Mining the Newsletters for Uranium-Part III

This is the last part in the continuing series of sleuthing out uranium mining and holding companies. (Yay!) Today we'll uncover the fifth stock mentioned in my newsletter's teaser ad and I'll also touch on the current world status of uranium to show you just how misleading their ad is. My hope is that by the time you finish reading this, you'll have a better understanding of how these teaser ads work so that you won't impulsively buy into whatever they're selling, often at a significant cost to your pocketbook.

Here we go with the last teaser stock.

Clues to the Fifth Uranium Mining Stock:
A little background hyped by the newsletter to whet your interest in this stock:

“In 2005, the Chinese government spent roughly $72 million dollars on this fuel. But according to current government estimates, China is about to increase that expenditure to a whopping $119 billion in the months ahead...”

“The Australian government is on the verge of approving this sale of uranium to China. Trade agreements have already been ratified, and the Aussie government has already said that “… we could have uranium going into China in the first half of next year.” “

[Aside: The treaty between Australia and China was actually ratified in August, 2006. This is another piece of evidence that the original come-on newsletter was written well before that.]

Okay, here are the clues:

1. One Australian company has a near monopoly on sales of uranium to China.
2. This company paid $7.2 billion to buy the largest uranium mine in the world, and is spending “$5.8 billion to expand the mine into the largest uranium producer (not to mention the third biggest copper and gold producer, to boot).”

What is this company? It's BHP Billiton--again! That was the first teaser stock we uncovered in Part I. Yep, it's a pretty sneaky thing to do, and I can't fathom why they did it. Perhaps they felt you needed further enticement to buy their product..? Boy, if I had taken their bait and later found out I had been duped, I wouldn't be very happy nor would I trust their investment advice. On the other hand, I could be wrong in my assessment but I did the research and am quite sure of my findings.

Wrap-Up: The Case for Uranium
My newsletter portrays uranium as the next oil industry, promising significant gains to those holding their “block-buster” uranium stocks. They paint a rosy portrait, but they don't even touch on the risks and obstacles to getting the ore out of the ground, not to mention the problems of enriching or selling it. I feel it's my fiduciary duty to at least touch on the potential downsides of their uranium scenario.

What are some of these obstacles? In researching this piece I found that analysts were most concerned with infrastructure problems, the lack of experienced mine workers, and stable access to enrichment services which is a big legal problem for many countries. Environmental impact concerns continue to dog the industry as well as regulatory issues, most notably in Australia where new mining is still restricted, although that might change soon.

My newsletter contends that uranium is undervalued and is cheap even at $500 a pound. But that brings up two questions. One is: “Does that mean every pound of mined uranium is created equal?”

The answer is no. Here's the reason:

There's about five million tons of uranium world-wide that is known to be recoverable. Australia leads with 24% of the world's known supply, followed by Kazakhstan at 17%, Canada at 10%, and the U.S. and S. Africa with about 7% each. But more important than the amount of recoverable ore is the grade of the ore; the lower the grade, the higher the processing cost. The only country that has a significant holding (around 20%) of high grade ore (>1%) is Canada. On the other hand, roughly 90% of Australian deposits have grades less than 0.06%, and much of Kazakhstan's ore is less than 0.1%. What this all means is that companies with significant Canadian holdings will have an easier time processing and selling their uranium.

The second question is: “Can technology provide a way of making reactors more efficient thus using less fuel?"

The answer to this is yes. In an excellent article (which I strongly encourage the curious to read) written on Nov. 2, 2007 for the Council on Foreign Relations, writer Toni Johnson explains it this way:

“Currently, there are nearly one thousand commercial, research, and ship reactors worldwide, more than thirty are under construction, and over seventy are in planning stages. The world currently uses 67,000 tons of mined uranium a year. At current usage, this is equal to about seventy years of supply. The World Nuclear Association says demand has remained relatively steady because of efficiency improvements, and it is projected to grow “only slightly” through 2010. However, more efficient nuclear reactors, such as “fast-reactor” technology could lengthen those supplies by more than two thousand years. Experts say spent fuel can be reprocessed for use in reactors but currently is less economical than new fuel.”

What this means is that more efficient reactor technologies may actually decrease the rate of demand for uranium. Does that mean that uranium will never see $500 a pound? I think there are just too many variables to even make that, or any, prediction.

Conclusion:
What can we take away from this? The point I've been stressing all along is that you need to view these newsletter come-ons with a jaundiced eye. It pays to do your homework. To blindly accept someone else's views is only doing them a favor, not you. And that includes me.

Tomorrow I promise some lighter fare. Tonight I'm having dinner with Maria Bartiromo and Tony Crescenzi. The menu had better be Italian!

What to wear, what to wear...

Sources:
Council on Foreign Relations Article: http://www.cfr.org/publication/14705/global_uranium_supply_and_demand.html
List of Uranium Mining and Exploration Companies:
http://www.wise-uranium.org/ucompa.html