Safest Ways To Invest In Uranium Companies

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: • 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 assessment. 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.

Wyoming Could Play A Key Role In U.S. Nuclear Future

Will the Wyoming Uranium Province Rival Canada’s Athabasca or Australia’s Northern Territories? “Geology is 90 percent terminology and 10 percent science,” laughed Ray E. Harris, one of Wyoming’s leading geological theoreticians, having been with the Wyoming Geological Survey since 1982. He died on March 7th. Two weeks earlier, we met with and interviewed Mr. Harris. Everyone we met in Wyoming, and who was interested in uranium mining, had, at one time or another, passed through his office, which was adjacent to the University of Wyoming in Laramie. Ray Harris traveled the world, investigating and studying uranium deposits. He was well versed on the geology of every significant uranium deposit on earth and was also involved in the exploration, development and mining of uranium. In a Geological Survey of Wyoming Public Information Circular, published in 1986, Ray Harris presented a unique, and possibly controversial, thesis, “The genesis of uranium deposits in Athabasca, Canada and Northern Australia – Wyoming exploration significance.” In his introduction, Harris wrote: “Wyoming has some uranium occurrences in geological environments similar to those of Australia and the Athabasca Basin, and appears to have the potential for a uranium deposit similar in magnitude to those deposits.” Harris acknowledged in his paper, “Reported reserves for these two regions are 436,360,000 tons of U3O8, or one quarter to one third of the noncommunist world’s proven reserves.” At the same time, the total 1982 U.S. uranium reserves at $30/pound stood at 203,000 tons. Wyoming’s piece of that mineable pie stood at 32,700 tons. His was a bold statement, open to debate it not outright dispute and dismissal. Perhaps there may be truth in Harris’ claim. In 1981, E.S. Cheney published an article in American Scientist, entitled “The Hunt for Giant Uranium Deposits,” where he explained a giant deposit would contain more than 100 million pounds of recoverable U3O8. But can the parts amount to more than a single giant uranium deposit? William Boberg in his 1981 article, “Some Speculations on the Development of Central Wyoming as a Uranium Province,” published in the Wyoming Geological Association Guidebook, wrote, “The Wyoming Uranium Province consists of several uranium districts (Gas Hills, Shirley Basin, Crooks Gap, Red Desert, Powder River Basin and Black Hills) each of which is made up of a few to numerous individual uranium deposits. In Part 2 of this Wyoming Series, uranium savvy Senator Robert Peck speculated there were “50 to 60 million pounds of recoverable uranium in the Gas Hills proven by previous drilling.” Warren Finch in U.S. Geological Survey Bulletin #2141 (1996, US Government Printing Office, Washington), wrote in his paper, entitled “Uranium Provinces of North America – Their Definition, Distribution and Models,” that “… provinces are identified by the distribution of major uranium clusters, generally of a size of 500 tons and more U3O8…” Since January 1970, when S.H.U. Bowie described how to go about defining uranium provinces and searching for major uranium deposits in a paper he presented tot the International Atomic Energy Agency in Vienna, geologists have been eager to compare similar geological settings between geographically diverse uranium deposits, and more accurately define uranium provinces. Ray Harris wrote in his previously quoted article, “There are no producing ore bodies in the United States similar to those of the Athabasca Basin and Northern Australia, but two deposits, not currently being mined, may be of similar genesis. These are the deposits near Chatham, Pittsylvania County, Virginia, and at Copper Mountain, Fremont County, Wyoming.” (Editor’s Note: According to the Strathmore Minerals website, the company’s Copper Mountain property, previously drilled by Anaconda Uranium Corp through 1997, lists an historical contained resource of more than 38 million pounds of U3O8. Strathmore has not done sufficient work to verify this resource estimate.) Harris explained that a high-grade uranium deposit in the United States, of geological similarity to an Athabasca Basin grade deposit, could not be quickly ruled out. He cited the Chatham, Virginia uranium deposit, grading four pounds per ton of ore, and which he believed might contain 30 million pounds of uranium oxide. He wrote, “… the setting is similar to non-conformity uranium deposits… on first glance, it seems to have formed similarly to the Athabasca and Northern Australian deposits.” Unfortunately, the Virginia legislature voted to ban uranium mining, which offers a temporary setback on this deposit. That is not the case in mining-friendly Wyoming, where in Part One of this series, the state governor is urged companies to bring uranium projects and money to his state. Wyoming’s Geology Potential for U.S. Utilities It is known that Wyoming has multiple roll-front uranium deposits in its sandstones. A pro-mining state, prolific numbers of roll-front uranium deposits, and a rising spot uranium price in a uranium bull market all combine to make Wyoming the U.S. center for in situ leach mining (ISL), also known as solution mining. However, as Ray Harris had suggested during our interview there may be larger uranium source, possibly one that may be competitive with Athabasca Basin or Northern Australia. It is a premise he had argued in the 1980s, in the previously quote work, and again in 1993, Harris’ paper, entitled “Geological classification and origin of radioactive mineralization in Wyoming.” In his 1986 work, Harris concluded, “Given the impressive length of exposure, the relatively shallow subcrop depths of favorable nonconformities in Wyoming, and the great amounts of uranium available for mobilization, a nonconformity-related uranium deposit should exist somewhere in Wyoming.” One possibility, as Harris suggested, may be in Fremont County’s Copper Mountain area. Harris wrote that at the Copper Mountain area, “Uranium occurs in fractured and faulted Precambrian rocks and in the nonconformably overlying Eocene Tepee Trail Formation. The uranium occurrence is subeconomic but of promising grade and size.” He added, “The uranium is spatially related to fractures and subsidiary faults associated with the Laramide North Canning fault. Rocky Mountain Energy Company has conducted detailed drilling on the North Canning deposit.” Harris explained that mineralization occurs in the Precambrian granite and enclosed metasediments. The mineralization is said to be primarily low-temperature pitchblende and coffinite. Harris compared the North Canning deposit to nonconformity- related uranium deposits. He wrote, “It is likely that the deposit formed by processes similar to those that operated in the Athabasca and Northern Australian regions.” We checked with David Miller of Strathmore Minerals (TSX: STM; Other OTC: STHJF) about their Copper Mountain holdings. He responded by email, “We own all the federal minerals in the area that covered uranium mineralization: about 75 percent of the gross uranium resources. The Canning Deposit is owned about 60 percent by us and 40 percent by Neutron. Strathmore Minerals has around 100 mining claims in the area.” The source of Wyoming’s roll-front uranium deposits are open to debate and have yet to be clarified. In 1981, William Boberg wrote, “The major deposits of Wyoming occur in the Lower Cretaceous Inyan Kara Group of the Black Hills, in the Paleocene Fort Union Formation in the Powder River Basin, in correlative Eocene sandstones in all of the major uranium districts.” Warren Finch later described Wyoming’s roll-fronts, in his previously quoted work, “The predominant type of uranium deposit is the roll-front sandstone deposit in Tertiary continental fluvial basis developed between uplifts. These ore deposits were formed by oxidizing uranium-bearing ground waters that entered the host sandstone from the edges of the basins. Two possible sources of the uranium were (1) uraniferous Precambrian granite that provided sediment for the host sandstone and (2) overlying Oligocene volcanic ash sediments.” Ray Harris appeared to lean more toward the former. William Boberg has argued more toward the latter explanation for a uranium source. Boberg wrote, “It appears that currently available evidence is in support of a hypothesis calling for combined sources of Precambrian granites and volcanic ash falls which produce a unique, uranium-rich, ore-forming liquid that invades very porous and permeable young sediments to form large altered tongues and discrete deposits in a geologically short period of mineralization.” It has been calculated that a typical altered “tongue” would take 700,000 years to form; a typical roll-front uranium deposit could be formed over 50,000 years. Boberg speculated it was the numerous and extensive uranium-enriched ash falls from Middle Eocene volcanism, which was responsible for these deposits. He wrote, “Of greatest importance is the fact that a series of volcanic events from a variety of extrusive centers began about 50 million years ago generating tremendous volumes of ash, which was distributed across Wyoming and adjacent states for greater than a 40-million year span of time.” His explanation of the volcanic ash provides a valuable insight into how Wyoming’s uranium deposits were formed: “The volcanic ash, when flushed by the first rainfall, produced a unique fluid, which was acidic and charged with ions. The chemical reaction of the buffering on this fluid on contact with the Precambrian granites, the ash and other rocks brought the pH back to approximately neutral but leached additional uranium from the granites and probably the ash. The high rainfall and climate assured a steady supply of dissolved oxygen to the fluid resulting in the formation of a unique, oxidizing, uranium-enriched fluid, which entered the unconsolidated, reduced sediments oxidizing them and carrying the uranium to the eventual maximum extent of oxidation.” Boberg explained the development of the roll-fronts, writing, “Fluid flow through the very porous and permeable sediments would be relatively fast allowing for the development of large oxidized tongues with the young sediment as well as scattered uranium deposits at the redox (oxidized reduction) interface within approximately a million years. Deposits formed near the granitic highlands would be larger and of higher average grade because of the proximity to the dual source of granite and ash.” J.D. Love’s uranium discovery in Tertiary sandstones, in 1951, was a near-surface roll-front type of redox deposit. A roll-front deposit follows a sinuous linear trend, often C-shaped. Colorado and Utah miners began calling the cross-sectional configuration a “roll” in the early 1940’s. Roll-fronts occur in sandstones, bordered above and below by less permeable shales. In Wyoming, the “rolls” are bordered by altered and unaltered sandstone. It is generally concave from altered ground and convex into unaltered ground. Harris’ idealized roll-front uranium deposit would have “uranium concentrations decrease abruptly away from the concave boundary, and concentrations gradually decrease away from the convex boundary in reduced rock.” Uranium is not always present everywhere along a roll front. It may be unevenly distributed and there are often other elements, such as vanadium, selenium, molybdenum, copper, silver, lead and zinc. Geologists look for where coarse-grained sandstones grade into finer grained or clay-bearing equivalents as indicators for uranium ore. As uranium geologists know with roll-front deposits, it may be mined as long as it is below the water table. Once deposits are brought above the water table, the uranium concentration can be eroded and severely modified. It is not the roll-front uranium deposits, which interested Harris, but the tabular redox uranium occurrences found in many parts of Wyoming. He found those most prominently in the Cretaceous Inyan Kara Group in the Black Hills. Harris explained, “The uranium mines in New Mexico and many other parts of the Colorado Plateau are also tabular deposits.” The tabular bodies, Harris noted, describe their irregular tabular form, and are found parallel to bedding, dissimilar to roll-front mineralization, which crosses bedding. Harris believed some of the tabular bodies in Tertiary rocks were “the limbs and detached limbs of roll fronts left in less permeable rocks at fluvial channel margins.” He also said that tabular bodies could be preserved in oxidized rock due to high concentrations of other rock, such as coal or pyrite. In any event, Harris agreed with other geologists that Wyoming is a uranium province with uranium occurring in nearly all major time divisions in the state. He concluded, “Uranium was available for mobilization during every major weathering period related to the nonconformities.” In our final minutes together, he was convinced that many of the uranium development companies should sink more funds into exploration and find the elephant uranium deposits, which he pointed out in three different parts of uranium. To his way of thinking, that was more exciting that the simple ISL extraction of uranium from previously drilled areas. As with others interviewed, few of those areas will hold surprises, but instead offer the steady, cash-producing uranium extraction that help develop budding companies. That’s what U.S. utilities, and utilities from other countries, are eagerly seeking right now. Wyoming uranium could fuel many of the U.S. nuclear reactors as more companies commence ISL uranium operations.