Uranium Mining and Exploration

[Arctec]

Crisis at Cigar Lake: Time to Back Up the Truck on Uranium Stocks?
Source: Doug Casey - Casey Energy Speculator 10/31/2006

Ever since I got onto the uranium story back in 1998, I have remained a steadfast believer that yellow cake was headed north of $100. The rationale for that projection is as clear to me today as it was back then. Simply, nuclear power is the cleanest, safest, cheapest and most abundant source of mass energy on the planet. Yet, thanks to environmental alarmists, almost universally ignorant of science and technology, egged on by an arm-waving priest class, both new uranium mines and nuclear reactors can take upwards of 20 years to bring on line. As a result, uranium has been in a worsening supply deficit since 1989.

So far, so good on my original call, with prices now topping $60 a pound, up 700% from the low of $7.10 a pound in 2001. Those gains in the underlying commodity have translated, literally, into fortunes for some of our subscribers, those who bought into the uranium stocks we brought to their attention while they were still selling at bargain prices.

But just when I thought the picture for uranium couldn’t improve, the news broke that Cameco’s much anticipated Cigar Lake Mine had flooded.

For reasons explained by Dave Forest, editor of our Casey Energy Speculator, the uranium story just got a whole lot better. It’s a story you’ll want to pay attention to. - Doug Casey

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. . .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.

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