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Jaimin Vyas
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Jaimin Vyas qualified from City University in London as a systems analyst and is a free market trader, having lectured on free market economics at Strathmore University in Kenya which is affiliated to Harvard and is a director for research and development in a manufacturing company. He has been... More
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  • Uranium Producers With Potential.

    Uranium stocks have had a terrible year and "the light at the end of the tunnel" appears no nearer than a year ago. The spot prices have been blamed for this though they reflect very little on the supply and demand of long term contracts, which make up the majority of uranium trading. The spot price decline has been blamed on several countries either selling their stocks of uranium or small independent producers not able to get contracts to supply due to the Fukushima incident. Germany has also been partially blamed for the price coming down and buyers smell blood so they have been holding back to see if they can pick up bargain basement prices.

    The drop in the spot prices has trickled down to the prices of uranium exploration stocks with many "I suspect" are on the verge of collapse. This blood letting must stop soon. We saw similar situations in 2001 in the price of gold and silver and we will see it again in other commodities. When we see panic beginning in the markets such as we are seeing presently, it usually means that the bottom is near just as when we see euphoria, which usually means the top is near. The prices of uranium stocks have dropped to such a degree that large-cap and mid-cap stocks are at prices that we last saw prior to the news in 2006 of the cigar lake flooding.

    For contrarians and those that believe in uranium being a good solution for the worlds energy needs and climate change, this is good news. In such situations we may choose to ignore the trend and consider fundamentals.

    If one ignores the price action for a moment and concentrates on the current activities of several of the uranium mining companies, one will see a change of focus occurring where interpretations of the latest information from various press releases are indicating bullish inclines for the near future.

    In the event of uranium prices beginning to move up we could possibly see a rapid escalation of uranium stock prices. This initiation would begin with major producers followed by the mid-cap stocks and finally by the explorers. Contrarian investors are always looking for signs of this to get in before the majority climb onto the gravy train. This may be followed by a lull that may throw many off the train, but I suspect that it would be temporary.

    The news coming out of several large companies indicates that we may be in the process of acquisitions and mergers making the mid caps and large caps stronger taking advantage of buying out smaller companies that have done the hard work but circumstances find them between a rock and a hard place, forcing them to sell out to companies that do have a healthy financial position. Several companies currently are doing exactly that.

    Currently there is one major pure play producer and dividend paying stock, which is Cameco (CCJ), and three mid-cap producers which are Uranium one (OTC:SXRZF), Paladin Energy(OTCPK:PALAF), and Dennison Mines (DNN). These are the companies "in my opinion" whose stock prices are most likely to move first as a result of any sudden rise in demand for uranium. They are also the companies that are beginning to purchase deposits and entire companies.

    There are hundreds of exploration companies out there, some of them do own respectable deposits but most of them are cash strapped currently and will most likely find it difficult to bring their defined deposits into production in the near future.

    At current prices it makes sound sense to concentrate on three or four companies that are more likely to take advantage of any drop in stock prices and who have a healthy financial position and production capacity to enable them to survive in the current situation as well as expand rapidly in the future.

    Cameco concentrates in the Anthabasca Basin in Canada with some interest in Australia and the USA, while Uranium one concentrates on several mines in Kazakhstan and is managing one mine in Tanzania for its major share holder; Russ Atom. Paladin is an independent company with a major mine in Namibia and Malawi, and several exploration projects in Australia. The smallest company in our list; Dennison, has a mine in Zambia, and explores in Saskatchewan (Canada), Mongolia and Zambia. Dennison has potentially a very high concentrate deposit called the Phoenix deposit on the Wheeler River project in Canada which is in partnership with Cameco.

    Cameco is a pure play with several large projects including two of the highest concentration projects; The McArthur mine and Cigar lake, both of which have unusually high concentrations of uranium. High concentration deposits are desirable as they keep the costs down of mining. Presently companies that are able to keep their costs down have a greater chance of survival than those companies that may have low concentrate but large deposits. Cameco has kept its costs down, and at the same time acknowledged that this is the correct period to look for deposits to buy which would add more pounds of uranium for them in the future. They recently purchased a deposit from BHP Billiton (BHP).

    Uranium one is currently active in Kazakhstan with partnerships in several mines through its agreement with its majority shareholder Russ atom. Russ Atom is the Russian giant state owned corporation which runs Uranium mines in Russia and in Khazekstan among others through ARMZ.

    Last year Uranium one sold 16% of its shares to the giant Russian company after having faced trouble with the Kazak state owned uranium company over its uranium deposits there. The partnership brought a healthy amount of cash into the company as well as shares in several active Uranium mines in Kazakhstan, which lead to Uranium one becoming a major producer having 50% in several operating mines there. This partnership with Russ atom and a healthy bank account allows Uranium one to look for other deposits in the future and get into future partnerships.

    Uranium one is also going to manage Russ atom's recent acquisition of Mantra Resources in Tanzania. Currently Uranium one produces nearly 12 million pounds of Uranium. In our group this is the second largest producer. Uranium one's cash costs are very low at 14 dollars per pound allowing them to remain profitable even in the current climate with long tem contracts in place. Their production has continued to increase through out this year, with the latest figures showing a 23% increase in the third quarter and 28% in the second quarter. Companies that are facing financial issues would not be increasing production. Uranium one will be managing the Mukuju River project in Tanzania on behalf of their partners and continue to hold an option to purchase the project in the future. The company is profitable and continues to have a healthy sum after recently selling bonds in the Russian markets. Despite being profitable the decision to raise funds indicates that Uranium one will either, purchase the Tanzanian project from its partners or, alternatively may look elsewhere for another project. They may be looking at Botswana where a good sized deposit has been discovered a few years ago. Alternatively they may also consider several projects in Namibia where there are also several promising projects available.

    Paladin resources remains an independent company which is actively producing uranium in Namibia, and is currently active in Malawi. A year ago Paladin managed to acquire the Michelin deposit in Nanuwat territory in Canada from Fronteer gold, which had been exploring for gold in Turkey and defining the Michelin deposit before being bought out after selling the deposit to Paladin. The Michelin deposit has approximately a hundred million pounds but, there was a moratorium that was recently lifted, providing Paladin the opportunity to move ahead and begin developing the deposit. Paladin had some further good news recently, when the Queensland government in Australia lifted the ban on Uranium mining. This will allow Paladin and its partners to develop several deposits that they have there. Recently Paladin signed an off take contract for supplying uranium to the French energy supplier EDF, taking an advance payment of US$ two hundred million for delivery in 2020. Electric generation and uranium companies are both beginning to see a looming shortage that is encouraging them to tie in uranium supplies on long term contracts. Electric generation companies have to be confident enough in the capacity of a producer to tie in a long term contract with them. This provides investors with confidence that Paladin is capable of surviving in the future.

    There are some common factors in all four companies which run against the general grain of the trend of uranium stocks which, currently is downwards. They are aggressively pursuing expansion in the future by acquisition of deposits that are showing good positive results in finding Uranium and at the same time they have enough cash in hand not to sell uranium in the market at low spot prices. They are all concentrating on long term contracts. If these companies are able to thrive in such dire economic conditions, it is more than likely that they will be sector leaders in the future.

    Paladin has clearly indicated that it is not willing to sell its uranium at current prices, instead this company prefers to hold onto the uranium until prices begin to rise or they may simply stop expansion.

    Cameco has also indicated that it is reducing its production forcast in view of the current weakness in the price of uranium. This appears to be a cautious step and makes sound sense in the current economic climate. Surplus stock of uranium will be held until prices return to pre Fukushima levels.

    All this leads us to conclude that the supply in the market will reduce over the medium term and this will be complimented by the Mega ton to mega watts program being terminated at the end of 2013. The drop in demand in 2011 was an anomaly and usually due to the nature of nuclear power, demand is constant. On the other hand supply can fluctuate. China and India continue to expand their nuclear plans and this can only add to demand. This will lead to a reversal of the current down trend.

    Dennison Mines is currently in partnership with Cameco on several projects and made two interesting deals this month; They have made an arrangement with JNR resources to buy it out. and recently purchased shares of international Enexco.

    Dennison owns 22.5% shares in one of the largest uranium mills which is in partnership with Cameco. Cameco also owns shares in the wheeler river project with Dennison. Dennison is the primary operative of this project. Dennison was in partnership with JNR resources on two projects which are Bell lake and Moore lake. JNR has been showing some rich uranium finds, some above 5% concentrations and Dennison would not have purchased JNR unless they were privy to some information that convinced them that there was a significant amount of Uranium on JNR's property to make it an attractive buy. Dennison has been very active in the second part of 2012; while many investors are aware of the drop in stock prices of both producers and exploration companies this fact has not escaped the companies themselves. All these companies are pure uranium companies and many of them can see that it would make sense to either sell out or partner with larger companies. Dennison earlier in the year made another arrangement with Energy fuels. It got majority share holding in Energy fuels while EF got to take over Dennison's uranium assets in the US including the operation of one of the only Uranium mills in the US. This leaves Dennison to concentrate on its Canadian, African and Mongolian assets. It continues to hold a share in one of three uranium mills in Canada, which will in a year's time begin to take in the Cigar lake material. This will bring in a significant amount of money in the coming five years as Cigar Lake gears to full production by 2018.

    There is also a common contradiction in all these companies, where on the one side the price of uranium has continued to decline, which makes life difficult for the producers, but these same companies continue to buy out deposits. They appear to be very positive about uranium through their actions which indicates a great deal of confidence in the future of uranium as an energy source.

    Cameco appears to work very closely with Dennison, which itself eventually may be bought out by Cameco as the Wheeler river deposit develops into possibly a significant deposit. Cameco may be shy to show interest in deposits as a fear of what occurred with Hathor resources and Rio Tinto. To avoid such a play they may let Dennison make the plays and eventually simply merge or buy out Dennison. It would be a logical move considering the two companies work very closely on several different ventures. Cameco is considering the future beyond Cigar lake, McArthur lake and the millennium deposit. Their recent purchase of the Australian deposit from BHP seems like a move to venture outside its normal borders. Cameco will probably not purchase multi mineral deposits which may leave several large deposits found by exploration companies to be looked at by companies like Rio Tinto(RIO) and BHP Billiton which are both multi mineral mining companies.

    All of the above may indicate that while the prices are reflecting a rejection of uranium stocks by investors, the larger uranium producer/cash rich companies are showing more confidence and going selectively for companies that have become weak due to the last few years of unfortunate events which have affected the stocks prices but have significant deposits in their portfolio, making them susceptible and more willing to make deals with mid-cap and large producers.

    There are many exploration companies that have spent the last few years exhaustively exploring and finding great deposits which are currently viable but do not have the strength to move forward, as they are finding it difficult to raise finances in the current economic climate. In such situations stronger companies which have been spending all their time developing their own deposits but have either no interest, or have not found other deposits may take advantage and either buy out these smaller companies, or merge with them. An example of such a company is Hathor resources that was recently bought out by Rio Tinto.

    For companies like Cameco it makes sense to go for smaller companies that have discovered good deposits in its neighborhood as it eventually leads to longer life for the investment it makes in infrastructure developed around its current deposits. This allows the company to significantly reduce development costs and save a great deal of time. Currently most producers are putting a hold on developing deposits but that does not account for the future and certainly contradicts their actions in the recent past on purchasing deposits versus the downward trend of the uranium sector. If a company has no confidence in their product, they will not go out to buy more raw material, rather they will begin to downsize.

    Uranium was at its high of above US$ 120.00 when oil prices were hitting their highs of US$ 140.00 per barrel. Since then we saw declines in oil followed by an incline, but uranium did not follow oil after its high. It did drop to current lows, but did not rise up as the Fukushima disaster occurred but if this had not occurred we might have seen prices rise up. Despite this we do see plans for nuclear expansion beginning to take place. Initially a knee jerk reaction did occur in several countries but no viable alternative solution was forthcoming from these same countries. Germany stated that it would stop its reactors by 2030. However they did not provide a clear solution as to what would replace this gap. While some amounts of electricity may be imported from France, it is currently not possible for the French generated supply to make up for the entire shortfall that will occur. Solar and wind are alternatives but the issue of suitable land for such projects may cause German leaders to rethink their decision. In the interim they may make up the shortfall through coal and gas. If this is the case then Germany is on a path to adding a great deal of pollution not reducing it.

    China has continued to expand its nuclear power program and are likely to continue to add power stations. The United Arab Emirates are also continuing their program. India is also seeking to make agreements with Australia and Canada to purchase uranium for its civil nuclear program. China and India continue to be two of the largest proponents of nuclear power. Their decision is based around an insatiable demand that continues to grow with the growth of their population and a rapidly expanding middle class. Other countries that are currently expanding their nuclear capacity are; South Korea, Saudi Arabia, Turkey, Russia, and many of the former eastern block countries.

    In order to reiterate this bullish overture we should look at the price action in the leading uranium stocks.

    The following charts have similar trends but there is one unique attribute that I would like to bring to your notice. None of the companies prices have dropped to as far as they did last year or 2008/2009. Crossing below last years lows will mean that we may get further downside. This is clearer on the Cameco chart. It is possible to see upside prices from here testing previous recent highs indicated by the support and resistance lines. Paladin has possibly suffered the most, as it never hits its projected production. Dennison shows a healthier chart with fewer declines. All of the charts show that prices have fallen below the 200 SMA. Often the 200SMA works as a support area for many commodities and stocks. However in these cases we are seeing significant drops below this level, showing just how over sold these stocks are. The prices of stocks are showing a decline while fundamentals above are showing a possible incline.

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    Cameco 2 year chart

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    Uranium one 2 year weekly chart.

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    Paladin Energy 2 year Chart

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    Conclusion: It is impossible to predict if these stocks have reached their all time lows, however all of the above information indicates that there is a greater probability of an incline from here rather than further declines. Confirmations will be indicated by the prices moving above the 20,50,100 days SMA. Prices of uranium stocks can accelerate rapidly and it would be prudent to keep a very close eye on the price action in the coming year as anticipation of a potential shortage looming may lead to heavy speculation. At their 2006/2007 highs, Cameco was around US$ 59.00 per share, Uranium one was at 18.50 per share, Paladin was at US$ 9.50 and Dennison was at US$16.50. At the time none of these stocks had the production or the reserves they have currently. These companies have grown while their stock prices have declined. To confirm our analysis we must wait for sharp inclines to begin before getting in.

    Uranium remains unique in the market as the commodity is restricted and not open to purchase. There are very few players in the markets and even fewer producer/stocks to choose from. The main way to invest easily is through the stocks that mine the commodity and this may lead to high concentration purchasing in the very few leading stocks, which may lead to quick price hikes. Initial inclines will be initiated by contrarians, followed by trend traders and finally by institutional buyers once certain price levels are reached. We may see corrections as many investors who purchased stocks at their highs will sell out, thankful to get their initial investment back. If we can weather this correction and fundamentals remain intact, we will see inclines for over a decade, perhaps even surpassing gold's ten year old bull run. It is worth taking the risk in investing in these stocks at this time. The downside risk is limited but the upside potential is phenomenal. If the fundamentals continue to remain strong we could be seeing the beginning of a very massive bubble developing which may continue for decades to come.

    Jaimin Vyas

    Disclosure: I am long OTC:SXRZF, OTCPK:PALAF, DNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I am keen on making Cameco one of my major investments in the future.

    Dec 08 5:15 AM | Link | Comment!
  • Gold Vs The Dollar OR Gold And The Dollar.

    Gold has been the holder of wealth for thousands of years and desired the world over. We need to look at gold from a different prospective, simply as another commodity that is good for trading. While many individuals are proponents of holding gold I have questioned this as gold itself does not earn interest nor does it make a profit on its own providing more gold. In order for gold to be more desirable it has to make a profit.

    In order to valuate gold it has to be compared against something else. In today's world gold is always valued against the US dollar, though it is also compared, 'to a degree' against the euro and the British pound, and to a lesser degree against other currencies. The three are the most popular because they are supposed to represent stability. The crisis in 2008/2009 threw that theory out of the window. What was brought to the forefront was the issue of printing currency and the dollar was considered to be in free fall by many.

    If the US dollar was in free fall it would have had a steady decline with the theory that at some point (printing money) supply would have surpassed demand within the U.S. If that were true than we would now be seeing the gold vs dollar exchanging at roughly US$5000 per ounce or even more, which is not the case. If it were true we would have seen the lines of gold and the dollar cross each other with the former in incline while the latter in decline. This is not the case. Gold has continued to move up but the dollar has not declined to the figures so strongly suggested by gold buffs. There are several reasons for this.

    The dollar is in reality no longer a US based currency. It is a world currency and therefore demand is not based only around the US but around the world. A number of countries have unofficially given up on their local currency and simply use the US Dollar as the standard. Examples of these are; Democratic Republic of Congo, Somalia (Oh hate the US but love the US dollar), Zimbabwe, and many other countries. In most countries the dollar is an accepted currency. Four decades ago there were many countries that had foreign exchange restrictions but these have now been either ignored or countries have changed their policies. The US dollar has become a universal currency and as such the demand for the currency has been increasing per capita. Trade exchanges are usually converted to dollar format so most trading world wide is done in the dollar. It is therefore folly to ignore the dollar. The US dollar represents a sense of stability against other more risky currencies and gold is considered a sense of stability against the dollar.

    As the world population surpassed 7 billion we see an increase in the demand for the world currency as commodities are mostly exchanged in the US Dollar. The medium for Oil is US$, the medium for Gas is US$, you get the picture. With the population on the increase the demand for the world currency also increases either directly or indirectly not only as a desirable form of wealth but also a desirable and stable medium of exchange. Traders of goods and services hate massive fluctuations in values of currencies as it complicates the mechanism of trade and exchanges.

    Gold is not understood well. It remains the ultimate safe haven medium in times of unpredictability such as the outcome of war, and its portability makes it attractive for high value to be carried easily in such times. Gold can be exchanged anywhere in the world, but the exchange is always for a paper currency. It is very rarely exchanged for goods and services.

    In normal circumstances fiat money remains the most popular form of exchange. Gold simply does not have the quantity at present prices to replace or even back the US$. If this were to occur the price of each ounce of gold would have to be astronomically raised in order to compensate for the limited quantity available. While gold investors would be ecstatic about such a scenario it is highly unlikely to occur in the near future. The problems in doing this are ridiculous. It is unlikely in the electronic age to simply throw away the dollar and exchange it for electronic gold and exchanging one currency for another may not bring about stability to the economy of the world as expected. The speculation and as a result huge price spikes in gold that may occur if the currency is backed by gold and will be difficult to accept in the longer term. If money supply increases electronically than gold will have to compensate in price immediately. I do not think this is practical. If anything must change than it must be us as we are the people who demand currency and gold. We are the source of all the issues as a large population demonstrating herd behavior.

    Michael Jackson's, "The man in the mirror"; is appropriate. For stability to improve we need to change ourselves. Gold or the dollar has nothing to do with it. Our attitude to information from the media and the Internet create quick reactions and at times huge spikes and throes in the supply demand curves and it is the markets that provide accurate reflection of what is happening around the world, but the media has put a great deal of emphasis on this economic barometer and accentuated situations providing melodrama that many follow blindly. Among these there is a group of individuals who believe that gold will provide us with stability. My belief is it can't, as it's valuation is against fiat currency, which in itself is volatile. Gold physically cannot replace currency, nor can current levels of fiat currency allow gold to back up as price would rise astronomically providing countries that are holding huge amounts of gold leverage over those that believe in simple paper money.

    The argument that the price of gold has risen against the dollar is considered proof enough is not true. The dollar just had a dramatic demand over the last twenty years, to compensate this the US government is forced to print more currency. We saw the dollar drop both against the Euro and the Pound from 2005 to 2007 as the US government injected capital into the markets. This was followed by a temporary equilibrium in the markets compensating the injection and absorbing the currency over a period of time. In 2008 the dollar began to rise dramatically until the culmination of the 2008/2009 crash in the equity markets. Further injections through QE1, QE2 have relaxed the dollar rise. This has been compensated further by periodic selling of gold reserves which have been taken up by new world countries that are trying to bring equilibrium in their own currencies including the Yuan, Ruble, Yen, Rupee, among others.

    If it were left to its own mechanism the dollar demand would result in a huge escalation in the value and that may be the death of a currency. The US cannot afford to allow the dollar to get too strong as it affects their exports in the shorter term as well costs locally. With a strong dollar exports would reduce allowing cheap imports, which may have adverse effects on local industry. Eventually not finding enough of the currency may lead to people looking for an alternative. A balance is required.

    The demand for commodities worldwide has risen with population increase. Longer-term charts show that most commodity consumption has increased a great deal in the last fifty years and escalated rapidly in the last twenty. The price for oil, copper, iron, nickel, aluminum, zinc, phosphate, rice, have all increased indicating an increased in gradual demand as age group population reach maturity and demand products that use these commodities among others Each of the graphs in 2007/2008 peaked but the trend remains upward despite a post 2008 correction. This year we have seen grain prices increase and create another spike due to unusual weather, which has provided an unusual spike in prices of coffee, corn, rice and other consumables. In conclusion we have two different demand charts; one is the daily price speculation and the other is the year on year demand chart.

    Periodic baby booms provide spikes too decades later as was shown after the second world war, but economic good times may also increase population. A baby boom twenty years ago will reach demand maturity now. An increase in wealth brings stability to the household and affordability allows families to increase size. It takes a decade or even more for stability to be achieved as supply plays catch up to sudden demand increase. If gold has made exceptional gains it is simply because a great deal of new demand came from countries that were not purchasing before. Russia, China, Korea, Japan, the Middle East and a dozen other newly created countries from the eastern bloc added to the momentum along with the misdirected panic from doomsday preppers and additional demand from a greater part of populations progressing into the middle class earning more and demanding more luxuries including gold for safety. A number of events coinciding together can simply create a demand Tsunami, which will come to pass but it will take time. This demand escalates prices as we are seeing presently. The inflation also helps this and while we may blame money supply, this is usually done so to keep up with demand so as not to increase the value of the currency too dramatically which would occur if money supply does not keep up with world demand. While many do not foresee the price of gold ever reaching past lows it is possible in certain scenarios that such an anomaly can occur.

    If the value of the dollar were to increase in such a fashion we would see every single currency suffering and making commodities in the short term truly unaffordable. While in the fifties and forties it was the Great British pound that was the universal currency however this is no longer the case. Though we see the price of gold moving up it is not entirely due to demand escalation but also due to fiat currency supply in the US dollar. One must also factor in that other countries are also printing their own currencies to compensate for their own needs. In conclusion the price move for gold has been partly through the opening of new country demand, population increase and inflationary reasons. More and more people, especially those with wealth above a million dollars are concerned about the value of the dollar dropping and are compensating by transferring part of their wealth into gold. The lack of higher interest rates is not affecting the movement into the market as expected as transferring money to industry or other instruments rather the money is moving back into safer havens between treasury bonds and gold only at those times when they begin to fear a financial collapse. The Dow, S&P, and other indexes have regained most of their losses, while countries within the EU and worldwide continue to reflect on news from various reports in the US on downsides. This is an anomaly. Such anomalies provide opportunities to trade in both the US dollar and gold.

    Gold in itself holds no value rather its value is based on the value of the dollar and other currencies. Gold does not profit in itself, it only creates profit if it is exchanged either against a currency or another commodity. No interest is gained by simply holding gold. Gold does not multiply it self as fiat currencies do by gaining interest and therefore remains on its own as a stagnant investment. The only advantage of gold is therefore its unique ability to hold inflation at bay for a period of time.

    The only way to make money from gold is to trade it against what most consider gold's biggest enemy and that is currency. While one can hold gold in small quantity for longer periods of time as is traditional in India, it does not help to have all of ones savings simply held in gold. At some point in time one will require to exchange it for fiat currency. If this tide happens with a herd effect then the price of gold can suddenly tumble as it has done in the past. It therefore makes sense to take a more prudent direction factoring the above and consider that wealth is not always measured in gold for the present. The value of gold is merely an inflation measure.

    There are two major ways to trade in gold. Either purchase gold stocks in well known companies or trade in gold futures. Neither one will entail you holding physical gold which has its own problems in that one has to have a safe or a safety deposit box to hold larger quantities in fear of being robbed. There is a greater leverage in holding gold stocks as, if the price of gold moves up these companies stand to profit very well and in terms of percentage they have historically moved up 3 times the move of gold on average. There are also several ETF's that one may want to look at as a way to invest in gold directly without holding the physical. If you wish to be a long term gold holder its prudent to do so through one of the ETF's (Exchange traded funds), If you want more leverage than it makes sense to invest through stocks. Mid cap stocks will show more upside than well settled large cap stocks. Some of them have seen huge downsides such as Kinross gold (KGC) recently. Kinross has a lot of reserves but has made some financial mistakes in the last two years and has suffered for it. The problem with any stock is that the people that manage the company control it. Despite gold's incline many of these companies stock prices have declined. This is the risk in investing in stocks.

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    Weekly chart of Gold with areas of going short or long.

    With gold itself there is no such risk, but there is the issue of price decline that may occur from time to time and therefore it is prudent to remain alert to these and take profits where you can in fiat currency. There is no such thing as a sure winner despite many considering that gold is infallible. The same was said for UK housing prices in 2006/2007 when they were at all time highs. That was a euphoria with no amount of convincing allowing people to see the edge of the cliff. I proposed shorting gold at 1890.00 and despite that most declined to hear. That decline has since come to pass and we are now in an incline with consolidation occurring currently between 1700 and 1800.

    Recently for the last four weeks gold has seen a decline. It continued to decline this Friday as the non-farm payrolls report came out in the US. Considering the Friday decline as a reaction we may see gold climb back above 1700 for a short period of time next week. Last year we saw gold decline from its all time high of 1900 to 1532 within a period of a month. Since then it has climbed back to the 1800 area three times but not moved beyond. Current declines have seen gold find support at around 1670.00. Any further decline may find more support at 1630.00. If gold moves up from where it is presently and surpasses 1700, we could see another attempt to break past 1800.00. It is tempting to invest into gold futures from here with stop losses in place. Gold does not always need to be held. It needs to be traded. It is possible that if it breaks past 1800 which is a major resistance area we will see another attempt to break past 1900 and possibly move beyond. I do not see it surpassing 2000 dollars on this attempt rather we will probably see it retesting the 1700 to 1800 area in the coming summer and than making a major move to get past 2000.00 in 2013/2014. If it rapidly inclines in the coming month past 1800 we should see it testing 1900 before the end of the year. It makes good sense to invest into commodities at this point as if one is a believer of the commodity/equity cycle we should see at least another 6 years of bullish prices in commodities and perhaps due to the correction in 2008 we may see this cycle stretch longer perhaps as much as another 10 years. Take profits on peaks and wait for weakness to get back into the longer runs if you have the courage for it.

    Conclusion: Do purchase either gold or gold stocks but be prepared to take profits in it. Such rises will naturally lead to profit taking so there will be corrections. Do not be afraid to go long as well as short in gold and gold stocks, both will make you money if you are a careful and observant trader. Whether one is an investor or a trader is dependent on ones nature. Which ever it is we have an opportunity to invest in gold and gold stocks. As usual one is asked to consider mid cap producers stocks with good deposits. There are plenty of them around. Kinross gold, and Yamana(AUY) gold are just two examples. Yamana has recently broken out of a long consolidation. That is a bullish sign. Trade gold against the dollar as either way you are in safer hands than most other instruments. I am bullish on both

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Nov 10 6:35 AM | Link | Comment!
  • LOW PRICED URANIUM GEMS IN THE ROUGH WITH HUGE UPSIDE POTENTIAL

    If you have been taking interest in the Uranium sector you will be aware of the turmoil that has been going on for the past year. The Uranium sector should have gone to the moon by now had the crash in 2008 and Fukushima not occurred but it did and this has been inundated by a plethora of political statements by several leaders leading to further downturns in the sector.

    There are several methodologies of investing in sectors that investors and traders use. The most popular of these would be to invest using fundamental reasoning, trend trading or contrarian trading. Regardless of which method one prefers one has to also find other sound reasoning to invest in stocks. There is a preference to invest in Canadian and North American stocks and we often see this reflected by the price action but there are several stocks that are traded outside these two areas and yet have a great deal of potential. While having a healthy financial position in terms of company reports, it is equally important for the company to have a viable deposit and better still a giant viable deposit which will be economical to run.

    Often a good deposit will be found in the most risky of geographical locations from which investors shun and rightly so but we often shun companies with geographical locations that sound risky but are not. This week I would like to bring to your notice two such companies with economically viable deposits both trading outside the main North American sector and having their deposits outside their country of registration.

    A-cap resources(APCDF-pink sheets-US) is registered on the Australian stock exchange but it explores in Botswana which sits just above South Africa on the map. A-cap has been exploring there for six years and has discovered a large uranium deposit that lies fairly near to the surface. The deposit is known as Letlhakane. A-cap confirmed in 2011 that the deposit is approximately 260 million pounds and growing with recent new finds coming out. In terms of comparison in a single deposit there are few that can equal. In neighboring Namibia Extract resources(EXT.AX) and Kalahari minerals(KAH.L) Husab deposit was sold to a Chinese company. That deposit is approximately 360 million pounds.

    China is not simply buying Uranium for its current needs. It is constructing 27 stations. It expects to have a hundred more by 2030. It will be impossible in 2030 to begin acquiring the Uranium for these 100 station and more coming. The price of uranium could be 70 dollars or a hundred dollars or perhaps two hundred. It is impossible to tell what it will be. Instead China is playing a mega chess game four moves ahead of the competition. By acquiring giant deposits around the world at bargain prices, it will begin to mine them soon, but not to sell them in the world markets so there will not be any excessive supplies. The potential demand for Uranium just from China, India and South Korea is enough to cater for current supplies as well as the near production potential deposits. The current deposits just do not have enough Uranium to supply the rest of the world. The other deposits in Namibia is the Rossing mine owed by Rio Tinto and the Langer Heinrich mine owned by Paladin resources. In an independent research article the Letlhakane deposit should cost less than twenty dollars per pound of Uranium to mine. Extract was trading at approximately 8 dollars per share when it was bought by Ga-dong, while yesterdays price of A-cap was 16 cents per share. A-cap has 200,000,000 shares issued and that has weighed in on it but in terms of the deposit that is about 1.3 pounds of uranium found per share. The price of Uranium on the spot market is currently 50 dollars per pound. In terms of cost if we take a pessimistic view and place a high price of 30 dollars per pound that still leaves one with a profit of 20 dollars per pound of uranium. It is possible that A-cap will increase this deposit to exceed three hundred million pounds of Uranium in the coming year.

    Botswana is a very stable country in South Africa like Namibia is. China continues to look for good deposits around Africa and there is already a heavy investment into A-cap through a Hong Kong based fund. There are not too many economically viable deposits out there and A-cap will sooner or later gain the attention of mainstream investors. If the price for Uranium begins to rise in view of the termination of the megatons to megawatts program we should see the price for A-cap shares rise. Essentially one is paying 16 cents for 1.3 pounds of Uranium in the ground. I would think that is a bargain price. I would expect ACB to attain first a price of around 80 cents, and once mining begins we should expect a minimum price of 4 dollars per share if not higher. If one compares the amount of Uranium Hathor had despite the concentrations it was roughly a quarter of A-cap resources and Hathor got bought out at a much higher price. The upside potential for A-cap is significant.

    Another company that should be considered is Greenland minerals. (GDLNF-pink sheets US) has been exploring in Greenland for several years and initially found a deposit that was considered as a world class heavy rare earth deposit with uranium. At the time the deposit was more important as a rare earth deposit but recent news have shown that this deposit is now one of the largest Uranium deposits found in the world. At over five hundred million pounds of uranium this deposit is equally attractive with one of the worlds largest heavy rare earth deposit. GGG.AX has 416 million shares issued. With 512 million pounds and ignoring the Rare earth its still 1.23 pounds of Uranium per share. The Kvanefjeld deposit could join up with the Zone 2 deposit which would mean its one giant deposit leading to an increase in the size.

    It is speculated that this deposit could reach seven hundred million pounds of Uranium. The reason that the price for GGG has not moved much is two fold; the Greenland government has a moratorium in place not allowing uranium mining though GGG was recently given permission to explore and amend the license to allow Uranium exploration along with its rare earth deposit. This inference may eventually lead to Greenland relaxing the moratorium allowing GGG to mine the deposit. The second; The sheer size of the deposit makes it difficult to get the finance to construct the infrastructure required to mine. As above it is possible for one of the larger mining companies to partner Greenland and the expectation is that if Greenland approves a mining license for Uranium we should see the price move beyond 2 dollars and possibly above 10 dollars in time to come.

    Heavy rare earth prices have been far higher than its lighter counter parts and once more China played a key role in this by limiting the supply of rare earths exports. This has in recent years led to focus on Rare earths but while other stocks in North America have bathed in the limelight GGG continues to be ignored.

    We cannot ignore the stealth approach of China to acquire Uranium deposits worldwide and it is hardly possible that they are not aware of the likes of A-Cap resources and Greenland minerals. If you have some attack capital it would be worth while this summer to put some of it in these two stocks if you feel the fundamentals for uranium upside are strong. Consider both geographical locations as stable and the both companies are traded on the Australian stock exchange as well as on the pink sheets in the U.S. A-Cap Resources ACB.AX (APCDF-pink sheets US) Greenland minerals GGG.AX (GDLNF-pink sheets US).

    Jaimin Vyas.

    Disclosure: I am long OTC:APCDF.

    Additional disclosure: I do not own any shares of GDLNF.PK and do not intend to purchase any stocks for the next 72 hours.

    Tags: long-ideas
    Oct 02 1:55 PM | Link | Comment!
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