Rossing Uranium Mine Out of Commission

We have reputable sources reporting today that the Rossing Uranium Mine in Namibia has closed. Apparently there is a strike by the mine's workers which has closed the mine in what appears to be the near future. Although the details are vague at this point, we understand that Namibia, although politically stable has power and water problems. This strike has now cut off 8% of the world's uranium production, and the longer it carries out the more serious it will become. We take the stance that this will turn out to be a prolonged strike as many strikes across the world are beginning to cripple the multinationals.

Remember the strike that began earlier this year in South America that took out a large portion of the world's copper production by shutting down the Escondida Mine. They dragged that strike out for a considerable time as neither side wanted to cede to the other. Keeping this in mind it is our opinion that Rio Tinto will drag this out, thus increasing the price of uranium and further tightening an already tight market.

With the problems at Cigar Lake (a large future producing mine) and strike at Rossing (a large producing mine), many investors are beginning to understand just how tight this market is currently and will be in the future. As market conditions have changed considerably over the last few weeks we believe that our two favorite soon-to-be uranium producers will lead the way higher. In fact we believe that they will outpace the actual producers in this industry as they will be signing new contracts at the current market prices. Cigar Lake will become an engineering nightmare, as well as a permitting headache. As Africa's uranium resources rise in value and as more mines open the possibility for strikes and sieges from rebel groups rises. Remember what has continually happened with Shell and other oil and gas projects. We believe that South Africa will be free from these problems as it is a stable political state and has competitive wages due to the various types of mining that go on in the country (diamonds, gold, silver, and uranium). Namibia will follow once its citizens are given the basic needs for life (water and power are currently missing from the equation) as it is a very stable political state.

Updates:

ASXSF: We closed our trade today in ASXSF as it was just that, A TRADE. We love where uranium is going right now, and will thus reinvest this money back into other uranium plays. We closed this because we stated it was a trade and the stock went further than we figured it would (rising about 30% in 2-3 weeks). We decided to book the profits and invest the money into something we know, and we will shortly get back to you on this.

Stumbling Giant

It seems that lightning has struck again (3 times total for those of you counting and 2 times in the last 6 months at Cigar Lake) with another flood at Cameco's Cigar Lake. This will delay for another year now the opening of the mine until what the company is saying will be the year 2008. Supposedly their contracts have safety clauses and such language to protect CCJ, but this is lost business. It is impossible to justify a 35 p/e and ever increasing stock price when you cannot experience upswings in commodity prices because you have sold forward your production in long-term contracts as well as lose your future added capacity.

Just as we have predicted, there would be a day when SXR would rise to the top and become a Blue Chip for the uranium industry. Today may have been that day as the company should have 2 mines opened by the time Cameco gets Cigar Lake in operation, assuming they fix all the problems and do not experience anymore. Cameco stock should stagnate at these levels for a while, quite possibly until the end of the year...and should this happen the stock could even fall another 10% as funds will be 'window dressing' by dumping the past quarter's market laggards. Keep in mind that we believe a Tech Rally is about to grace us this Christmas season as we have recently stated and since we have experienced new highs on the Dow as well as the advancement past 12,000. There could be an exodus out of CCJ and into Techs for the short-term until it becomes apparent what the situation is going to look like for the mid to long-term future of the company.

If some of those funds also rotate out of CCJ and into SXR, watch out because that will get the stock rocking and rolling, which will allow management to use their rich currency to do deals. Ur-Energy which also had a nice day today will have mines operational in 2008 would be a nice target, as we have said in the past, for SXR to pursue. Keep in mind that SXR did raise nearly $200 million during the recent sideways movement in uranium stocks for "strategic purposes".

Now regarding the spot price of uranium for this upcoming week, we believe that it should be up at least $1.50 to $57.50. This would not at all surprise us, and in fact makes us believe that the spot price shall rise to $65 by year's end. The rally has extended over into Australia (at least into the uranium stocks we follow over there) and could very well continue into today in the states. We believe that profits will be taken today as many stocks added nearly a fifth of their value to their share prices. It is interesting to note however that a few stocks hit all-time highs on the news as well as others breaking out through resistance levels that had contained them for this past summer. Maybe this is the coming out party for the near producers and respectable juniors that many have been waiting for as there was strong volume across the board to accompany the dramatic increases in share price. This rally could extend itself through the end of the year with a few well timed acquisitions and good market conditions.

Updates:

ASXSF: We had stated that the trade is over at $1.70 area and the other day it actually hit $1.69 early and then late never advancing past it, only to decline back down until eventually settling at $1.50. We believe that now under current market conditions that the upper range can be moved to $1.80.

BQI: Company expects to be fully operational by January and the news flow should begin to accelerate as drilling season kicks off. We fully believe that this season will match last season's and quite possibly even exceed those results. We bless any buying below $5 before December as we believe that the stock will appreciate above that area around that time.

The Irony of Markets (Part I)...

To many, markets can be puzzling, sometimes leaving its most capable students dumbfounded. This is nowhere more apparent than with the recent problems surfacing in the hedge-fund arena. Billions have been lost covering bets gone wrong, or more precisely markets moving in an inverse direction than was anticipated by the traders. Simply put, they were bad investments. What is more is that these managers allowed their traders to throw more good money at these poor investments.

The uranium market is no exception. Looking at a chart of this commodity one can see it has taken off from its lows in 2000 to new all time highs today. We have two camps forming at these prices as they do in any market and which will push the commodity price in one direction or another. Our first camp consists of 'Uranium Bulls' who believe that the price of uranium will shoot up from today's prices even after this astounding run, and we tend to agree with this camp. The second camp consists of 'Uranium Bears' and believes that the price is over heated at these levels even with the apparent 'tight' market on the supply side. We do not agree with these bears, however their opinion warrants consideration. In life you cannot have the best of both worlds, but within markets sometimes the combination of two very different ideas becomes the prevailing factors.

We view the uranium markets as a complex, non-liquid and inefficient marketplace. Those are harsh words, but the regulations do not allow for the physical commodity to be held by individual investors without paying high fees for storage and trading. Most uranium trading takes place between the producers and consumers. This market lacks middlemen and traders which greatly cuts down on the liquidity of the asset itself. Many have proclaimed that they have never seen a commodity increase this long without a down day, which we must also admit is very impressive. But the reason behind this is because the utilities are not feeling the crunch yet! They are still buying supply from above ground to fuel their reactors and carrying on with their friendly deals with the current producers. Our opinion is that the relationships between buyer and seller have not soured as a result of friendly business over the years, and of course medium ground. Producers are still locked in many older contracts that should begin to expire in 2 years, but are happy to get the money on the table today for new long term contracts. Consumers have to realize, although they state otherwise, that prices are cheap even today after the huge run-up and are content to pay ever higher prices for the cheapest energy producing method on the market.

The first uranium boom was a government subsidized bubble, and by the year 2000 nearly all of those companies had either gone bust or merged with stronger uranium/mining companies. That bust that ended that cycle bottomed in 2000, and many utilities it seems 'rescued' the few remaining uranium miners in their darkest days. Now things are beginning to look up and the tide is turning against the utilities. Although the tide is turning, those uranium miners still have good relationships with the utilities that they did business with in their dark days, thus keeping prices down by not DEMANDING MORE for these OPTIONS. All markets go through these cycles, and the consumers and producers usually take advantage of the other right before the bust.

Our view is a market in harmony right now. Both parties realize that the tide is coming in for the miners and bringing with it many more dollars per pound of their product, however the day will come when the miners begin to demand more money. This is when the bears will be proven wrong, because there are a few ways in which the market can be altered in order to favor the producers. First, holding firm on sell prices and not negotiating down. Second, allow for price increases throughout the contract. The third way would be to do away with the 'option contract format' and create short-term contracts with market contracts. We view this as the most probable evolution of the market as regulations will prohibit many from buying uranium as investors can now buy and hold gold, silver and other precious metals. The current contracts lock in a predetermined amount of material at a set price for an agreed upon time frame. These contracts greatly favor the consumers of this product, and are fairly conservative contracts (we are talking about utilities here). We think that as the market continues its ascending motion that many of these contracts will be 'liberalized' and begin to favor the suppliers for the contracts. This will mean much more favorable terms and conditions as well as higher profits! This will light a fire beneath the market and propel prices higher in a much quicker time-frame.

These past few years have seen overly eager sellers (the producers) due to the high price of uranium with less enthused buyers (the utilities). Price stability has been maintained as a result of uranium miners' need to increase profits after many nimble years in order to develop future projects and the need of their consumers to lockup a supply of fuel for their power stations.

We term the irony of the recent climb in uranium prices as the 'Prevailing Median Price Irony' as both parties are happy with the terms/price (the producers finally coming out of a horrible bust and consumers realizing a coming crunch...thus the prevailing irony) and the lack of middlemen in the equation not forcing prices higher. Our view is that uranium goes to $250 per pound by the year 2015, maybe sooner. That is based on the assumption that contracts become liberalized (in favor of the producers) and the creation of middlemen on a much larger scale in the uranium marketplace. If this perfect storm should happen as described above $250 is more than doable with the current nuclear buildout plans.

As outrageous as these claims seem, they are more reasonable than one would think. Why would Iran want a nuclear power plant, or Canada for that matter? After all, both countries have more than sufficient oil and natural gas supplies. The answer is money of course! These oil wealthy nations understand that at current prices for oil it would cost them roughly $2130 to produce the same amount of electricity as only 1 pound of uranium. Well that is a savings of over $2,000! I would be selling my inefficient energy sources at elevated prices and wanting to buy a cheaper more (production and cost) efficient fuel as well. When the Russians pull the last 'Super Power' subsidies out from under the market in 2013, uranium will meet our price target and could very well be on its way to $400 per pound by 2020. There will be more to follow on the uranium markets in Part II, but we feel that this is a sufficient amount of information for this post.

Updates:

Canalaska sold its 7.5 million pound uranium holding in Ontario

Pitchstone has bounced off of its recent low and appears to have bottomed at the C$1.10 range. It has run up to about C$1.30 and is looking very good. Look for high volume on a big run-up on no news to sell the stock if no news or industry-wide rallies are taking place as that has been the indicator for the past two sell-offs/run-ups.

Time to Run

So we ended the third quarter near record highs for the big cap stocks with the Dow 30 finishing within 100 points of a new all time record high. The major stocks pretty much spent the third quarter ragaining the ground they had lost over the earlier summer months. This is very important for the stocks we have added to our portfolio, and the main reason why we have been adding to our positions at rock bottom prices.

The way we see the markets playing out at this time consists of a market rally during the fourth quarter (we understand that this prediction is not really going out on a limb, but please hear us out). The big Techs we think will continue to lead the market higher, and as a consequence we think that tech in general will charge higher. This will at first most likely keep prices depressed in sectors that compete for the speculative dollars, meaning our uraniums and tar sands plays. Not to worry though, because we believe that as this market rally strengthens, so will the inflow of new money from the sidelines.

This is what truly excites us because we think that at least 2 of our uranium plays have the potential to double their market cap through the drill bit this season (drilling season that is). We also believe that Canwest will once again be successful on over 50% of their drill targets. This news will attract the new capital (those speculative dollars we were talking about earlier) and because at the same time there is a rally in tech, it will add to the magnitude of any bull rush into uranium. At this early stage in exploration it takes just one success to add greatly to the market caps of all the companies in the sector. So we believe that the greater the run in tech through the end of the year, the greater the rush of dollars into uranium and tar sands when drill results begin to come out.

We have constantly stated that Pitchstone is one of our favorite stocks in the uranium area right now and went further to state that the stock is a great buy anywhere from $1.20-$1.30. We stuck by our word and more than doubled our holdings in PXP in the last few weeks. The company will be drilling on their very prospective land and leaving the bill for SXR to pick up. The company did however sell the SXR shares and now has roughly $5 million in the bank. They still posses 300,000 warrants which will most likely be sold within the next year or two (whenever they use their $5 million through drilling). Any good news from PXP could potentially cause a huge spike in the price as we have witnessed in the past due to a small float. The company only has about 27 million shares fully diluted with a strong balance sheet and an excellent management team. This all adds up to nearly a great story, but the catalyst will surely be the drill results from this season.

We are currently looking at adding to our Canalaska holdings as well. Why wouldnt we be willing to add to an investment when a large multinational mining company has put $11 million into CVV's most promising project? We have heard from our sources within the industry that this JV deal has upped the asking price for stakes in these projects. We have spoken with people at different companies within the basin that have real estate near the major mines, and they all say that they are looking for partners and will use that dollar figure when negotiating price terms. After viewing all the drill results and information regarding last drilling season, we firmly believe that CVV may be onto a world-class discovery. They found a foot of uranium mineralization and are going to drill that area extensively this season, which we believe will lead to a large find.

The beginning of October is the month to move into these small resource stocks as the long, boring summer drained the speculative money out of the sector. The fireworks begin with the first freeze because that is when the equipment can me mobilized to the sites and the faster that this is accomplished the sooner drilling begins and is completed. The old market saying goes, "buy on the rumor, sell on the news" and this can most definately be put to practice in our current situation. We will continue to nibble , and when necessary we will take bites the size your mother warned you about.