Uranium Resources - research shop

First Uranium blazes in debut
ANDY HOFFMAN

Globe and Mail Update

Shares of First Uranium Corp., which is developing a pair of gold and uranium properties in South Africa, surged as much as 20 per cent on their first day of trading, rounding out a record year for financings in the uranium sector.



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Spot uranium prices have doubled this year, touching $72 (U.S.) a pound this week on speculation of supply shortages when and if new nuclear plants get built as part of what has been dubbed the “nuclear renaissance.”

Investors have responded by throwing cash at anything and everything associated with uranium.

“All the fundamentals of the commodity point to the fact that it's going to go higher. With the lack of near-term production coming on, this might be the perfect time to hit the market,” said Justin Reid, an analyst at Sprott Securities in Toronto.

However, many of the financings are for uranium producers that are years away from production, if they get there at all. Some believe the sector has become overheated and the level of investment has overshot potential.

“It's insane,” said Victor Lazarovici, an analyst with BMO Nesbitt Burns in New York.

“It's the hottest market around and has all the hallmarks of a bubble,” he said.

Uranium companies have raised more than $1.8-billion (Canadian) this year, according to investment bankers involved in the sector. That's more than double the $770-million raised in 2005, most of which came from a single $500-million financing for UrAsia Energy. Access to capital has become so straightforward, producer Denison Mines Corp. launched a $154-million takeover bid for a small Australian uranium company the day after it closed a merger deal with International Uranium Corp.

“The market is hot for us right now,” CEO Peter Farmer said in a recent interview.

Yesterday, the company announced a $100-million private placement stock offering of 8.5 million shares at $11.75 apiece.

“The North American capital markets are the ideal place to raise capital for large-scale uranium and gold projects,” said Gordon Miller, the CEO of Simmer and Jack Mines Ltd., the South African gold miner that spun off assets for the First Uranium IPO. The comments were made in a statement, and the company did not respond to e-mailed questions or interview requests.

First Uranium's two properties are existing mine sites. One is a mine that was closed in 2001 after low uranium and gold prices made it uneconomic.

The other is a tailings recovery site that will reprocess waste from mines in the area to produce gold and uranium. The company hopes to be producing at both locations by late 2008.

Approximately three-quarters of First Uranium's gross revenue in 2009 is expected to come from gold, according to the company's prospectus.

While there are just a handful of companies that actually produce uranium today, (Canada's Cameco Corp. is the world's largest) there are now some 400 firms that say there are actively exploring for it.

Less than 20 of those explorers will be able to develop their deposits at prices below $75 (U.S.) to $100 a pound, Bernard Guarnera, the president and chief executive officer of consulting firm Behre Dolbear & Co., said at a Nuclear Energy Institute conference in Quebec City in October.

Uranium projects are often more difficult to bring to production when compared to other resources.

Permit and environmental standards are tougher in most cases and many projects are at least a decade away from actual production.

“It's not easy to bring on uranium mines,” said one investment banker involved in the sector, who believes that investors are starting to “misprice” the risk associated with some uranium firms.

“It's always going to be more difficult than people think to get uranium out of the ground and sold,” he said, adding that “there's no question that some investors don't appreciate how difficult it will be for them to hit their targets.”

Vancouver's Aurora Energy Resources, which is developing uranium deposits in Labrador, was able to raise almost $100-million (Canadian) this year through an IPO and a pair of share issues. Aurora was spun out of Fronteer Development Group Inc. to unlock “the value that other pure uranium vehicles were getting,” Fronteer CEO Mark O'Dea said.

Investment bankers were lining up to facilitate the deal, Mr. O'Dea said. Aurora now has a market value of over $900-million compared with Fronteer, which is valued at $592-million.

“There was no shortage of support when it came time to pull the trigger,” he said.

The year's major uranium financings have centred on so-called “near-term producers,” miners that hope to be producing within 12 to 24 months. Paladin Resources Ltd. recently raised $250-million (U.S.) with a debt financing and hopes to be in production early next year. A similar debt issue of $155-million (Canadian) was secured by sxr Uranium One Inc., in addition to roughly $340-million raised in a pair of stock sales, with a similar production time frame.

The financings have done little to satisfy investor appetite. Paladin shares have gained 291 per cent this year and sxr stock is up 145 per cent. An index of 37 uranium stocks compiled by Sprott Securities found an average gain of 182 per cent.

Some of the runup in uranium prices has been fuelled by speculators buying the commodity. Roughly 35 million pounds of uranium trades hands each year on the spot market . Over the past two years, financial players such as hedge funds have purchased more than 20 million pounds, according to industry experts.

Investment letters such as The Dines Letter, by James Dines, have drawn retail investor attention to uranium, leading to a staggering run in uranium stocks.

Earlier this month, Pinetree Capital Corp., which owns stakes in several uranium companies, revealed that the Ontario Securities Commission was conducting an investigation of its chairman and CEO Sheldon Inwentash in connection with possible insider trading and stock manipulation.

Pinetree shares plunged as much as 30 per cent before Mr. Dines published a special edition of his newsletter instructing readers to “back up the truck” and load up on Pinetree shares. The stock finished the day up 4.2 per cent.

URANIUM MINERS





Ticker Company List price Market cap $Cdn million

PRODUCERS





CCO Cameco Corp. $46.01 $16,201
DML Denison Mines Corp. 11.95 2,106
ERA Energy Resources of Aust. 16.92 2,713
URRE Uranium Resources Inc. 7.03 428
UUU UrAsia Energy Ltd. 4.80 2,305

NON-PRODUCERS





PDN Paladin Resources Ltd. 6.89 3,403
SXR SXR Uranium One Inc. 14.49 1,927
URE UR-Energy Inc. 401 292

EXPLORATION





AXU Aurora Energy Resources Inc. 13.85 904
EMC Energy Metals Corp. 9.72 645
FSY Forsys Metals Corp. 3.64 171
KRI Khan Resources Inc. 3.43 142
LAM Laramide Resources 7.44 376
MGA Mega Uranium Ltd. 5.35 594
TVC Tournigan Gold Corp. 3.29 368
UEX UEX Corp. 5.39 973
WNP Western Prospector Group Ltd. 4.6 197
UMN Uramin Inc. 272.39 1,020
OMC Omegacorp Ltd. 1.02 121

SOURCES: COMPANY REPORTS; TD NEWCREST; BLOOMBERG