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.

About the Author:

James Finch contributes to StockInterview.com and other publications. The above article can be read in its entirety with full graphics and additional data at http://www.stockinterview.com. Feedback to James Finch is welcome and encouraged. Please contact him at jfinch@stockinterview.com

In situ leach mining (ISL), also known as in-situ mining or solution mining, was first used as a means to extract low grades of uranium from ore in underground mines. First used in Wyoming in the 1950s, originally as a low production experiment at the Lucky June mine, it became a high-production, low cost method of fulfilling Atomic Energy Commission uranium requirements at Utah Construction Company’s Shirley Basin mining operations in the 1960s. Pioneered through the efforts of Charles Don Snow, a uranium exploration and mining geologist employed by Utah, many of his developments are still used today in ISL mining.

What is ISL mining? According to the Wyoming Mining Association website, ISL mining is explained in the following manner. (We choose Wyoming because it is the birthplace of “solution mining” as it was originally called.)

“In-situ mining is a noninvasive, environmentally friendly mining process involving minimal surface disturbance which extracts uranium from porous sandstone aquifers by reversing the natural processes which deposited the uranium.

To be mined in situ, the uranium deposit must occur in permeable sandstone aquifers. These sandstone aquifers provide the "plumbing system" for both the original emplacement and the recovery of the uranium. The uranium was emplaced by weakly oxidizing ground water which moved through the plumbing systems of the geologic formation. To effectively extract uranium deposited from ground water, a company must first thoroughly define this plumbing system and then designs well fields that best fit the natural hydro-geological conditions.

Detailed mapping techniques, using geophysical data from standard logging tools, have been developed by uranium companies. These innovative mapping methods define the geologic controls of the original solutions, so that these same routes can be retraced for effective in situ leaching of the ore. Once the geometry of the ore bodies is known, the locations of injection and recovery wells are planned to effectively contact the uranium. This technique has been used in several thousand wells covering hundreds of acres.

Following the installation of the well field, a leaching solution (or lixiviant), consisting of native ground water containing dissolved oxygen and carbon dioxide, is delivered to the uranium-bearing strata through the injection wells. Once in contact with the mineralization, the lixiviant oxidizes the uranium minerals, which allows the uranium to dissolve in the ground water. Production wells, located between the injection wells, intercept the pregnant lixiviant and pump it to the surface. A centralized ion-exchange facility extracts the uranium from the barren lixiviant, stripped of uranium, is regenerated with oxygen and carbon dioxide and recirculated for continued leaching. The ion exchange resin, which becomes "loaded" with uranium, it is stripped or eluted. Once eluted, the ion exchange resin is returned to the well field facility.

During the mining process, slightly more water is produced from the ore-bearing formation than is reinjected. This net withdrawal, or "bleed", produces a cone of depression in the mining area, controlling fluid flow and confining it to the mining zone. The mined aquifer is surrounded, both laterally and above and below, by monitor wells which are frequently sampled to ensure that all mining fluids are retained within the mining zone. The "bleed" also provides a chemical bleed on the aquifer to limit the buildup of species like sulfate and chloride which are affected by the leaching process. The "bleed" water is treated for removal of uranium and radium. This treated water is then disposed of through waste water land application, or irrigation. A very small volume of radioactive sludge results; this sludge is disposed of at an NRC licensed uranium tailings facility.

The ion exchange resin is stripped of its uranium, and the resulting rich eluate is precipitated to produce a yellow cake slurry. This slurry is dewatered and dried to a final drummed uranium concentrate.

At the conclusion of the leaching process in a well field area, the same injection and production wells and surface facilities are used for restoration of the affected ground water. Ground water restoration is accomplished in three ways. First, the water in the leach zone is removed by "ground water sweep", and native ground water flows in to replace the removed contaminated water. The water which is removed is again treated to remove radionuclides and disposed of in irrigation. Second, the water which is removed is processed to purify it, typically with reverse osmosis, and the pure water is injected into the affected aquifer. This reinjection of very pure water results in a large increment of water quality improvement in a short time period. Third, the soluble metal ions which resulted from the oxidation of the ore zone are chemically immobilized by injecting a reducing chemical into the ore zone, immobilizing these constituents in situ. Ground water restoration is continued until the affected water is suitable for its pre-mining use.

Throughout the leaching and restoration processes, a company ensures the isolation of the leach zone by careful well placement and construction. The well fields are extensively monitored to prevent the contamination of other aquifers.

Once mining is complete, the aquifer is restored by pumping fresh water through the aquifer until the ground water meets the pre-mining use.

In situ mining has several advantages over conventional mining. First, the environmental impact is minimal, as the affected water is restored at the conclusion of mining. Second, it is lower cost, allowing Wyoming's low grade deposits to compete globally with the very high grade deposits of Canada. Finally the method is safe and proven, resulting in minimal employee exposure to health risks.”

ISL mining may be the wave of the future of U.S. uranium mining, or it may become an interim mining measure, in areas where the geology is appropriate for IS. Until sufficient quantities of uranium are required by U.S. utilities to fuel the country’s demand for nuclear energy, ISL mining may remain the leading uranium mining method in the United States. At some point, an overwhelming need for uranium for the nuclear fuel cycle may again put ISL mining in the backseat, and uranium miners may return to conventional mining methods, such as open pit mining.

About the Author:

James Finch contributes to http://StockInterview.com and other publications. You can email James Finch at jfinch@stockinterview.com. All of his archived articles (with photos, maps and charts) can be read at http://www.stockinterview.com

Now that the uranium bull market has gone to a new level, a number of exploration stocks made spectacular percentage gains after the International Investment Conference held in San Francisco in late November 2005. We turned to Kevin Bambrough, Market Strategist, and Jean-Francoise Tardif, Portfolio Manager, at Sprott Asset Management for their advice on how to navigate through the more than 250 uranium exploration, development and producing companies available across the global investment landscape. Who better to ask than a fund that has invested around $175 million in uranium stocks the past few years, about 6.7 percent of more than $2.5 billion managed by Sprott Asset Management? The Sprott team has bet heavily on a nuclear energy renaissance, and early indications confirm very strong returns in their investments.

Before our taped telephone interview, Kevin Bambrough emailed a few comments, “We would like to make the point about some incredible gains that have been had in the uranium sector. The list is growing but not the quality so investors should use extreme caution. As the uranium price rises, and money pours into exploration, we can expect to see some sizeable discoveries coming down the road. It should be exciting times.”

Prior to StockInterview.com’s interviews with Mr. Bambrough and Mr. Tardif, they compiled a list of ten tips for investors studying uranium companies. The tips are listed below, followed by an extensive interview, first with Mr. Bambrough (in this installment) and a second installment with Mr. Bambrough and Mr. Tardif.

The Ten Tips Investors Should Know

1. One of the best indicators of a project’s potential success could be past ownership. It's best to try to buy any mining stock early in the cycle. Try to pick up properties that were worked by majors during the last bull market but which eventually dropped during the lows of the bear market. During the last uranium boom of the 1970’s, many majors decided to completely exit the uranium sector.

2. Study the value of ore body with regards to its value per tonne, or its recoverable metal. Estimate the “all in” costs and feel comfortable with what you are paying. Risks-to-reward doesn’t favor pure exploration. Typically, we avoid pure exploration plays unless management is excellent, they have a large prospective land package, and the company is well financed.

3. Look for good, proven management, which has been successful in the past.

4. Look for solid shareholders. It is always nice to see that management has a large stake in the company. Often, this makes them value their paper more, and they will be less likely to engage in reckless stock issuance. If not management, I get comfort seeing that successful fund managers have large holdings. It is even better to see that a major company in a related industry has taken an interest in the company.

5. Look at the property’s infrastructure. Find out about electricity and water costs required for exploration, development and production. Find out about roads, rail, trucking, access and proximity to a mill.

6. Look for hidden value in the company. We always consider the value of existing infrastructure. From time to time we have been able to buy companies where existing facilities, perhaps a mill or shafts more than justify the entire market cap of the company. Past drilling for uranium will save money. Some companies have properties with very expensive shafts and/or mills. There are also companies with large extensive databases like Energy Metals Corporation (TSX: EMC) and Strathmore Minerals (TSX: STM). These databases of past drilling on various properties can be used to continue to acquire good prospects as well as sold in pieces. I would expect that they will also be able to use the data to farm in on other properties or sell other property owners valuable drill-hole data.

7. Buy emerging stories. It is great to find a company before it has any analyst coverage or even covered by letter writers.

8. Find out if the property is in a pro-mining environment. Ultimately, you need to mine. It's best to have a property in a location where government is pro-mining. We will still invest, though, as long as this factor is discounted in the stock. Some countries are so hungry for investment they will offer favorable tax rates and other incentives. Permitting can be costly and take a long time so this is very important.

9. Study the capital costs for the project and the currency in the country where the project is located. Typically, the lower the capital costs, the less risk in the project. The less a company risks, in time and money, to find out if the mine is economic, the greater its chance of success. Larger capital intensive projects usually take longer to bring on, and you could risk missing an important part of the cycle. I also like to consider currency moves and their possible impact. A strengthening local currency can drive up costs and destroy margins. A falling currency can dramatically improve the economics of the project

10. Funding can improve the story or outlook. Make your cash work. It's not really an option for a small investor but as an institution we love to invest in companies when we think our cash is going to make a huge difference. Examples include when Aflease (now SXR Uranium One – TSE: SXR) had cash problems and was being deeply discounted, or our recent Tournigan (TSX: TVC) funding to pay for confirmation drilling and exploration on the Jahodna uranium deposit in Slovakia.

About the Author:

James Finch writes about investing in uranium companies on http://StockInterview.com. The entire interview accompanying these tips can be viewed at http://www.stockinterview.com

Many investors invested in the Great Uranium Bull Market with little rationale behind their speculation. Through the robust rallies of the past two years, it was easy to play the momentum of a newsletter writer’s recommendation. Quite a few did so, often employing the ‘greater fool strategy’ and hoping the last and dumbest investor would provide an exit strategy for the early and nimble speculator.

We have created a 7-point ratings system to help you in determining which companies might be best suited for your degree of investment risk. It’s a guideline you can use, and we’ve not assigned a weighting to each item. Nor have we named any uranium companies. This is a do-it-yourself ratings system, which requires but two actions on your part: (a) be persistent in your data-gathering from each company by asking the questions we posed below, and (b) be honest in your assessment when you review this data.

Some of the more speculative, pure exploration plays might abandon their properties by the end of the year or in 2007. Those would include under-capitalized companies with the more speculative properties and who also fare poorly on our ratings system. This ratings checklist would also apply to the pure specs. We began with our article, “How to Choose a Uranium Stock,” featuring Sprott Asset Management Market Strategist Kevin Bambrough and Senior Portfolio Manager Jean Francois Tardif, as a starting point to create a more advanced ratings system for you.

Uranium producers are likely to make a strong comeback as they cross over or switch to more lucrative long-term contracts. But, it could be the smaller, but more solid, uranium development companies which could emerge as the preferred investment vehicles, when the bull resumes the next leg of its long run. Now that we have had a shakeout, with possibly another one on the horizon, it is wise to properly evaluate the important merits of the more serious uranium development companies.

Below are some of the key criteria we are using in our ratings system to objectively evaluate uranium companies covered in our new book, “Investing in the Great Uranium Bull Market: A Practical Investor’s Guide to Uranium Stocks.” Please determine if your favorite exploration and/or development company meets these standards. This is one way of obtaining sufficient data to help you form a snapshot of a company’s prospects.

1.Cash Position. The more cash a company has in its treasury, the longer it can survive. Find out if your favorite company has a minimum of $20 million in cash. More than $30 million gives a company some breathing room. Exploration and development are very expensive propositions. Raising money in a down market is very tough.

2.National Instrument 43-101. This independent geological assessment determines how many pounds of uranium a company’s property hosts. While there are flaws with this system, it can be a workable yardstick. Find out if your favorite company has a minimum of 20 million pounds of a NI 43-101-compliant uranium resource. One should consider historical resources inadequate for evaluation purposes. They may also be misleading and open to hyperbole.

3.Pedigree of Known Deposits. Many of the uranium development companies hold properties, which were once held by the minerals or uranium divisions of major oil companies. Some were continuously held, during the 20-year bear market in uranium by one company or another, and then abandoned during the nadir of the drought. Find out if your favorite uranium company’s primary properties were continuously held until 2000 or a bit longer, but before the spot uranium market reversed. The earlier a company acquired its properties, the greater the probability that company got the best ones. Those who came into the game late often got the crumbs.

4.Drill Databases. Those previous land tenants, the major oil companies, who spent tens of millions of dollars drilling the uranium properties, accumulated drill databases. Some companies got the property, but not the drill databases. Some companies bought the drill database as part of their property acquisition. Find out if the company’s primary properties also have the drill database accompanying it. You may be surprised at what you find.

5.Pedigree of Uranium District. There are several premier uranium districts, which have a history of large-scale uranium production: Athabasca, Australia’s Northern Territories or South Australia, Grant’s New Mexico, Wyoming, Kazakhstan, Niger, and Namibia. Find out if your favorite company has holdings in these districts. Some companies have holdings in multiple uranium districts, which may also become recognized as a wise decision by their management.

6.Management’s Technical Experience. There are three categories of uranium experience: exploration geologist, project geologist and mine operations. Find out how much experience your company’s geological team has in each of those three categories. Those with less than 100 man-years of uranium experience behind them may be lacking. Those companies which have strength in all three categories could become the next uranium producers.

7.Political or Environmental Risk of Primary Assets. Finally, you should assess the risk of the company’s primary assets with regards to its location. Primary uranium assets in North America or Australia’s Northern Territories hold the lowest risk. Those companies exploring or developing in Niger, Namibia or Brazil have slightly higher political risk. Companies with prospects in countries such as the Democratic Republic of Congo, Kazakhstan or Mongolia hold more risk than some investors may wish to tolerate. Areas which forbid mining such as Queensland, Western Australia or the U.S. state of Virginia carry an enormous degree of risk and a Kierkegaardian leap of faith.

Now you can rate your favorite uranium company and use this ratings system to help you sift through the more than 300 potential stocks in which you might have considered investing.

About the Author:

James Finch contributes to StockInterview.com and other publications. Sign up now and get your free copy of our new book, "Investing in the Great Uranium Bull Market: A Practical Investor’s Guide to Uranium Stocks." Just visit StockInterview.com