
Further down the road, I'd expect to see a uranium ETF in the U.S. Keep your eyes peeled for that one. It would be yet another force to power uranium prices higher.
ARH Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
