Uranium

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The art of buying low and selling high is picking up stocks in the bottom of cycles to which their products are subject. Currently, uranium is at the bottom of a broad market sell-off that would appear to be ending, and so its time to look at opportunities in the sector where ultra-cheap shares in exploration juniors with above average discovery potential might be hiding.

Uracan Resources (TSX.V:URC) is cashed up and actively discovering new uranium mineralization in ultra mining-friendly Quebec and uranium-rich Saskatchewan. A testament to its attractiveness to investors, the company raised over $4 million in October of last year when most companies couldn't raise a dime for a cup of coffee.

Demand for uranium is driven exclusively by its consumption by power utilities generating electricity from nuclear power plants.

According to a January report issued by Canaccord Capital Corp:

In the long term, fundamentals in the uranium market appear extremely positive. The nuclear renaissance and the build out of new reactors, while no doubt slowed by the credit crisis and the global recession, is forecast to significantly increase U308 demand, particularly in China and India. Advancing new production to meet this demand is likely to be a very significant challenge for the industry.

We anticipate that market supply/demand fundamentals will once again become the largest influence on uranium pricing. Given the global credit crisis and the financial meltdown, we view uranium as a good place to hide for investors in the near-term, as demand remains relatively inelastic to economic activity and the distressed selling of material by hedge funds appears to have largely run its course. Longer term, uranium fundamentals appear extremely encouraging.

Pressures on uranium prices towards the upside will likely develop as projects are abandoned in the near term due to absence of funding and credit. Canaccord says it sees uranium production growing by 4.4% per year through 2020.

There are currently 436 reactors in operation around the world producing 371,927 MWe of energy (representing around 16% of the world's power), requiring approximately 170.0 million lbs of U308 per annum. In a January 5, 2009 update, the World Nuclear Association (WNA) identified 41 reactors under construction and another 374 reactors under consideration (108 planned and 266 proposed).

Somewhat surprisingly, and despite the current global credit and financial crisis, this compares favorably to the previous update (October 2008), which identified only 36 reactors under construction and 331 under consideration (99 planned and 232 proposed). This also compares to 34 reactors under construction and 315 reactors under consideration (93 planned and 222 proposed) in its January 2008 update. We note that each GWe of increased capacity will require about 195 tU/yr of incremental mine production, and 3x this for the first fuel load.

According to a Q109 report issued by RBC Markets,

We foresee uranium demand growing by an average of 5.2% per year during the next 20 years, higher than our previous forecast due to the higher non-mine supply availability from the U.S. government. We expect that new reactors will take many years to permit and build; however, we believe the demand for material will precede reactor commissioning by many years.

There is a great deal of uncertainty at this point in the global economic crisis as to whether or not China will proceed with its massive nuclear development program, which will significantly affect future global demand for uranium.

Uracan recently announced the discovery of a three uranium zones in its eastern Costebelle claim group of the North Shore Property in Quebec

The new discoveries are 115 kilometres northeast of the company's Double S NI 43-101 inferred resource of 74.2 million tonnes at an average grade of 0.012% U3O8 containing 19.96 million pounds of uranium, and 55 kilometers east of the recently announced (November 28, 2008) mineralization on the Costabelle claim group.

The mineralized zones at Costebelle are open in all directions as channel sampling was limited to areas of outcrop exposure, with overburden cover overlaying large areas of the targeted airborne anomalies. Strike lengths range from tens of meters to over 100 meters of exposure. The area of the Costebelle claim group has not seen any historic exploration activity, and represents a new area for uranium exploration in Quebec.

At the company's 100%-owned Pipewrench Lake project 100 km south of the prolific Athabasca Basin where Hathor Exploration's (TSX.V:HAT) Roughrider discovery continues make headlines, multiple zones of mineralization including 12.7 meters of 0.142% U3O8 (41.7 feet of 2.83 pounds per ton U3O8) only 30 meters from surface, and 19.5 meters of 0.083% U3O8 (64 feet of 1.66 pounds per ton U3O8) 75 meters from surface have been discovered.

Investors employing a buy and hold strategy can build significant positions in Uracan at these levels, and as uranium demand continues to outpace supply demand, the price of uranium over time should strengthen. So then should Uracan shares.

SOURCE: http://www.midasletter.com/news/09021206_Uracan-politically-safe-financially-secure.php


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