TER: Very early on in our conversation you were talking about how the clean, green interests have made the rare earths so popular now, and you said nuclear is our cleanest energy resource. Why haven't the uranium stocks taken off in this cap-and-trade, clean energy mania?

MF: The spot price is depressed right now, down to about $42 a pound, for a couple of reasons. Number one, we're getting very mixed messages from the Obama administration. On one hand, Energy Secretary Steve Chu on National Public Radio, which is just a bit left-leaning, suggesting that if you gave him a choice of living next to a nuclear power plant or a coal mine, he would choose the nuclear power plant. That would be viewed as positive for the nuclear energy sector in this country.

But at the same time, the DOE is advocating selling more uranium to the U.S. Enrichment Corp. (NYSE:USU, UEA:GR). Although they're talking about another 5–10 million pounds per year, with 5 million representing something less than about 10% of the demand in the U.S., that's overhanging the market. It's led to uncertainty and a depressed spot price.

As we've discussed in the rare earth element context, most uranium trades on long-term contracts rather than the spot price. Nevertheless, while the spot price is a small percentage of the market, the uranium sector goes up and down based on the spot price. The DOE is using these uranium sales—previously on the order of $150 million per year—to fund cleanup work in places in the Tennessee Valley Authority, such as Portsmouth and Paducah. In addition, they recently denied a loan for a new enrichment facility in Ohio.

Bottom line, all of this uncertainty, vacillation and these mixed messages by the Obama administration disrupts spot markets, which leads to lower valuations in the uranium sector.

TER: Do you think this is one of those dips that is clearly opportunistic? Or is it a negative, that these mixed messages will keep uranium prices down?

MF: The mixed messages certainly have severely affected the spot price. Long-term contracts have held pretty steady—$65 to $75 a pound over the course of the past year. Asian sovereign funds moving into various countries, locking up contracts, and investing in uranium deposits and mines have caused me to be very specific in the junior uranium companies I invest in. So I've looked for cream-of-the-crop North American companies in this sector that are presently undervalued.

TER: Let's talk about them.

MF: I like Hathor Exploration Limited (HAT:TSX-V), and we've talked about Hathor before. Its price has been very beaten up over the last nine months or so. It was trading as low as a $1.40 or so until they recently announced the discovery of a new zone on the Midwest Northeast Project. There are no assays right now, but scintolometer readings indicate that this will be a substantial intercept. Hathor is now trading in the $1.70–$1.80 range. I would consider that a good entry point and look for a better share price for Hathor.

Another thing about Hathor… Denison Mines Corp. (TSX:DML) (NYSE.A:DNN) was trying to acquire Northern Continental Resources Inc. (TSX.V:NCR)for their portion of the Wheeler River discovery, also in the Athabasca Basin. This is another very nice discovery that could be a substantial deposit and a mine in a few years. Hathor, being a cash-rich junior, made the better offer. Now Hathor and Denison are JV partners—the two of them since Northern Continental is in the fold with Hathor.

TER: Any others?

MF: Another junior I very much like in this sector is Strathmore Minerals Corp. (TSX.V:STM, OTC:STHJF ), which operates in Wyoming and New Mexico. Strathmore is the true super uranium junior company. Strathmore is focused on the Gas Hills of Wyoming and the Roca Honda Deposit in the Grants Mineral Belt of New Mexico. The company presently has about 140 million pounds in the ground resources—by far the highest number of pounds of any company in this sector. These two flagship projects will be relatively near-term producers.

Strathmore will monetize several projects that are not core assets, and recently announced the sale of one of them. They are selling their Powder River Basin properties to Bayswater Uranium Corporation (TSX.V: BAY) for $30 million. The monies from this sale will enable them to permit the two flagship projects and work toward feasibility.

So these are catalysts that could move the Strathmore price, which is presently about 60 cents. A couple of analyst reports coming out of financial institutions are also very bullish on Strathmore now.

TER: What does the timetable look like?

MF: We expect the mine permit application to be submitted very soon to the state of New Mexico for Roca Honda, and the commencement of a bankable feasibility study for that project early in 2010. In the Gas Hills, Wyoming, they are working on the draft of their mine application that will be submitted sometime in 2010.

TGR: Anything else you would like to tell our readers?

MF: I'd say, "Do your own due diligence." The successful investors in this business are the ones who research and study companies before investing in them. You don't want to be throwing darts at the board. It's a high-risk business; it's gambling. But you can skew the odds in your favor by doing careful research.

Courtesy: The Energy Report

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