nasty burns likely for investors left holding uran

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Nasty burns likely for investors left holding uranium

Monday, April 03, 2006
IT AMUSES Slugcatcher to see the lengths people will go to avoid doing things the easy way. In the energy industry that means trying just about anything other than exploring for, and producing, the simplest sources of heat – petroleum and coal.




Perhaps these tried and true products of coal and oil have become too predictable, or perhaps they have become politically incorrect in a world going greener by the day.

But perhaps there is also a belief in doing something exciting and different, like trying to become either: a producer of coal seam methane (a business likened to sucking gas through a straw); a producer of geothermal power (like searching for the centre of the earth); or a uranium miner (like an ant challenging an elephant to a stomping match).

If those three examples are not bad enough, there is always the challenge of generating energy by taming wind or taming the tide (King Canute tried that a few years back).

Skipping lightly over the many and varied forms of energy production available today, the one which seems to have become flavour of the month is uranium.

Every day the media is filled with stories about the share price of some uranium explorer soaring gracefully to new heights as mega-millions are made by the promoters, or the Chinese Premier Wen Jiabao strolling around Canberra signing safeguard agreements to he can buy lots of the stuff – at a fair market price, naturally.

The Slug wishes all the new wealthy of the uranium world the best of luck. But he has a bit of advice for anyone hanging around in the hope that they will one day produce a pound of yellowcake on their exploration tenement.

The advice is simple: "Forget it because it'll never happen."

Now, before dashing off an abusive letter accusing The Slug of being a negative Nelly, or something worse, let's consider a few facts behind the great uranium boom of 2006 – and the equally great (or equally silly) boom in geothermal power.

For starters, uranium is one of those products that is damnably difficult to mine and process. It is not something that Uncle Bob digs out of the ground with his bulldozer, and Cousin Albert delivers to a nearby mill for treating – with an ingot delivered at the end of the process, and promptly banked.

That, dear reader, is called gold.

Uranium is strictly controlled for several reasons. Firstly, it can kill you just by breathing in the radon gas it emits. Secondly, it can kill you if handled incorrectly. Thirdly, it can kill you by looking at it the wrong way, or selling it to the wrong person: "No, Mr Bin Laden, none available today, sir. Call again tomorrow."

By now, you should get the picture. Uranium is a game for the big boys of mining. It is not something that a small company can do, it is not something that the government (state of federal) will allow a small company to do, and it is not a product that foreign customers (generally foreign governments) will come shopping for at Fly-by-Night Mines NL.

The answer, say the clever dicks, is to explore and sell the discovery to the approved miners, BHP Billiton or Rio Tinto in the case of Australia, or the mega miners of North America.

The problem with that argument is that the mega miners have their own uranium. Why would they want to buy it from the small fry? After Olympic Dam, BHP Billiton has Yeelirrie and other undeveloped assets. After Ranger, Rio has Kintyre – etc, etc.

The simple truth about the uranium boom of 2006 is that it is identical to earlier booms in metals like nickel, copper and zinc, yet it is also totally different in that in those earlier booms the small explorer had a chance, even if it was remote, of becoming a producer.

In uranium, there is no chance, which leads to The Slug's final words: enjoy the boom, trade those shares hard, but don't be the last man holding the share certificate.