Summary: Because of soaring uranium prices, hundreds of companies have formed to capitalize upon the latest craze. How do you avoid being fooled? Look to ISL uranium companies. About 21 percent of the world’s nuclear reactors are now fueled by uranium mined using this method. How do you evaluate the many uranium companies now developing their ISL operations?
Now that the spot uranium price has sustained above $40/pound, after a 20-year drought and a bottom of $6.40/pound at the end of December 2000, hundreds of junior exploration companies have thrown their hat into the ring. Both Canadian and Australian junior uranium companies hope to raise the big money required to bring a uranium property into production. A perceived uranium supply crunch has added to this frenzy. As occurred with previous uranium cycles, only the strong will survive.
While numerous Canadian junior exploration companies hope to find a new discovery in various uranium-prospective regions through Canada, a safer investment strategy is to speculate on companies, whose properties were previously drilled during the uranium bull market of 1974-1980). Some of those properties had uranium deposits delineated by major oil and uranium companies, who did not blush at spending tens of millions of dollars in exploration.
Some of the newly arrived uranium companies acquired those drilling databases and their properties, which were abandoned by the previous owners. Some companies have been actively moving their projects forward to production, using a more environmentally friendly mining method than an open pit or underground mine. It is called In Situ Leach (ISL) uranium mining, and the operation is much like a water treatment plan. Oxidized, or carbonated, water is pumped into an orebody, and uranium is flushed into a processing plant. These are relatively inexpensive to install, possibly for as little as $10 million.
There are pitfalls when investing in those companies which plan to establish ISL operations. During the initial phase of this bull market, a common myth, circulated among investors, had been “pounds in the ground.” How many pounds of uranium oxide, or U3O8 for short, does a company have in the ground? The more pounds a company claimed, the higher its market capitalization ran. Once you sift through the companies with very real prospects from those who are cheerleading their “pounds in the ground,” you should have a realistic short list.
These are the four key questions which must be answered if you wish to minimize your risk when investing in uranium stocks: