Monday, August 12, 2013

Uranium's Hot Summer Love; Uranerz Energy: One DDW To Go -

How Is U3O8 Now?

Our July 19 newsletter—Gold: Fever Or Cure? Uranium: Japan Readies Reactor Restarts—was meant as a reminder why portfolio investors always need a strategic position in metals. Topics include: Is Gold Now Just Another Four-Letter Word?, Gold's Glitter Gauges, Finding Gold's Bottom, Will Uranium Prices Play Catch-Up To Oil?, Uranium's Deep Value Proposition, Uranium's Fog Is Clearing Fast—Japan's Reactor Restarts, and Uranium Plays—Uranerz Energy Corp..

We started that article as gold was testing its key $1,224/oz. technical and fundamental levels—the 61.8% Fibonacci support level that is also close to the all-in breakeven point for many gold miners. As the article was published, gold had already bounced to $1,295/oz.—since then it has been hovering around April's $1,321.50/oz. lows. From this now apparent pivot point—as several gold majors release their quarterlies with dividend cuts and huge write-downs—it's probably still too soon to call a bottom until the market digests all of this and may attempt a pullback to test the low $1,200's again.

This article focuses on uranium miners, however gold sentiment needs to be watched as it tends to be the health barometer for the entire metals and mining industry—from precious to base metals, to even rare earths. The point being, a tough financing environment for gold means the same for any type of mining exploration and development—liquidity drives activity, news flow and investor interest. For uranium, you also need to keep an eye on oil price trends—bellwether of the energy sector. Curiously, the U3O8 spot price remains weak at $35.75/lb. as oil remains strong at over $100/bbl..

From an investment perspective, we became attracted to and remain focused on uranium as the only commercially available fuel source for nuclear reactors. More nuclear energy simply means more uranium demand—with the number of reactors worldwide set to more than double by 2030.

Lacking a liquid futures market, the only real way to play the U3O8 bounce to the long-term growth of nuclear power is uranium mining stocks. In short, uranium miners represent levered exposure to a growing market with a monopoly, with tighter supplies as the Russia-U.S. Megatons to Megawatts HEU program ends this year and as more mines close due to low uranium prices, with Japan's reactors restarting soon, and with uranium miners' shares still beaten-down from Fukushima's aftermath. From a timing perspective, isn't this supposed to be an investors dream?

Mainstream Media Finally Gets Nuclear

We have steadfastly explained the many advantages of nuclear and uranium over conventional power plants that burn depleting, inefficient and dirty fossil fuels. Nuclear even trumps renewable forms of energy in most situations. As our growing world gets serious about achieving abundant, reliable, low-cost and environmentally friendly energy, there is no practical choice other than more nuclear power.

A couple of weeks ago the Globe and Mail published a compelling article—Staying cool? Thank nuclear power—with the subtitle: Unlike other fuel sources, it's both cheap and clean. Don't be spooked by the environmental naysayers. Click the link for the article, which I'll quickly review.

Nuclear has provided reliable power since the 1950s which we take for granted every time we crank up our air conditioners. The article reminds heat wave stricken Torontonians that over half of their electricity comes from nuclear, significantly more than gas, hydro and coal combined—with those high cost wind turbines contributing less than half of 1%.

Like wind and solar—nuclear power is green and creates no greenhouse gas emissions. An interviewed expert is cited: Nuclear energy is the most powerful weapon in the war on global warming. If Ontario's environmental lobby had succeeded in having nuclear power replaced by natural gas, the province's carbon dioxide emissions would have soared.

Kudos to the author for describing the dangers of nuclear power as one of the great myths of our time. She rightly points out that Chernobyl was a disastrously designed reactor (old even in 1986) that killed just 56 people (with about half of these deaths by fire or from tainted milk after cows nearby were allowed to continue grazing), and that Three Mile Island and Fukushima have killed none. Also mentioned is that today's engineering makes nuclear power the safest form of energy that we have, next to wind (I presume this means excluding bird safety).

To put this into context, search for and tally the lives lost, environmental damage and other costs of major oil spills by BP in the Gulf of Mexico 2010 or by the Exxon Valdez in Alaska 1989; or more recently the oil train derailment in Lac Megantic Quebec, or the tourist island oil spill in Thailand. Since 1986 the U.S. has seen something like 8,000 pipeline incidents, 500+ deaths, 2,300+ injuries, nearly $7B in damage and 3M+ gallons spilled. For each nuclear death 4,000 people die from coal!

Nuclear is the obvious choice, however I was somewhat surprised that leading environmentalists have changed their minds, now believing that nuclear power is the only effective way to curb greenhouse gas emissions as the world continues to industrialize... The environmental movement has made the world safe for coal. Some of the people mentioned in the article are also featured in a new documentary about nuclear as the only real energy solution, called Pandora's Promise.

Here's another quote: My fellow environmentalists have this romantic attachment to a certain view of the world, which does not fit with actually dealing with the engineering problem. This is the difference between evidence-driven and ideology-driven. You double down on your theory of the world, even if it's wrong. In the past I've put this another way: for the world's sake we need to wake up and realize the dirty facts of this deep energy hole we are all in together—and stop digging!

From the last section: If we want to avoid catastrophic global warming, nuclear energy is essential. It's worked in Ontario; since the province refurbished its nuclear plants a decade ago, greenhouse gases have plummeted from 40M tonnes to 16M tonnes a year—with virtually no help from the Liberal government's vastly expensive green energy schemes. That is a stunning achievement. No other jurisdiction has done this without shutting down industries.

Many investors questioned the fundamentals of nuclear power after Fukushima as Japan, Germany and others rashly shut down their reactors or were considering this. We said that cooler heads would eventually prevail as the facts were on their side. Reactors would be restarted or politicians would face voter backlash resulting from higher power rates, frequent blackouts and more pollution. Japan's government changed to pro-nuclear last December; Germany's elections are next month.

Analyst's this year have been warming up to nuclear power again, and now the mainstream media seems to be coming back from the dark side. That's the usual pecking order I would have expected: contrarian and value investors first, analysts second, media third, with retail investors and momentum traders last. What I wouldn't have expected is for U3O8 and its miners' share prices to still be this low.

Uranerz Energy: Mine Completion In Sight

(AMEX: URZ)(TSX: URZ)(FRANKFURT: U9E) Uranerz Energy Corp. has to complete two Deep Disposal Wells (DDW) prior to commencing production at their first ISR uranium mine. To prevent mine construction from slowing down—while Uranerz waits for an approved $20M low-interest state loan to be fully processed—the company received a $6M bridge loan in June.

Instead of an announcement about when the company would start drilling their first DDW, we were pleasantly surprised on July 25th with Uranerz' Corporate Update—that the first well had already been drilled, and that drilling has started at the second well. Completion of both wells will take around five months, with production expected later this year or early 2014.

URZ popped around 20% after that release to as high as $1.64, now around $1.30 per share with a $100M market cap. Below are more of the finer details taken directly from URZ' corporate update:

"The Company's primary focus over the past year has been on construction of the processing facility and installation of the monitor, injection and recovery wells for in-situ recovery ("ISR") operations at its Nichols Ranch ISR Uranium Project, located in the Powder River Basin of Wyoming, U.S.A. Uranerz has completed drilling the first of two deep disposal wells which are required to be operational prior to commencement of uranium recovery operations. The first well has been drilled to a depth of 8,860 feet and the casing and cementing operations have been completed. The drilling rig will now be moved to the second deep disposal well site to start drilling operations there. A completion rig will begin the hole completion work on the first deep disposal well, followed by construction of supporting infrastructure. It is expected to take approximately five months to complete both wells, including the installation of necessary infrastructure and related testing.

The deep disposal wells will be used to remove non-hazardous byproduct solutions from the ISR process. The Company expects to start operations at the Nichols Ranch facility and commence uranium production later this year or early 2014, after the two deep disposal wells are completed.

As previously announced, the Company continues working with State administrators to complete the documentation for the closing of a $20,000,000 loan under the Wyoming Industrial Development Revenue Bond Program. The loan is expected to carry an annual interest rate of 5.75% and be repayable over seven years. Closing is subject to customary closing conditions and final approval of the State Treasurer and County Commissioners."

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