URANIUM REVISITED

Hello Rogue Investors,

Remember NO NUKES and other popular slogans? These anti-uranium campaigns became so popular that starting in the mid-1970s, many commercial uranium mines were closed down. Chernobyl and Three Mile Island were the icing on the uranium-going-away party cake. In fact, I can tell you from personal experience that most uranium mines in the United States have been closed down for decades. As a geologist, I love to visit old mines, and just about every uranium mine I have researched or visited has been closed for years.

But with $50 to $60 oil prices, things are starting to change quickly. If oil sands are one of the first to our current energy investing party, uranium could be the Cinderella investing story. Once an investing joke, uranium companies are another of my favorite investing areas for the next 5 to 10 years, if not longer.

Just research uranium companies and the uranium market and you will start to appreciate a very undiscovered and undervalued market.

While the price of uranium has more than doubled over the past year and just about every industrialized country in the world has declared that they are going to start or boost their uranium power generation capabilities, it is hard to find even more than a handful of publicly traded uranium companies. China recently announced that they are going to build 60 new nuclear plants over the next 20 years.

A supply bottleneck is already building and the problem will not be rectified soon enough to avoid a large spike in uranium prices.

This is not only because most uranium mines are mothballed. It is also because the time to get a uranium mine developed and permitted is long. Uranium and its by-products are possibly the most lethal substances known to man and a top target by terrorist groups. Anyone wishing to mine, transport or process uranium faces rigorous government regulations and inspections.

So where are the world's uranium deposits located?

Amazingly, Canada, principally Alberta and Saskatchewan, is one of the biggest players in the uranium market. Here is an excellent article on uranium reserves in Canada: http://www.uic.com.au/nip03.htm

The United States has a few uranium companies to their credit. Virtually all of the United States uranium reserves are located in the Southwest and West, with western Texas, New Mexico, Arizona, Utah and Wyoming all having uranium deposits.

Australia also has substantial reserves, but their uranium deposits are largely undeveloped. Russia and Africa have large uranium deposits, but commercial development of uranium mines in these countries is slow for political reasons.

This leaves a huge market to a few players that have survived a long downturn in prices. Here are some interesting plays in the uranium market:

Cameco (CCJ). Cameco is the largest uranium producer in the world. Based in Canada, this company has a market cap of about $9 billion, but its reserves far exceed that value if uranium prices stay above $20 per pound. This is a good, solid, stable company that will likely double or triple in value over the next three years. Over the next 10 years, if uranium prices continue their upward trend, this company could rise 5- or 10-fold in value. This company also has interests in uranium mines throughout the world, including Australia. Cameco is probably the safest uranium play today.

USEC, Inc. (USU). USEC is one of the stranger players in the uranium market. Rather than mine uranium, this company has focused on uranium processing and is currently the only company in the world that is scheduled to convert weapons-grade uranium into reactor uranium on a large scale. The project, called Isaiah, is designed to turn "megatons into megawatts," and is a joint agreement between Russia and the United States to take nuclear material from atomic weapons and convert it into a form that can be used in reactors. These nuclear weapons include those decommissioned by treaties and age. Few people know it, but nuclear weapons require high-grade (pure) fissionable material; after a few years of decay, sitting in wait for the nuclear holocaust, the old fissionable material must be removed and new, more pure fissionable material added. Where is all this waste uranium going? Until now, most of the waste uranium has been sitting in storage because no one could agree on what to do with it. USEC is currently building a huge centrifuge, called the American Centrifuge Project, to process all this weapons-grade uranium. A centrifuge is one of the most efficient ways to separate metals into their purest form. However, a centrifuge capable of processing tons of radioactive material needs to be very large and very safe, requiring special materials and lots of testing. Therefore, there is some risk with this company because the American Centrifuge Project is costing the company close to $2 billion. But at their current market cap of $1.5 billion, the company looks undervalued. If they succeed, this could be a $10 to $20 billion company.

UEX Corporation (UEXCF). UEX is a good, small cap play in the Canadian market. Their largest shareholder is Cameco, and they own a large portfolio of uranium projects in the richest uranium mining region in Canada. Valued at about $425 million, this company has lots of upside potential.

Denison Mines (DEN on the Toronto Stock Exchange). Unfortunately, Denison Mines is only traded on the Toronto Stock Exchange currently. However, its market cap of about $450 million looks interesting, considering the company has interests in some of the largest uranium mining operations in Canada.

United States Energy Corporation (USEG). United States Energy is a smaller player, with uranium deposits as well as other metals including vanadium and gold. The current market cap of this company is only $65 million, but the risk is high since much of the company's reserves are under development or sitting idle. Use only risk capital at this stage of investing, but if metals prices remain firm and the company can execute its business strategy, rapid revenue growth could happen. Uranium Power Corporation (UPCFF), another interesting small company in the uranium business, is working with United States Energy to mine a uranium mine in Wyoming.

Australian uranium companies are more difficult to research. However, here is a good link to a website that profiles the Australian uranium market:
http://www.sea-us.org.au/corpfilez/writeaway.html

Happy investing,

Bryan Rundell