News is All About
Thursday, February 15, 2007

This past week has seen a dramatic change in the landscape of the uranium industry. Cameco has been stalling as of recently and the market is eagerly awaiting their news in March. SXR has purchased UrAsia in a $3.1 billion deal, and will become the #3 uranium company in the world behind Cameco and Areva. SXR has been one of our favorite uranium stocks from the beginning, however UrAsia has been one of our least favorite ones due to their ridiculously large share float and geographic location. However, we shall stick with SXR management as we believe they are some of the best in the business and hopefully watch as they maximize value from UrAsia's assets. We have heard rumors that UrAsia's production is not fully being realized, but we shall see in the months to come. We shall be proud owners of the largest mid-major in the industry and hopefully continue to see our company grow into the next uranium blue-chip as we previously forecasted. The current money to be made is in the near-term producers and they will continue to be picked off so long as their market caps remain low and do not appreciate considerably.

With that in mind, we believe that Forsys (FSY) could be picked off as they spin off their gold assets and get ever closer to beginning construction on their mine in Namibia. Also of note is that Namibia has declared that they will cease to issue anymore licenses for uranium exploration for the time being, so those companies with licenses are somewhat more valuable on this fact alone. Ur Energy (URE) is also looking nice as their stock has been somewhat stalled in the $4 range for the past few months. They should be producing in early 2008 which makes them one of the next few companies to begin production. Assets like these are becoming ever more attractive as the price of uranium rises and the company's stock is stalled.

Strathmore Minerals (STM) has been on a major upswing from our last buy. They took on one JV partner already which was a smaller outfit. Now they are in negotiations for their Roca Honda project. The company took a $100,000 payment for the exclusive right to negotiate the right to construct and mine the Roca Honda project. This is a puny sum compared to what some companies are getting for a “lock-up period” here, in Australia, and in Canada. Strathmore stated that, “it has granted to a Fortune Global 500 international diversified resource and industrial corporation the exclusive right to negotiate a joint venture agreement.” So after looking at the list of companies located within the 400-500 range, we come up with a possibility that is very intriguing. There is only one reason that Strathmore is allowing the rights to be negotiated for such a cheap price and that reason is expertise. The company that appears to have the best expertise at this time is AREVA, especially after Cameco's mishap managing Cigar Lake and what has happened in the past at McArthur River. AREVA is purchasing stakes in minors and sharing their expertise for stakes as well. However if you check out the list, coming in at #483 is AREVA and they also fit the description of an “international diversified resource and industrial corporation.” This is the way we see it, and if our assumptions are correct, then STM is worth $8 per share. The stock did not move on this news, however we find ourselves once again buyers of STM at C$4.24.

BRD, which has fallen considerably over the past month or so is now approaching a level of support. We think that if the company has 10,000,000 lbs. between all of their projects, which their CEO has indicated to us, then there is the potential for some value here. We are averaging down in this situation and shall double our position at the C$.50 level. Usually trying to catch falling knives is not the best idea, however we see their potential level of lbs. in the ground valued at C$1, which we think is undervalued just as Strathmore was not so long ago.

The next 60 days are going to be what decides how uranium stocks act for the rest of the year, because if we go into a gradual merger mode, then uranium stocks will attract even more speculation during their seasonal downtrend through the summer months. Take-out targets do not decline with the general market when there are aggressive shoppers about, and that may end up being the case as we move forward. Everyone should sit back and enjoy this period as this could very well be a major milestone in our industry's evolution. Be happy you're here and invested in some of the most promising companies, and as always stay strong during downtrends in the general market.

On a closing note, it must be noted that our uranium index for Canada, as well as Australia, has closed at a record high for the past 3 days. The juniors are showing strength across the board as well as across continents. This is quite bullish, but there should be calm before the storm develop before Cameco's first announcement, and depending on that news another may develop before their second announcement (our inclination is that the first announcement will be the most important and all that investors hear or care about). Until next time, good health and good trading.