Fifty years ago, uranium fever hit Wall Street. It was then just a few
years after a Navajo shepherd in New Mexico, by the name of Paddy
Martinez, discovered “yellow rocks” on his property, mistaking them at
first for gold. An avalanche of 1950s dollars (more valuable than the
ones we have today) poured into mutual funds and uranium mining stocks,
sending their values to astronomical levels. Get ready for déjà vu all
over again, as Yogi Berra once said. Trend spotter, James Dines, editor
of The Dines Letter, believes uranium mining stocks could become just
as hot, or hotter, than the Internet stocks of the 1990s. (Editor’s
note: StockInterview.com interviewed James Dines on July 20, 2004, when
he forecast a “buying panic in uranium.” Since then, spot uranium (U3
08) prices have nearly doubled. Over the past 35 years, Dines has
successfully predicted mega trends in gold, internet, palladium and
uranium price movements). And now investors are chasing uranium mining
stocks again.
A look at industry leader, Cameco (NYSE: CCJ), which money manager
Robert Mitchell called the “Saudi Arabia of uranium,” shows a
three-year gain of more than 700 percent. Over the past few years,
Australian-traded Paladin Resources, skyrocketed from under a dime to
over $2/share (A$). A recent Forbes magazine cover story, entitled
Going Nuclear, analyzed uranium’s recent price surge, “One reason the
price of uranium should keep escalating is that producers are only
starting to ramp up to meet the strong demand. Utilities globally need
180 million pounds of uranium annually, but at this point a mere 108
million pounds are coming out of the ground.”
Why the sudden jump? A Morgan Stanley institutional report, published
in December 2004, explained that through the 1990s, uranium oxide
prices stayed low because surplus uranium came into the market from
weapons decommissioning. That surplus inventory worked its way through
the market. The Morgan Stanley analyst forecast a “deep supply-side
shortage” of uranium, citing that new mining production hasn’t yet come
online to remedy the deficit. In the year-ago forecast, the uranium
deficit was expected to grow to nearly 20 million pounds this year
(from a surplus of 6 million pounds in 2003), and then leap to a peak
deficit of more than 35 million pounds in 2006. Deficits in excess of
30 million pounds were also anticipated for 2007 and 2008. According to
the Morgan Stanley analyst, $50/pound may be possible in the spot price
for uranium oxide, known in the trade as “yellowcake.”
Mining Newsletters Favor Strathmore Minerals
What’s that mean for uranium stocks? Higher prices should be
anticipated as more investors, mutual funds and hedge funds search out
the best returns. While the lion’s share of investment dollars is
likely to chase Cameco’s price higher, the robust percentage gains in
that stock may have already peaked. Generally, new money searches for
well-capitalized junior mining stocks with solid uranium projects in
their portfolio. One of those most frequently recommended among mining
newsletter writers is Strathmore Minerals Corp, trading on the Toronto
Venture Exchange (ticker symbol STM.V). Prominent among Strathmore’s
projects are in-situ leach mining operations proposed for Wyoming and
New Mexico, plus an aggressive exploration program in the world’s
richest uranium areas, Saskatchewan’s Athabasca Basin (home to uranium
mining giant, Cameco).
In September, letter writer Lawrence Roulston of Resource Opportunities
recommended Canadian-based Strathmore Minerals (TSX-V: STM), writing,
“The company is systematically adding value to the projects most likely
to be significant in the near term, especially those with near-term
production potential.” Also in September, Resource World contributing
editor, Alf Stewart, wrote, “The two deposits Strathmore is developing
were ‘cherry picked’ from the inventory of Kerr McGee, largest private
explorer of uranium prior to that industry grinding to a halt in the
early 1980s. As these properties are largely drilled off, Strathmore
may be considered more of a uranium development company than an
explorer.” This past June, money manager Adrian Day recommended uranium
stocks in his research report, writing, “So I am focusing on four main
areas in uranium, with one or two buys in each… top exploration
companies that have the goods and are likely to bring properties into
production. Strathmore Minerals, with technically strong management,
lots of properties, and a strong balance sheet, is arguably the best.”
New Uranium Discovery in the Athabasca Basin?
Here’s one of the stronger reasons why investors might anticipate a
strong rally in Strathmore’s share price over the coming twelve months:
In a November 16th news release
(http://biz.yahoo.com/bw/051116/20051116005591.html?.v=1), Strathmore
Minerals announced a discrete conductor, more than 30 miles long, after
completing an airborne geophysical survey on the company’s Davy Lake
property, in the north central portion of the Athabasca Basin.
According to the company’s news release, “The conductor's profile
response indicates a deep and in places, broad source.”
Virtually all the significant unconformity uranium deposits known in
the Athabasca Basin are directly associated with fault structures
associated with graphitic conductors. Deposits such as Key Lake, Cigar
Lake and McArthur River were found by drilling electromagnetic
conductors located within magnetic lows.
In an interview with Jody Dahrouge, of Edmonton-based Dahrouge
Geological Consulting Ltd, he told StockInterview.com, “Early
indications are that this conductor is similar with other known uranium
deposits, graphitic conductors with magnetic lows.” On a scale of one
to ten, Dahrouge rated the Davy Lake conductor a ten. “It is a long
conductor, cut by structures, with deep depth and associated by a late
fault,” explained Dahrouge. “It is a high quality conductor that
continues to depth, and it is typical of those occurring that are
associated with known uranium deposits.” Dahrouge described how the
MegaTem II airborne geophysical survey was able to pinpoint the
conductor as shallow as 600 meters and running deep to 1200 meters.
Dahrouge made comparisons to other uranium deposits in the Athabasca
Basin. “The Sue Deposit near McLean Lake is associated with an
electromagnetic conductor that is approximately 2.6 kilometers long,”
he said. “Based on our work at Waterbury Lake, we identified an 8
kilometers long conductor associated with the Midwest Deposit(s). The
'P2' conductor at McArthur River is approximately 13 kilometers long.
This feature was first identified in 1984, by a ground Deep EM Survey.
The Shea Creek deposits, located south of Cluff Lake, are associated
with an approximately 25 kilometers long conductor, known as the
Saskatoon Lake Conductor.” Dahrouge added, “These deposits are located
at depths similar to what we expect at Davy Lake.”
What is probably most significant is Strathmore’s gamble, by exploring
away from the eastern parts of the Athabasca Basin, some 300 kilometers
from the eastern Athabasca Basin, where the major discoveries have been
made. “It was virtually unexplored,” Dahrouge said with excitement in
his voice. “It’s really virgin ground.” While there is ample evidence
suggesting multiple uranium deposits in the Athabasca Basin, other
junior exploration companies are looking at the shallow parts of the
eastern basin, which may not likely yield economic uranium ore. One
pundit acidly questioned some of the current exploration activity in
the Athabasca region, “Are they really re-flying old ground that’s
already been flown a hundred times, or are they just releasing old data
to save money?” Dahrouge pointed out that the uranium appears to be
running deeper for many of the newer discoveries, as he believes the
Davy Lake property might hold true for Strathmore Minerals in the north
central part of the Athabasca Basin.
Important features in many Athabascan uranium deposits are the
cross-cutting fault zones. Dahrouge confirmed the Davy Lake conductor
has cross-cutting fault zones with a sinistral (left-sided) fault about
halfway along its length. According to Dahrouge, there is also a
“conductor extension which crosses the fault from west to east and
‘flows’ out into a small, sub-circular magnetic low.” As with many of
the Athabascan uranium deposits, which tend to be found between
overlying sedimentary units and underlying basement rocks, the Davy
Lake conductor fits the bill. Strathmore Mineral’s president, David
Miller, told StockInterview.com, “the 50-plus kilometer geophysical
anomaly appears to indicate a basement conductor.” However, Mr. Miller
tempered the exhilaration in the air, “A geophysical anomaly does not
make an ore body. These exciting initial results will be followed up
with infill geophysical lines, followed by ground geophysics, followed
by shallow drilling, looking for alteration. When we have narrowed the
target to drill, we will pull in the big rigs and test the conductor at
the unconformity.” Dahrouge remains excited about the Davy Lake
conductor, and said, “Clearly this represents an excellent exploration
target for unconformity type uranium deposits.
What does all that mean? It could explain why Strathmore Minerals might
well be on the road to a world-class uranium discovery as further
exploration more clearly defines how valuable those newly discovered
conductors might become. Meanwhile, Strathmore’s New Mexico and Wyoming
properties (amounting to potentially several million pounds of uranium
resource) are in the preparatory phase of the permitting process. As
the spot uranium price inches forward to the widely accepted short-term
target above $40/pound, several of Strathmore Mineral’s properties may
become instantly more valuable to a utility company who will someday
need the company’s uranium oxide to fuel their nuclear reactor.
