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A stocking that glows

Paul Sullivan

Dear Mr. Claus:

It’s been a year since we last corresponded. I was nicer than ever this year, mainly because I’m getting to old to be naughty. Anyone who can’t stay up past 9:30 has less opportunity to be naughty. Those are just the facts.

Now, down to business. Ever since the Chernobyl meltdown made a good chunk of the Ukraine uninhabitable, it’s been unfashionable, to say the least, to talk about the upside of nuclear power. Never mind requesting a nuclear powered stocking stuffer.

But that’s exactly what I’m looking for. Kind of an update on the lump of coal idea - a Christmas mineral that glows in the dark and has a half-life of more than a billion years. Uranium 308, the next “hot” (or maybe I should say “radioactive”) commodity. Maybe in a nice, lead-lined stocking.

I’m aware that this is the most controversial item on my Christmas wish list. The venerated environmentalist Dr. Helen Caldicott has called nuclear power humanity’s biggest mistake. But others, especially the Chinese, see nuclear power as the key to weaning the world from its dependence on petroleum, particularly for the generation of electricity.

Frankly, I don’t know what to think. There are so many doomsday scenarios circulating as I write that maybe it makes more sense to ask for a gift subscription to the Hemlock Society’s newsletter. But no! During this season of good cheer, I’m determined to remain cheerfully optimistic about technology’s capacity to deal with nuclear waste and foster peace on earth through the use of uranium for peaceful purposes.

It doesn’t hurt that the spot price of uranium 308 is at $64 (U.S.), up from under 10 bucks just a little more than two years ago, and that most experts think there’s a mid-term supply crisis in uranium, which was exacerbated by a suspiciously biblical flood at the new Cigar Lake Mine - owned by Cameco Corp., the world’s largest uranium mining and processing company - in north central Saskatchewan. Cigar Lake was expected to produce as much as 17 per cent of the world’s uranium supply.

According to one industry commentator, Rudi Filapek-Vandyck, editor of FNarena.com, there are rumours going around that uranium producers are trying to jack up the price of the commodity, using the Cigar Lake flood to induce a run on the commodity. This is needless sensationalism. Uranium is hot enough without anyone’s help - Richard Shaw of QVM Research says that 80 new nuclear power plants should be on stream within 10 years, which amounts to a 15 per cent increase in demand for uranium for peaceful purposes, never mind how the mind-boggling neo-nuclear arms race affects demand.

I should add that Cameco, born of the Saskatchewan government before it became a public corporation, is in no way implicated in any of this speculation. In recent days, the company has announced Cigar lake remediation plans, including fall-back plans, but there is no doubt that a significant increase in supply, expected to arrive in 2008-9, is now delayed indefinitely, at least until February, 2007, when Cameco will announce a timeline for an eventual production start.

Mr. Claus, please note: Instead of a pile of actual uranium, called yellowcake in its mineral form, I would prefer shares in a Canadian uranium mining venture. Less fallout.

As Cameco is the world’s largest uranium company, Canada is the world’s largest uranium producer, with 29 per cent of the world’s supply. Australia is next at 22 per cent, and bunch of erstwhile Eastern Bloc countries produce another 25 per cent. But who would you rather buy from? Borat? Or nice stable Canada?

Specifically, the Cameco flood and the prospect of a soaring spot price in its wake doesn’t really help Cameco, which is locked into long-term production contracts, but various juniors, many of them Canadian, have no such restrictions. And at $40 a share, Cameco is hardly a stocking stuffer. Which is why I wouldn’t mind a few shares from one of the more interesting Canadian explorers: Uracan Resources Ltd., currently trading on the TSX Venture Exchange at $0.61 (URC-X). At that price, I’d like a few hundred instead of another tie. Says Resource Investor.com: “In today’s price environment for uranium, and as prices continue to rise, Uracan’s model focused on targeting low-grade high-tonnage, near-surface deposits is likely just what the doctor ordered.”

Speaking of ties, I have to say your taste in ties rivals my childrens,’ which is not a good thing.

Anyway, Resource Investor.com also likes Energy Fuels Inc., (EFR-X @$4.39), and remarks: “given a very conservative multiple of cash flow, an 18-month target of C$15 per share should be placed on EFR, assuming that the price of uranium stays flat. If we go to $80 or $100 on yellowcake, hold on for the ride!”

Like a number of investment newsletters that focus on commodities, the Casey Energy Speculator has gone fission over the Cigar Lake disaster. Editor Dave Forest writes that the loss of Cigar Lake could “kick off a spectacular run for uranium stocks a frenzy reminiscent of tech stocks in the late 1990s is a distinct possibility.”

Forest likes JNR Resources, (JNN-X), which is currently perking along at $1.86 a share as a company that like Energy Fuels Inc. “has the management expertise and prospective projects to produce a discovery during the bull run”. I’ll take some of those, too. Hold that extra pair of socks, maybe.

Then there’s the interesting Uranium Participation Corp., (U-T) basically a fund for purchasing yellowcake and sitting on it until the price goes up to, oh, $80 or $100 an ounce. The fund, which is managed by Denison Mines Inc., Canada’s second largest uranium development and production company, recently announced it owns 4.2 million pounds of U308 and 800,000 KgU of uranium hexafluoride (UF6), with a market value of $433.8 million. Not to be greedy, but I’d like a few shares of U; they’re only about 10 bucks a share.

OK, that should do me. Although I may want a few shares of Cameco after all, especially after the company announced recently that it has a joint venture agreement with Techsnabexport, a state-owned Russian nuclear company to explore, develop and produce uranium in Russia (which is the main player in that aforementioned Eastern Bloc).

So what kind of cookies do you like?

Your friend, Paul

Paul Sullivan is a longtime Vancouver journalist and president of Sullivan Media. He also writes for The Globe and Mail.

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