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    Safest Ways to Invest in Uranium Companies
    Copyright © 2006, StockInterview.com
    Written by, James Finch

    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: 
     * How permeable are the ore bodies you plan to mine?
     * What is your average grade?
     * Over what area does your rollfront extend?
     * What is the depth of your ore body?
    One of the most important factors to consider is the permeability 
    of the sandstone, from which the uranium will be mined. 
    Permeability is the flow rate of the liquids through the porous 
    sandstone. Knowing what the permeability of the orebody will 
    let you know how much water you can get through the sandstone 
    formation. Harry Anthony, an internationally recognized ISL 
    expert, noted, "You need higher grade ore for tight formations. 
    With high permeability, you can space your wells further apart."
    The make-break point for a formation's permeability is its Darcy 
    rating. How high is the Darcy? A typical Darcy can range from 
    minus 1000 to plus 3. The higher the Darcy, the more permeable 
    the formation. This helps determine how economic the orebody is. 
    An acceptable range would be one-half to one Darcy. What is 
    a Darcy? Uranerz Energy CEO Glenn Catchpole, who is also a 
    hydrologist, said, "It is gallons per day over feet squared." 
    He added a pure hydrologist would calculate the feet per day 
    or centimeters per second to get a more accurate permeability 
    With low permeability in a tight formation, you may need to space 
    more wells in a typical well field pattern. While explaining that 
    costs are fixed and variable, Anthony computed the cost of a 
    production well for a 500 foot deposit at $15,000. An injection 
    well could cost $11,000 to install. By comparison, in New Mexico, 
    where the deposits are wider and of higher grade, a 2000-foot 
    production well might cost $27,000 and the injection well could 
    cost $18,000, and it would still be economic. Obviously, the 
    deeper the deposit, the more it will cost to extract the uranium. 
    Not only will the capital costs increase, but operating costs 
    will be greater.
    Uranium grades can be a contentious point. "Grade is the driving 
    force," Harry Anthony shot back. We asked him about companies 
    which said they could run an economic ISL operation with grades 
    as low, or lower than 0.02. Anthony laughed, "They'd be out of 
    business before they started." Strathmore Minerals' president 
    David Miller offered a more technical analysis, "That will not 
    likely have enough recoverable pounds. The operating grade 
    feeding the plant will be too low." What is the best grade? 
    Miller wanted to see properties with deposits that average on 
    the order 0.5, 0.10, or 0.15.
    Uranium grades can impact the cost of operating an ISL plant. 
    An ISL plant may operate at 5000 gallons per minute. Running 
    24 hours daily, the plant would process 7.2 million gallons of 
    water. Operating costs are based upon cost per thousand gallons 
    of water. "This includes electricity, reagents and labor," said 
    Anthony. On a daily basis, it would cost more than $21,000 to 
    run an ISL plant, based upon Anthony's calculations of $3.03 per 
    thousand gallons of water. Under this scenario, a plant might 
    produce 2360 pounds of U3O8 every day or 80,000 pounds monthly. 
    The cost to produce each pound would be $8.18. Using that math, 
    the uranium grades would be about 44 parts per million (ppm) or 
    0.08. Anthony said, "I like to see 70ppm or higher." That comes 
    to a uranium grade of 0.13.
    Another way to evaluate a company's uranium property is looking 
    at each part of its development costs. In a well field pattern, 
    David Miller can determine the economic viability of the ground. 
    "The keys to what is recoverable include how many pounds are 
    recoverable per pattern and what it costs to install a pattern," 
    Miller explained. "If you have 10,000 pounds in place and can 
    recover 8000 pounds, your well field development cost can be 
    $8/pound, if it costs you $80,000 to install that pattern.
    The cost to install a pattern also depends over how much 
    territory your uranium deposits run. "Ten million pounds over 
    an area of one-half mile will cost less than those same pounds 
    over an area of two to four miles," explained Terrence Osier, 
    Strathmore Minerals senior geologist. "That means more injection 
    wells and more production wells." Depth of the wells influences 
    installation cost and impacts its daily operating cost. "When 
    uranium costs were very low, a company needed 70,000 pounds per 
    pattern," Anthony commented. "Now a company might only need 
    20,000 pounds per pattern to make it economic."
    There are many variables within the above advices provided by 
    these experts. However, the important point to realize is the 
    time of hyperbole and hoopla over "pounds in the ground" has 
    passed. As more uranium development companies move closer to 
    establishing an ISL operation, the go/no-go consideration, as 
    UR-Energy CEO William Boberg aptly described it, will come down 
    to permeability. After that, the economics of a project will 
    either make it viable or not. Using these criteria, you can 
    avoid the hysteria by speculating with the odds stacked more 
    in your favor. 

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