Uranium Correction Provides Buying Opportunity
By Jay Taylor
Aug 17 2007 9:41AM
Uranium has had its first significant correction in several years. The price of U3O8 has fallen to $110, after briefly reaching a weekly closing high of $136. With this kind of decline, our uranium stocks have taken an even bigger hit in percentage terms which we think is really good news for those of you who have not yet purchased a portfolio of uranium stocks. In fact, we think James Dines is on to something when he suggests that a decline in the price of uranium reduces the potential dishoarding of more uranium from government stockpiles and as such is bullish for the uranium stocks.
We also agree with Dines in his view that uranium is uniquely poised at this particular time to weather a recession better than any other metal except for gold. Gold is real time-tested, market-proven money with intrinsic value, while paper money has been forced on the subjects of the American “crown.” Therefore, gold has been declared money by the markets, not by fiat or edict. When financial systems melt down or melt up, gold will be demanded as a medium of exchange once again by market participants, whether we head into a hyperinflation or an excruciating deflationary debt implosion. This is what separates gold from other metals, and even silver, in a deflationary collapse. Because of its nature, gold is money, while other metals are not, though silver is arguably also money, but not as good as gold.
If uranium is not money, why do I expect it to hold up well if we run into a deflationary scenario over the next few years? Because I have talked about this at some length in the past, I’m not going to write too much more about it now except to say that there is a shortage of uranium in the world to meet the needs of the existing 440+ nuclear reactors operating around the world right now. These reactors supply a significant amount of the world’s electricity. There are no substitute fuels for these power plants, so that the price of uranium can rise very dramatically - even much higher than the $136 that U3O8 hit earlier this year. In other words, this metal is price inelastic. There are no meaningful new supplies of this metal coming into the market for another 5 to 10 years. If we go into a major depression, there would be a reduction in demand for electricity, that is for sure, but a basic amount of electricity would still be required to hold society together. So the existing power plants would still need to secure uranium to stay in business, and there simply isn’t enough of it around to meet even a reduction in demand for electricity. Thus, even if we enter into a significant recession/depression, demand for uranium should keep its price in the $80 to $120 range for the foreseeable future.
One more detail I would like to point out is that with the most recent decline in U3O8, its “real” (inflation adjusted) price is now back to its prior peak of around $111.69 in 1976. With this “real” price of uranium at these heights, we think as long as U3O8 is priced in the $80 to $120 range (in real terms), the economics for uranium mining companies should remain very robust. While the market for commodities these days can be very fickle, the pullback from this sector by the investment community (perhaps most significantly hedge funds at this time of credit strains) provides alert investors with an opportunity to increase their exposure to this sector.
So, we see the most recent decline in the price of uranium and in the shares as a golden opportunity for investors to acquire uranium shares for their portfolio.
Just looking at what Berman has put together in just a touch less than a year is amazing.
254 confirmed mining claims all within 40 miles of the White Mesa Mill. The claim sets include:
Pay Day Claims
Rage Claims: Permit in final stages of approval for 27 drill holes.
Rockie Claims
Cache Claims: Permit has been approved for a 33 drill hole campaign. 32 of these will be dry holes and 1 will be a wet hole. The drill area is going consist of 3.2 acres and all disturbance fees have been paid and payment has been recieved by the BLM.
68 additional claims which are still not available via the BLM website: blm.gov yet apprently came with the deal in acquiring AUMN
We have completed our 504 and share structure has not changed since.
We have a new website on the way, and while it is still under construction, it is obvious that Berman's efforts have been focused elsewhere.
We have two independent geologists completing NI 43-101 reports for at the very least, the 254 claims in house at the time of the PR for the NI 43-101. These reports are due out in Q4 of 2007, approximately 1 year after Berman acquired his our first claim.
We have acquired another company, AUMN, which leaves the door open to the most questions. I feel once we begin the exploration campaign, more details will emerge on the relationship between AUMN and RSDS.
We have a JV between TRSI, an O&G company, that is also entering into the uranium mining claim acquisition business. Berman is a member of the board and more information on the synergy between RSDS, AUMN and TRSI will be forthcoming in the next few months I feel.
Given the valuation that we can extrapolate from PR's and the above information, we just need to hit one sizable section of ore which economically feasible to produce (given today's uranium spot prices, this should not be an issue) then we could see a estimated value of 100+ million easy. Now the question is, will the PPS follow suit to reflect that value? Time will tell my friends, time will tell.
Sure there are a lot of questions out there, but in due time we should have the answers.
Have a good one. Best of luck tomorrow. Let the coming weeks hold good things for all investors (131 of them from the TA) in the near future.
- faz thanks |
