Market Outlook Journal
by James Finch - Please email your feedback to
jfinch@stockinterview.com
Editor’s Note: Please visit StockInterview’s disclaimer page for full disclosure, forward looking statements, important links and cautions.
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April 3, 2006 |
Utility Demand Driving Uranium Prices Higher
An omnibus news release, issued by Uranium Resources (OTC BB: URIX), emphasizes the underlying stress this uranium bull market is creating for utilities. Friday’s press release by Uranium Resources appears to confirm that spot uranium prices should run much higher. Uranium Resources announced it was restructuring its long-term sales contracts in order to establish a “market related” contract with Japanese mega billion conglomerate Itochu Corporation, which has more than 150 offices in 80 countries and over 4,000 employees. This news release shows you how well Mr. Willmott is tuned into the uranium market, where he has spent nearly 50 years.
On February 10th, we published a rare interview with Paul Willmott, Chairman and Chief Executive of Uranium Resources, about the nature of the current uranium cycle. He told StockInterview.com, “…everybody is entering into ‘market related contracts,’ which is the price at the time of delivery. Because it’s a seller’s market, they are able to get floors that protect them in the same way they would be protected by having a long-term price.”
Willmott did just that. He is willing to pay Atlanta-based UG USA, a uranium broker and trader, $12 million to terminate a long-term uranium supply contract, which would have run through 2008. His terms with Itochu Corporation established a floor of at least $30/pound on the first 3.65 million pounds of uranium deliveries. Uranium Resources also plans to raise up to $45 million, will reverse split its stock 1 for 4, and hopes to list on the NASDAQ National Market. With a market capitalization in excess of $300 million, and climbing, there is no surprise with that announcement.
What Uranium Resources accomplished with Friday’s news release was two-fold: (a) it points to a higher spot uranium price over the next several months; (b) other utilities have been alerted and may begin pursuing deals with other U.S. uranium juniors. We have frequently written that there is a scramble on for uranium by U.S. and Asian utilities. At least two uranium juniors have told us they’ve met with utility companies about contracting for their not-yet-mined uranium. These were early negotiations. Friday’s news announcement has primed the pump for these and other negotiations to accelerate.
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Strathmore Minerals and Energy Metals Corporation both hold uranium properties in the Church Rock (New Mexico) area, where Uranium Resources plans to commence ISL operations in a joint venture with Itochu Corporation. |
Uranium Resources plans to produce about 12 million pounds of U3O8, using in-situ solution mining, on the Church Rock (New Mexico) property. |
Uranium Resources also announced a joint venture with Itochu to develop the company’s Church Rock (New Mexico) property. Itochu has agreed to fund development costs, estimated at $32 million, in exchange for 50 percent of the profits. Itochu will also pay the cost of a feasibility study, about $675,000. That Itochu has decided to pursue this joint venture is a very positive sign for not only Uranium Resources, but for others who plan to develop their New Mexico uranium properties. The two top contenders include Strathmore Minerals (TSX: STM; Other OTC: STHJF) and Energy Metals (TSX: EMC). Both have properties nearby (within walking distance) of Uranium Resources’ Church Rock property. What is good for Uranium Resources will also be good for these two uranium development companies.
The primary concern some investors had about Church Rock was that there might be delays because of the New Mexico environmentalists and their surprisingly strong influence over the current Navajo president, Joe Shirley Jr. With the entrance of Itochu into New Mexico, this may open the door to greater uranium mining development efforts in that state by the current contenders. We believe this may open the doors to more companies taking a greater interest in New Mexico. It would not be surprising for other major companies, on the level of an Itochu, to begin thinking about buying into New Mexico for uranium mining.
Itochu Corporation History Highlights
Founded: 1858 |
1858 |
ITOCHU's founder, Chubei Ito, commenced linen trading operations at the age of 15. |
1893 |
Chubei Ito establishes Itoh Itomise (Thread and Yarn Store), to which ITOCHU traces its roots. |
1918 |
C. Itoh & Co. is transformed into a public stock company-C. Itoh & Co., Ltd. |
1949 |
Daiken Co., Ltd., a company created from the merger of trading and manufacturing firms during World War II, sepa- rates into C. Itoh & Co., Ltd., Kureha Cotton Spinning Co., Ltd., Marubeni Co., Ltd., and Amagasaki Nail Works, Ltd. |
1969 |
The Company is commissioned to supply a complete oil refinery to Algeria for approximately $70 million, the most expensive Japanese plant export contract at that time. The Company becomes the first Japanese sogo shosha to procure an impact loan from the United Kingdom. |
1971 |
The Company assists in arranging a basic contract for cooperation between General Motors Corporation of the United States and Isuzu Motors, Ltd. of Japan. |
1972 |
The Chinese government welcomes C. Itoh as a friendly trading company, the first such recognition given to a Japanese sogo shosha. |
1979 |
The Company receives an order from Saudi Arabia for the construction of the world's largest water desalination plant. |
1985 |
C. Itoh obtains an order for the construction of the second bridge spanning the Bosporus. |
1989 |
Japan's first private-sector communications satellite, JCSAT-1, is successfully launched. |
1993 |
Beer production in China begins in cooperation with Asahi Breweries, Ltd. |
1995 |
ITOCHU acquires the Yarun power plant, a coal-fired thermal electric power generation facility in Australia. |
1995 |
The Company begins participating in the development of three oil fields in Azerbaijan. |
1996 |
ITOCHU helps establish Japan's first multichannel digital television broadcasting service, PerfecTV!. |
2000 |
Tie-up with The Seibu Department Stores, Ltd. Also, capital participation in Seibu Department Stores and YOSHINOYA D&C Co., Ltd. |
2001 |
Marubeni-Itochu Steel Inc. established. |
2002 |
ITOCHU and the government of China's Shandong Province team up to jointly develop businesses in the province |
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March 31, 2006 |
The Straight Scoop on Uranium
To answer a number of subscriber questions, StockInterview's Investor's Guide to Uranium Stocks should be completed in time for the International Investment Conference in New York. This conference takes place May 15th and 16th at the Marriott Marquis Hotel. This book will retail for $12.95 and should be available later this year in major bookstores. All StockInterview.com subscribers will get a hard copy of this book, at no charge (we pay shipping, too).
Below is an amusing excerpt that explains the etymology behind the word, uranium. You may find it an amusing historical anecdote. The following is a preview from the uranium guide's Chapter One, "The Misunderstood Commodity."
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Blame the scientist who “almost” discovered uranium on why this atomic element is named after the seventh planet from the sun. Imagine if the sequence below had taken place in any other way. What would we now be calling the yellowcake that powers nuclear reactors across the world? You would be surprised. This is the story behind uranium’s name.
The word “uranium” has a confusing past, but through no fault of its own. Since the beginning of the sixteenth century, in a silver mining town in an area which is now part of the Czech Republic, miners discovered a black mineral they called “pechblende.” Pitchblende, or uraninite as it is now better known, is a uranium-rich mineral which is also comprised of lead, thorium, radio and rare earths. In the late 19th century, it was from this same northwest Bohemian town where Marie Curie got her pitchblende and isolated radium and polonium from the ore.
European scientists Roentgen, Becquerel, Villard, and others were aggressively experimenting with pitchblende and discovered ionizing radiation, X-rays, beta radiation and gamma rays. Pierre and Marie Curie named the gamma ray phenomenon, attributed to the radium in pitchblende, “radioactivity.” MIT professor of biology Samuel Prescott, who was closely following Madam Curie’s research, began testing those gamma rays on food. He discovered the gamma rays destroyed bacteria in food. From Prescott’s work, food manufacturers discovered they could extend the shelf life of canned goods. Since then, radiation and radioactivity have become an integral part of both the medical profession and the food industry.
Let’s go back about one century. In 1789, Martin Heinrich Klaproth presented his discovery of a “strange kind of half metal” to Berlin’s Royal Academy of Sciences. The German chemist had, on the face of it, isolated uranium oxide from pitchblende. Klaproth suggested this new atomic element (number 92 on the periodic chart) be called “uran.”
Not until 1841 did another European scientist, Eugene-Melchior Peligot, finally isolate uranium as an atomic element. Klaproth was just stabbing in the dark when he tried to identify what “uranium” was. He failed to explain what uranium was, or even to understand it. Nonetheless, his credibility remained intact as a pioneering scientist. Martin Klaproth was later credited for isolating zirconium, chromium and cerium.
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Sir William Herschel was considered to be the most famous astronomer of the eighteenth century, but he didn’t want to call the seventh planet, Uranus. |
Klaproth’s naming ceremony for uranium was a political move, moreso than a scientific christening of the 92nd element. It was because of Dr. Bode. His Royal Academy colleague, German astronomer Johann Elert Bode, had been fuming since England’s William Herschel had discovered the seventh planet. Herschel honored King George III by calling this planet, “the Georgium Sidus (the Georgian Planet). Bode argued the new planet be renamed to conform to the classically mythological names of the other planets, such as Mercury, Mars, Venus, Jupiter and Saturn. Bode chose Uranus, the Greek name for the earliest supreme god.
The Uranus planetary debate went on for about, and was finally settled in 1850, about the same time that a British firm began using uranium in glass to give it a fluorescent yellow or greenish appearance. The point is this: If Klaproth hadn’t contributed to the Uranus-versus-Georgium Sidus debate by naming his “strange half metal” uran, we might be calling uranium stocks something else.
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March 27, 2006 |
Is it Three Mines or Four?
6 Tips for African Uranium Stocks
(Editor’s Note: At the end of this article are 6 Tips for Investing in Uranium Stocks in Africa, shared by Graham Greenway, formerly chief geologist for Rio Tinto’s Rossing uranium mine in Namibia.)
Spot uranium prices continued on a tear, rising to $40.50/pound this past week, as the uranium supply squeeze of 2006 takes hold. One uranium mining insider told us there were now more than 450 uranium exploration, development and producing companies. Some hold options to properties and want them explored. Others are negotiating options. Very few of those are proceeding with any serious plans. One which hopes to move forward into bankable feasibility, possibly as early as a year from now, is Forsys Metals (TSX: FSY).
On March 2nd, StockInterview.com published a feature, entitled, “A Third Uranium Mine in Namibia.” The sub-title discussed how Forsys Metals hoped to repeat Paladin’s (TSE: PDN) success in Namibia. Four days later, Namibian, a local newspaper, ran the headline: “Third Uranium Mine on Way.” The report summarized the development, “ANOTHER uranium mine in the Namib Desert is in the pipeline. Gulf Western Trading Pty Ltd, which plans to trade as UraMin Namibia, has announced that it has applied for the renewal of its mineral licence in Namibia for deposits at Trekkopje and Klein Trekkopje.”
What the heck? We thought the headline was about Forsys Metals. But it was about a competitive mining company.
There are some geographical similarities. Both the Forsys Metals’ Valencia and UraMin’s Trekkopje uranium deposits are about 35 kilometers from the Rossing uranium mine. The Valencia deposit is about 40 kilometers to the north of Paladin’s proposed Langer Heinrich uranium mine, while UraMin’s deposit if 80 kilometers to the southeast. Registered in the British Virgin Islands last year, Gulf Western Trading Pty Ltd and UraMin have offices in London and South Africa. They do not appear to yet be publicly traded. Forsys Metals has offices in Toronto and trades on the Toronto Venture Exchange.
Curious about this development, early Friday morning we phoned Johannesburg, South Africa to interview Mr. Graham Greenway, from whose technical report we quoted when writing about the Forsys Metals Valencia uranium deposit. Basically, we wanted to know if there was a race on between the two companies. “They are probably pretty much on a parallel,” Greenway told StockInterview.com. “Both are fairly mature projects. They’ve been looked at in the past. They were sub-economic in the past. They are both doing confirmation work.” Greenway repeated his emphasis, “They are on a parallel track.”
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Graham Greenway
Principal Consultant
BSc (Hons) Geology University of Natal, MSAIMM, MGAA |
| Graham is a geologist with more than 13 years experience in the African mining industry. His career includes experience as a Mine Geologist in gold, tin, copper and uranium, as well as an Exploration Geologist working in the Bushveld Complex of South Africa and as a Resource Evaluation Geologist for Gold Fields including projects ranging from West African Wits type multiple reef gold deposits, coal, porphyry copper-gold to massive sulphide base metal deposits. His most recent posting has been as Chief Geologist for the opencast Rössing Uranium mine in Namibia before joining Snowden in February 2003. |
So, would it be possible that Namibia will have four uranium mines before the decade ends? “It wouldn’t surprise me,” Greenway said. “When I look over at Rossing, they are also looking for alternative sources of uranium around the Rossing area.” Before becoming a resource evaluator for Snowden Mining Industry Consultants in Johannesburg, Greenway evaluated resource deposits for the Rossing Mine as the mine’s chief geologist. Snowden is a highly respected international mining consultant firm with offices in Johannesburg, Perth, Brisbane, London and Vancouver. One of the uranium deposits Greenway evaluated for Rossing was the Valencia deposit. “They and Rio Tinto have a wealth of information about the exploration done up to Valencia,” Greenway told StockInterview. “There is quite a bit of interest in that area.”
Well, is UraMin going to scoop Valencia, or will the Valencia deposit move along as scheduled and be the third Namibian mine? Hard to say was Greenway’s enigmatic response. But the geologist did spell out a few good points to consider about the Forsys Metals uranium deposit. “Valencia is pretty small in terms of low-grade uranium deposits,” explained Greenway. “But it is a hot area. It is within the right corridor for uranium mineralization, for that style of uranium mineralization in Namibia.”
Is the Forsys’s Valencia deposit too small on its own to become a uranium mine? No, thinks Greenway. “When I looked at a very rough financial model, it could be a stand-alone operation,” he pointed out. “I think it is a compact deposit. It can be mined by open pit. It’s not a mine that can do damage to the environment. From that point of mind, it won’t have a large environmental impact – it will have a fairly small footprint.”
Greenway added, “There is the potential for extraction to a certain point before it is handed over to someone like Rossing.” Does that mean Forsys would sell their uranium deposit to Rossing? Greenway was quick to respond, “I wouldn’t say ‘sell the deposit to Rossing.’ Speaking to the guys at Forsys, they are very keen on developing a mine.”
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Recent mining activity is near the Rossing uranium mine in Namibia, which is in the Erongo region. |
Let’s cut to the chase here. Is the Valencia an economic deposit or not? We ask because we would like to know if this might be Namibia’s third, or possibly fourth, uranium mine. “I would think so, yes,” Greenway responded, “Under the right conditions, I think it could be economic under the current mining plan.” For the record, in his technical report, Greenway wrote, “… the Valencia Project represents an advanced staged uranium project that has potential for development as an economically viable mining operation.” He also wrote in his technical report, “Uranium mineralization has been identified over an area of 1,100 meters north-south by 500 meters east-west.”
How far is Forsys on their pre-feasibility? We asked Sean Felker, corporate communications for Forsys Metals. “We have three drills on site,” he answered. “We’re drilling to the east zone to extend the mineralization.” He stressed that Forsys was fast-tracking the project, and he believed the company was about a year away from a bankable feasibility.
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Forsys Metals is drilling toward the eastern zone, hoping to extend the uranium mineralization and increase the number of resource pounds on their property. |
At least Forsys has resolved one of the drawbacks for uranium mining in Namibia. “One of the difficulties, especially within Namibia, is going to be water. The biggest one is going to be water,” stressed Greenway. Sean Felker proudly announced, “We don’t have to truck in water anymore.” The company had been trucking in water about 65 kilometers from the coast. Now they don’t. “We drilled for water, and we have water on site,” Felker told StockInterview.com. That’s a hurdle overcome, but it does pose a concern investors should have about better understanding various uranium companies, especially those in Africa.
The uranium bull market has opened the doors of Africa for many uranium exploration and development companies. Most are Canadian or Australia juniors; some are South African miners being financed Canadians, through the TSX, or through London’s AIM. Greenway observed that the excited was “pretty widespread.” The countries he found in which there was the most interest were, “The Democratic Republic of the Congo (DRC), Namibia, Angola, Tanzania.”
At this point, it might be important to discuss risk factors.
Risks for Uranium Stocks in Africa |
As with investing in any natural resource company, the most significant item to consider is whether there is an economic deposit to be mined. Of course, there are numerous other considerations, which a knowledgeable registered investment advisor might clarify. From his perspective as an experienced geologist, Greenway suggested investors consider at least the following six items when studying uranium companies who are developing a property in Africa.
1 Political Risk. As with any “exotic” country or continent, such as Mongolia or Central Asia, there is the questionable political risk. Case in point, we asked Greenway if there were any African nations to avoid. “Zimbabwe has a lot of certainty as what’s happening there at the moment,” he responded. “Niger has political and water issues.” From our analysis of news items, Namibia appears to be a politically stable.
2 Infrastructure. Unless the deposit is world-class, if there is no infrastructure in place, then the deposit will stay with Mother Nature a little while longer. Infrastructure can mean roads, a pipeline, or whatever transport system is required to move ore to a processing facility. If the project is sufficiently large, infrastructure will be built to service the deposit. In the case of Forsys Metals’ Valencia Deposit, it is near the Rossing mine. Not so near that some additional infrastructure might be necessary, but not hundreds of miles away from a mill, either.
3 Water. Many parts of Africa are arid. The world’s largest desert, the Sahara, is part of the African continent. Namibia’s uranium deposits are in a desert. Therefore, there must be readily available water to explore and mine the deposit. “Niger has been having a drought.” (Note: Greenway did, however, commend Niger for having developed infrastructure.)
4 Electricity. “Namibia is very reliant upon South Africa for their electrical supply,” said Greenway. “But they are talking about expanding their KUDU gas fields in the south, to build gas-fired electricity plants.” Other countries may rely upon expensive diesel to generate electricity. Ironically, the cost of uranium mining may be dependent upon the price of crude oil, more so in Africa than a major coal-producing region, such as Wyoming.
5 Tenure of Ownership. “Previously, Angola and Congo had issues with the tenure of ownership,” said Greenway. “You’d find two companies owning the same piece of ground depending upon who got bribed the most.” Greenway suggested this might still be found in the Democratic Republic of Congo (DRC). “Land ownership is pretty clear cut in Namibia,” Greenway noted.
6 Mining Code. Basically, this defines how much the government gets to keep from the uranium mining. That’s what a mining code is really all about: royalties. “South Africa has become a bit of problem with that,” Greenway quietly stated. “Most of the other countries will let you get your money out of the country. Generally, the government will tax you 10 or 20 percent on your project, and then allow you to get your money out of the country.” He added in discussing South Africa, “There is a published code and there is a code that can be translated differently depending upon who you speak to.” Greenway concluded, “I don’t think you’ll find the same problem within Namibia.” He added that Burkina Faso had a pretty good mining code (formerly known as Upper Volta).
With any project, the maturity of an area strengthens the economic possibility of a worthy uranium project. The number of years it took for Rio Tinto to help develop relationships within Namibia may help smooth the way for Paladin, Forsys Metals and UraMin. Again, having a big guardian, such as the Rossing uranium mine, in the country where you wish to develop a mine, could expedite the mine development process.
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March 20, 2006 |
Rising Commodity Prices Causing New Turmoil through the Mining Sector
Good times in the mining sector, eh? The Gold and Silver Index (XAU) is holding steady above 120, having reached a high above 156 in January, a level it had not seen since September 18, 1987. The spot uranium price is higher than it’s been since January 1980. Crude oil? Filling up your gas tank should remind you that oil prices are still painfully high. So all of this must mean mining companies are thrilled with their good fortune? WRONG! There’s a snowballing crisis in the mining sector, which has been kept off the typical investor’s radar screen. This new emergency could drive commodity prices to even higher levels over the coming months, and possibly until the end of the decade.
The two-decade long bear market drove many geologists, and other qualified technicians, out of the mining sector. Drilling companies went bankrupt. Even with the recent explosion of activity in the mining sector, exploration in the sector is less than one-third of its peak in 1981, when more than 5,500 drill rigs were available.
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The mining sector’s labor and drill rig shortage has gone past the “we’re in a crisis” stage. Without qualified geological staff and drill rigs for exploration and development programs, companies may fail to get their projects online fast enough to satisfy the worldwide demand for their metals, whether it is gold, silver, copper, or uranium. The Baker Hughes North American rotary rig count is a good barometer of how strongly the commodities boom has impacted the sector. In 1999, the U.S. and Canadian drill rig count reached its nadir of 488. On March 17th, the number stood at 1546 and climbing. Over the past seven years, the count jumped 316 percent. Compared to a year ago, the North American Rotary Rig Count is up by nearly 20 percent. Internationally, the same rig count rose almost 60 percent.
During the course of our three-month investigation, we found the labor and equipment shortage applied not only to uranium but also to coal, oil and gas, coal bed methane and precious metals exploration. Ed Calvert, who runs Nucor Drilling Inc in Wyoming, told StockInterview.com, “There just aren’t any rigs available in the U.S. You may find one, but it’s a problem finding the right rig at the right time.” His company began searching for a drill rig in September for drilling scheduled to commence June 1st. Calvert explained that the big oil companies had signed up rig contracts so they wouldn’t get caught short, adding, “Whether the rigs are being used daily or not, they are paying the fees to hold them.”
Vancouver-based Max Resources announced in early January of this year they had received permits to drill on their Thomas Mountain uranium prospect in Utah. They hoped to drill in late January, depending upon drill rig availability. We interviewed the company’s uranium geologist Clancy Wendt, who complained in early February, “I thought I had a rig lined up. Now we have no idea when we will get a rig.” Max Resources recently announced it planned to start drilling on or about the middle of March. Norman Burmeister planned more wisely, announcing in mid January Kilgore Minerals would drill the company’s Idaho gold property in July. But Burmeister got stumped in moving his uranium property’s permitting process forward, “I am still trying to find an archaeologist for my Nevada property. They just aren’t available.” Until he finishes that step of the permitting process, Burmeister can’t lock up a drill contractor to help delineate his uranium prospect.
The drill rig shortage pales when compared to the frighteningly tight labor market in the mining sector. According to the February 2006 Employment Situation Summary, published by the U.S. Department of Labor, “Mining continued its upward trend in February, adding 5,000 jobs.” Cynthia Pomeroy, Director of Wyoming’s Department of Employment confirmed the crisis, “There is definitely a labor shortage.”
Matt Grant, assistant director of the Wyoming Mining Association adamantly announced, “There are 800 direct job openings in the mining business that could be filled today.” He quickly noted another 2400 indirect jobs to service the mining industry remain empty, begging for bodies to satisfy those positions. Starting geologists make between $35,000 and $50,000 annually. Top geologists command $200,000 and higher. Mining consultants get $800-1000/day. Even day helpers on drill rigs can charge $22/hour or more. Wyoming state and county development associations have attended job fairs in Michigan earnestly trying to fill the growing job vacancy by recruiting laid-off auto workers.
David Michaud, president of TheJobPit.com, finds jobs for geologists, metallurgists and others in the mining sector. A mining engineer and consulting metallurgist, having graduated from Queens University in Kingston, Ontario, and until recently the operations manager for Corriente Resources in Ecuador, he began his internet employment agency for the mining sector because the demand was overwhelming. “Headhunters who have been around for twenty years say they’ve never seen a market like this,” Michaud stressed. “For the last ten years, the mining industry fed mining graduates to the wolves. Now they need them. All are busy with no takers to those far away places.” Michaud lambasted the mining companies for their lack of foresight, “Mining companies have to expect the demand for professionals, such as production geologists, will go up with the price of metals. There were no jobs for the past eight years.” He added, “It takes two to five years to train them.”
For example, Michaud is desperately trying to fill a South American mining company’s job opening for an experienced metallurgist. “Free housing, two cars, four weeks off annually, two plane tickets, basically no living expenses, and a salary starting at US$150, 000,” Michaud sadly explained because no one has jumped at the offer. “In the field of metallurgy, including mill managers, metallurgical engineers, techs and operators, about 150 new jobs are offered each month.” Only about one-half will be filled. Michaud warned the copper mining companies were in especially dire straits to fill new job openings.
Uranium Sector Struggling to Keep with Demand |
The U.S. Energy Information Administration announced in its most recently published annual report, “The U.S. uranium production industry initiated a turnaround in 2004. All U.S. uranium drilling, mining, production, and employment activities increased for the first time since 1998. More companies conducted exploration and development drilling than in the prior 2 years. Employment in the U.S. uranium production industry totaled 420 person-years, an increase of 31 percent from the 2003 total. Wyoming accounted for 33 percent of the total 2004 employment, while Colorado and Texas employment almost tripled since 2003. Overall, $86.9 million went to drilling, production, land, exploration, reclamation and restoration activities in 2004.” And that was in 2004. Imagine what the employment snapshot looks like today?
While the spot uranium price continues rising, exploration companies may find it harder to recruit veteran uranium geologists, to sign contracts for drill rigs, and to operate those rigs. Nucor’s Calvert laughed, “Finding and keeping employees is definitely a problem.” Michaud explained, “Finding a metallurgist is hard enough. Finding one with uranium experience is almost impossible.” David Miller, president of Strathmore Minerals, lamented, “Expertise in the uranium industry started with geologists who made discoveries in the late 1940s through the late 1970s. They trained the next generation, which coincided with the 1970s uranium boom. That boom was short lived and fizzled out by 1981. A very small number of professionals continued in the uranium industry, during the twenty-year bear market. Now that the number of uranium companies has skyrocketed to more than 420, there is a potentially catastrophic shortage of uranium expertise.” The generation gap has come to haunt the industry.
What’s the solution? Many, such as Michaud, believe, “Retired baby boomers are coming out of retirement to fill the generational gap and ride their last metal rush into the sunset.”
Bloomberg News ran a story on December 8th discussing developments in the oil sector, “U.S. producers and contractors such as Ryder Scott, which assesses drilling projects and oil and natural-gas reserves, are working harder to keep their oldest employees and recruit college graduates because there aren't enough new engineers to go around. Engineers who help find petroleum deposits are in demand…”
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Wyoming Uranium geology guru, Ray Harris died on March 7th. Many uranium experts, who thrived during uranium’s last boom in the 1970s have either retired or died. |
Dawn Schippe is the poster girl for the new wave of uranium geologists many exploration and development companies hope to recruit and train to meet the sector’s burgeoning demand. Chief Executive William Boberg is training her to help lead the new generation of uranium geologists. |
UR-Energy Chief Executive William Boberg showed off the company’s recent hire, Dawn Schippe, during our tour of his offices, “She’s an engineering graduate of the Colorado School of Mines,” he said. “Her experience in uranium is now two weeks.” Others in his company have decades of uranium experience, but are three times Dawn’s age.
Aging talent has found its way back into the uranium sector. Aging geologists such as Dr. Boen Tan, who helped discover two of the Key Lake uranium deposits in Canada’s uranium-rich Athabasca Basin in the early 1970s, is now helping Forum Development explore for new uranium deposits at its Costigan Lake, Key Lake Road and Maurice Point projects in Athabasca. Uranerz Energy’s entire advisory board consists of former Uranerz professionals, including top geologists, Dr. Franz Dahlkamp and Dr. Gerhard Ruhrmann. Respectively, they have 45 and nearly 30 years experience in the sector. Strathmore Minerals geological team includes former Pathfinder Mines employees, a subsidiary of Cogema, including board member Dieter Krewedl, president David Miller, and vice president of technical services, John DeJoia. Some of these companies bring more than 200 years of experience, collectively, to their new ventures. But without sufficient new mining school graduates to mentor under them, future exploration and development may become stalled. Michaud announced a chilling observation, “Annually, Canadian universities produce less than 10 new metallurgical engineers.”
What is troubling about the uranium market, in particular, is that the soaring spot uranium price shows no signs of abating. The crisis comes at a time when President Bush announced his nuclear initiative, as more U.S. utilities plan to add to the country’s nuclear fleet, and as China and India clamor for a reliable source of uranium to fuel their aggressive nuclear energy programs. Without uranium for those reactors, the power plants won’t produce the electricity required to meet their demand. As an aside, uranium mining is the stage in the nuclear fuel cycle where the environmentalist fanatics are baring their teeth. This past November, an office manager at Albuquerque’s Southwest Research and Information Center, an anti-nuclear activist group reportedly funded by Mott’s Applesauce and Ben & Jerry’s ice cream, told StockInterview editors who went undercover, “We want to stop the front end of the nuclear fuel cycle, which is uranium mining.”
Don’t say the warnings weren’t made well in advance. At the World Nuclear Association (WNA) Symposium in 2004, Dr Moukhtar Dzhakishev, a Russian physicist and a former deputy minister of energy and mineral resources, presented his conclusions, “Firstly, natural uranium mining capacities cannot satisfy reactor requirements. Secondly, accumulated uranium inventories will be exhausted sooner or later. Thirdly, the spot price does not reflect the actual problems and, on the contrary, is capable of misleading all of us about the urgency of investments to be made in the development of new mining facilities.”
In his speech, Dr. Dzhakishev emphasized to the WNA, “Judging by these facts, the conclusion is evident: one day nuclear power plants will face a natural uranium shortage and it is not necessary to be a prophet to foresee this. It is clear today that the key to the solution of the major problems of the uranium market lies with the development of the potential of the uranium producers.”
This past August, Angela Jameson reported in the online version of The London Times, “A GLOBAL shortage of uranium could jeopardise plans to build a new generation of nuclear power stations in Britain… a recent report by the Asia Pacific Foundation of Canada said that there was likely to be a 45,000-tonne shortage of uranium in the next decade, largely because of growing Chinese demand for the metal.”
The upward spiral of the commodities boom is racing ahead at full speed. Depending upon whom you talk to, the labor and drill rig shortage is either very bad or worse than you can possibly imagine. If there are commodity inventory shortages right now, what happens by the end of this year, or later this decade, if current exploration efforts get grounded because companies lack the trained personnel, the proper equipment and the expertise to explore and/or develop their properties? You can’t run a drill rig if you can’t get your hands on one. You can’t drill the property if you can’t find drillers to run the rig. While commodities prices soar to levels not seen in twenty or thirty years, the tight labor and equipment market could ratchet prices to much higher levels. And junior uranium development companies, with proven pounds-in-the-ground assets, should become sought-after acquisition targets by those who have the staff and drill rigs to bring the projects online.
For investors, the labor and drill rig shortage has a silver lining. As inventories dwindle lower, commodity prices will continue rising. For junior uranium investors, this might someday be realized as the “hidden reason” why spot uranium prices continued rising past $40/pound. If you don’t drill for the commodity, you can’t find it and develop it. This strengthens the case for $50/pound uranium in the near future. Now we understand why Strathmore Minerals’ David Miller warned us in November, “I wouldn’t be surprised to see uranium prices double again.”
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