Article Title: Safest Ways to Invest in Uranium Companies

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Article Title:
Safest Ways to Invest in Uranium Companies

Article Description:
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?

Additional Article Information:
1186 Words; formatted to 65 Characters per Line
Distribution Date and Time: Thu Apr 27 02:51:19 EDT 2006

Written By:     James Finch
Copyright:      2006,
Contact Email:  mailto:[EMAIL PROTECTED]

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Safest Ways to Invest in Uranium Companies
Copyright © 2006,
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. 

James Finch contributes to and other 
publications. The above article can be read in its 
entirety with full graphics and additional data at Feedback to James Finch 
is welcome and encouraged. Please contact him at: 



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