urg::: Hype: How To Invest In Uranium

[Len Kanaar - FoE Sydney]

Australasian Investment Review

Hype: How To Invest In Uranium
September 14 2005 - Australasian Investment Review - (AIR)

Three things have happened in the world of uranium lately. Firstly, 
the price has more than trebled over the last 4 years. Secondly, the 
government of the country boasting the largest known uranium reserves 
- Australia - has jettisoned its "three mines" policy, opening the 
Northern Territory up for further exploitation. Thirdly, the world is 
turning nuclear (see feature), and the possibility remains for 
further uranium mining in other parts of the Australian continent.The 
only way to invest in uranium in Australia is to buy shares in 
uranium miners. The first, obvious, step is to look at the incumbent 
three mines.

Olympic Dam in South Australia holds one third of the world's known 
uranium reserves. In 2004-05 it produced 4.3m tonnes of uranium 
oxide. Originally owned by WMC Resources, it now falls into the BHP 
Billiton (BHP) stable given BHP's recent takeover. As the world's 
largest diversified resources company, most analysts recommend 
investment in BHP anyway.

The Ranger mine in the Northern territory produced 5.5m tonnes of 
uranium oxide in 2004-05 and is owned by Energy Resources Australia 
(ERA). ERA is 68.4% owned by Rio Tinto (RIO), another global 
diversified resources company on analysts' preferred lists. The 
little brother of the three - Beverley, in South Australia - produced 
1.1m tonnes of oxide and is owned by Heathgate Resources, an 
affiliate of US-based General Atomics.

Next, the possibles. One of the bigger non-producing mines is 
Jabiluka in the NT, with 71kt of reserves, also owned by ERA. While 
mining at this site, in the middle of the Kakadu National Park, has 
been stymied to date by previous governments and general public 
protest, Jabiluka is ready to fire up once more once agreements with 
indigenous inhabitants have been finalised.

Rio also lays claim to the 35kt Kintyre mine in WA, and BHP owns 52kt 
Yeelirrie, also in WA.

Other mines with known uranium deposits include Manyingee (12kt) and 
Oobagooma (10kt) in WA, owned by Paladin Resources (PDN), Maureen 
(3kt) in Queensland, owned by Georgetown Mining (GRG), and Valhalla 
(16kt) in Queensland, owned by Summit Resources (SMM).

Many of Australia's smaller mines are owned by offshore companies, 
particularly in Canada, which is currently the world's largest 
producer, and France.

Then we come to the explorers, each with varying degrees of certainty 
of reserves and pending mining applications. In terms of listed 
companies, they include Marathon Resources (MTN), Deep Yellow (DYL), 
Jindalee Resources (JRL), Compass Resources (CMR), Arafura Resources 
(ARU) and Bullion Minerals (BLN).

Be warned, many of these stocks have recently taken off. The 
Australian Financial Review notes Paladin has the distinction of 
being in the ASX200 without ever having produced revenue from 
uranium. It is a safe bet that other exploration companies will line 
up soon for listing. Perhaps time to talk to your broker. AIR also 
recommends a visit to the Uranium Information Centre website at 
www.uic.com.au.

But where might the uranium price be heading? UBS analysts are 
forecasting a price of US$25/lb for 2005, rising to US$27/lb in 2006 
and US$30/lb in 2007. They are quick to add, however, that the 
current spot price of US$29/lb suggests there could be upside risks 
to these forecasts.

It is the nature of the mining game that high prices will cause a 
rash of exploration, followed by new discoveries, followed by a fall 
in price. Part of the reason for the current price hike is that 50% 
of the world's uranium is resourced form recycled nuclear warheads, 
and Russia has announced its intention to terminate this source. UBS 
believes the price required to support mine development is US$20/lb, 
and as such the analysts have established this as their long term 
price.

Copyright Australasian Investment Review.