Energy Insights

By: Meridian | Sun, Feb 11, 2007
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For the past couple weeks I have been talking about Uranium. Let's face it, there is a Uranium exploration "boom" going the likes of which we have never seen before. As a newsletter writer, I routinely get phone calls from Uranium exploration companies that are quick to inform me they are exploring in the Thelon Basin or the Athabasca Basin in Canada. The mystique that is being created out there is that these areas are veritable treasure troves of Uranium just waiting to be un-earthed. I say...hold it!! Not so fast. It is not quite that simple.

In fact, this week I had a brief visit from the CEO of a small Uranium exploration company that is active in various parts of Canada. I was feeling aggressive as I am prone to do sometimes, much like a hungry grizzly bear in Spring after he emerges from a long Winter slumber. This poor man walked right into my sharp claws. He reminded me of a used car salesman with his fast talking manner and shallow attention to detail. He had no idea what he was up against. By the time old "Meridian" was finished with him, he was talking a lot slower and actually back-pedaling out of his grandiose claims to fame. He practically tripped over himself as he rushed to get away from me!

I have become so disgusted of late with the promotional hype being thrust upon the investment community that I have taken it upon myself to dust off my old University Geology books and bring myself up to speed on the geology of Uranium exploration. Late last week as I was finishing the Feb 2nd Energy Central letter I had a very fortuitous phone call from a gentleman I have known for several years now. He invited me to jump on a plane and make a fast trip to a place called Uranium City, Saskatchewan. I thought that in my travels that I had been "north" before. Wrong! This time I really got to go north - to 60 degrees of latitude. Right where Saskatchewan meets the Northwest Territories. And the weather you ask? Well, I thought I had experienced cold in my previous travels. Wrong again! Did you know that at minus 50 degrees the snow actually "squeaks" when you walk on it and your eyelashes freeze as you walk outside?

I ended up spending some quality academic time with a Geologist who holds a Ph.D from McGill University in Canada and who has done post-doctoral research at the prestigious Cal Tech. He is leading the efforts for Uranium City Resources (TSXV:UCR) to identify significant enough mineralization to warrant the construction of an open pit Uranium mining project. The geology lesson that he gave me was far superior to all of my textbook reviews that I have been undertaking of late. In a nutshell, here is what I can now tell you about Uranium.

For starters, the earth is 4.6 billion years old. The Earth itself is a layered structure consisting of a solid core, various molten layers (called mantles) and then a solid crust at surface called the Lithosphere. This crust is about 150 kilometers thick and is broken into 9 major plates that float on the molten mantles. Think of these plates as pieces of a jig-saw puzzle that are subject to movement. It is this movement that gives us things like earthquakes (pay attention subscribers in California !!), and volcanoes as the plate interfaces grind against each other with enormous pressure.

This grinding and movement has been going on for...well...for 4.6 billion years now. These plates have been formed, reformed, fractured, broken, melted, solidified, re-melted etc...many times over and over again during this time span. The crustal rock material that covers most of northern Saskatchewan, Alberta and Northwest Territories last underwent major changes about 1.8 billion years ago. Following this last major era, called the Archean Era, for many millions of years the crustal rock was subject to wind, rain, erosion and the like. The result was a buildup of sedimentary sandstone type deposits over these areas. Then in the ensuing millions of years, much of this sedimentary rock was eroded away by floods and glacial activity. But, not all of it was washed away. There were a few anomalous spots that maintained their covering of sediment to varying degrees of thickness. Today, these anomalous spots are what we call the Athabasca Basin in Saskatchewan, and the Thelon Basin and the Hornby Basin in the Northwest Territories. There are also portions of Wyoming that maintained their sedimentary cover as well as other scattered areas across North America. In the millions of years that followed, the crustal plates were subject to much heaving and thrusting. This is what created things like the Rocky Mountains and the Appalachian Mountains. As the crustal plates moved about, hot thermal liquids came up from the earth's mantles. These hydrothermal liquids were enriched in things like Gold, Silver, Nickel and even Uranium. These hydrothermal liquids interacted with the sedimentary cover and solidified. So that is why in last week's letter I pointed out that Uranium deposits are found at the junction of where sandstone deposits meet sulfide bearing mineral deposits.

So fast forward to today and that is why we see such a land rush in the Athabasca Basin, the Thelon Basin and other similar areas that still host this sedimentary geology. But this is where it gets complex and this is where the retail investor stands to get "taken for a ride". You see, the sedimentary deposits in these anomalous areas vary significantly in thickness. So, an exploration company can find itself faced with having to spend huge sums of money per drill hole to drill many hundreds of feet down to locate the interface with the underlying Archean rock. Drilling is one matter. Getting men and equipment into the drill site is also a factor. Many of these remote areas lack roads and infrastructure. The capital cost of a drilling campaign can be huge. Eventually building a mine is something else again. If you have to find your way deep through the sediments to the Uranium mineralization, this will entail eventually having to build a vertical mine shaft down into the ground to intersect with the Uranium. The capital cost of developing a simple, straightforward open pit mine to such depths is too prohibitive to even think about. For those of you who have been following the saga at Cameco (TSX: CCO, NYSE; CCJ), you will know that 5 years ago Cameco flooded its MacArthur River Mine and now just recently flooded its Cigar Lake Mine. The situation at McArthur River was remedied at considerable cost. Cigar Lake may not be so lucky. Flooding occurred because the sandstone formation is by its very nature weak and brittle and not all that amenable to having a vertical mineshaft drilled through it. At both the McArthur River and Cigar Lake locations, vertical shafts have been sunk many hundreds of feet down. So from this point forward, when I see a junior Uranium company drilling through significant depths of sandstone formation, I may trade the technical swings on their stock as they issue drill results, but I will not ever treat that stock as an investment to hold because I know that a mine will never be built. Sooner or later the market place will figure some of this out and there will be a mighty day of reckoning when many of these Uranium juniors find they have fallen out of favor with the marketplace. We are not quite ready for that day yet. I think it still may be 2 years away. In the interim, what I will be looking for are those companies that have ample amounts of land in areas where the overlying sandstone formation is such that an open pit mine could be built to cost effectively remove the Uranium mineralization. I will also be looking for management teams with prior mining experience capable of undertaking such a project.

Subscribers to my Energy Central letter will be able to share in my findings as I sift through the junior Uranium sector. There will be a goodly number of smaller investors out there who ultimately get burned by this Uranium "boom". People got burned in the revolution. People got burned and are getting burned in the housing boom. And yes it will happen in Uranium too. Don't be one of these people. Play it smart. Subscribe to Energy Central and let me guide you through the remainder of this Uranium story with a profit. Let me help you find the good Uranium exploration companies. Let me help you side-step the bad ones.

Energy Central offers more than just a look at stocks. I stop to assess what is happening in the Crude Oil market and the Natural Gas market each week. The following is a small excerpt of what I told readers this week:

Crude Oil Intermediate Term (weekly chart)

Last week I noted how this long term weekly continuous chart was currently in a downtrend and that I needed to see the RSI over "50", the 18 day moving average surpassed and a clear break out of the downtrending channel. This week delivered 2 out of 3. Tension is in the air. A break out from this channel will see us run to the swing high at $62.50. We are at a critical inflection point here.

To explore how you can subscribe to Energy Central and keep fully abreast of trading opportunities in the energy sector, point your browser to and have a good look around the site. You'll be glad you did.




Author: Meridian

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