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The Cigar Lake Disaster… And What it Means For InvestorsBy Matt Badiali, editor, S&A Resource ReportMonday, November 20, 2006 The ground shook twice, lightly. Then all hell broke loose.
The minor shocks caused a rock fall, which breached the mineshaft. Water gushed into the mine, 100 stories underground. Miners raced to shut watertight bulkhead doors to protect the shaft and all its equipment. The doors failed, miners fled, and the mine was lost.
Bad movie script?
Unfortunately for the world’s largest uranium miner, Cameco (CCJ), no. Its premier new mine, Cigar Lake, flooded last month when a minor earthquake caused one of the drifts in the new section to fail. Located in Saskatchewan, Canada, Cigar Lake is the world’s largest undeveloped high-grade uranium deposit… and water is a recurring problem at the mine.
The Cigar Lake mine had watertight doors installed for just this kind of emergency. Unfortunately, at least one of the doors failed, and the entire mine flooded.
This disaster puts uranium in a new light.
Unlike copper, zinc, lead, and the other base metals, uranium has only one use (at least that’s what Iran claims…). I figured that – after soaring for years – the uranium market was as good as it could possibly get.
In Aspen, a reader of my S&A Gold Report asked me how I felt about uranium mining companies. I said, almost flippantly, that I didn’t like them. I thought the price had run up too quickly. (Uranium has risen 131% since February 2005.)
As my friend Rick Rule says, when something is as good as it can possibly get, it can only get worse from there. Many analysts felt that there was too much supply in the pipe to sustain the price. However, the disaster at Cigar Lake changed everything…
The Cigar Lake mine was targeting a $12 billion ore body, which was supposed to produce 7 million pounds of uranium by 2008.
Now the uranium bull could power even higher as U.S. utility companies compete for supplies – good news for Cameco’s peers. I think several uranium-focused mining companies are good buys now.
The market is valuing some companies’ reserves as high as $75 per pound of uranium. Legendary mining expert Doug Casey is touting prices north of $100 per pound.
I spent a lot of time talking to uranium mining experts last week at the New Orleans Investment Conference to find out the real story, and now I’m convinced:
If you can find uranium companies whose assets are priced below $60 per pound, you’ve got the potential for triple-digit gains in this sector. That’s what I’m targeting for an upcoming S&A Gold Report.
Good investing,
Matt Badiali
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