Cameco’s US$530m bid for smaller uranium rival underlines long-term value in uranium.

I’m still very much supportive of uranium as a long-term investment play. The reason is quite simple. The world doesn’t have many options when it comes to generating reliable base-load power.

Furthermore if you want to minimize environmental impacts, that really just leaves gas and nuclear energy.

Since the Fukushima tragedy, government officials from a host of key nuclear players including Russia, China, the USA, France and South Korea have reaffirmed their commitment to the sector and nuclear expansion.

Germany is the only nation to announce it will end its production of nuclear power, but rather hypocritically it will instead utilise nuclear-generated energy from France.

For investors in the uranium space there are, however, a couple of very important provisos.

The major cautionary note is that investors have to focus on quality players: companies that are well run, with a flagship project that stands a better-than-average chance of reaching production, or of attracting corporate interest.

In the uranium space you really have to have everything working in your favour, as the hurdles to becoming a producer are substantial. This means it’s a tough environment for junior companies, as investors want to be able to see a pretty clear path to riches.

For a budding gold hopeful it’s relatively straightforward. You explore for gold, you hopefully identify a modest resource, which then allows you to contemplate becoming a miner.

With uranium it’s not nearly as easy. You cannot simply snag a discovery and then move to mining and cash flow.
This is why I believe it’s very important from an investment perspective to choose companies carefully. The mortality rate amongst uranium hopefuls is pretty high.

Despite the fact that uranium companies were slammed following the Japan crisis, the likelihood was that those same stocks were going to remain bargains for some time to come. And so it’s proved.

Those same uranium bargain-buys are still cheap. Market volatility has favoured the patient investor and now’s the time to begin looking at uranium sector opportunities.

One of the biggest winners out of all of this is likely to be China, which always manages to focus on the bigger picture.

In the wake of Fukushima, China National Nuclear Corp, which began operations at its first overseas uranium mine last year, said it plans to acquire more global atomic-fuel assets to meet rising demand.

The decision by China’s biggest nuclear plant operator to potentially implement a detailed overseas uranium business expansion plan follows China Guangdong Nuclear Power Group Co’s recent US$1.2 billion bid for Kalahari Minerals Plc (which has a 43% stake in ASX-listed Extract Resources).

The gloom in uranium markets couldn’t have been better timed as far as China Guangdong is concerned.

More recently we’ve seen China’s Hanlong Group bidding for fellow ASX-listed Namibian uranium hopeful, Bannerman Resources.

The Chinese recognize a bargain when they see one and I’m confident that this will be the just the start of many corporate forays in the uranium space in the current relatively depressed market environment as they look to secure their nuclear future.

What’s interesting though is that it isn’t only the Chinese. As Bloomberg reported, “Cameco Corp.’s gambit to buy a Canadian uranium deposit in its biggest ever acquisition is showing that the nuclear future is now.”

Cameco, the world’s largest uranium producer, has just announced a US$530 million bid for Hathor Exploration Ltd. This is the nuclear industry’s biggest takeover since the Fukushima disaster. And interestingly it involves a 40% takeover premium, despite weaker uranium prices.

What this tells me is that companies like Cameco can clearly see the bigger picture. They’re confident that both uranium prices and uranium demand will rebound.

According to the World Nuclear Association, China currently has 14 nuclear reactors, 26 under construction and 52 more planned; India has six under construction and 17 planned; whilst Russia has 10 being built and 14 more in the pipeline.

Renewed support for nuclear power in Japan is also likely to help bolster uranium prices. Yoshihiko Noda, who became Japan’s new prime minister on 30th August said in a policy statement that Japan will “guarantee the stable supply of power by utilizing nuclear plants after confirming their safety.”

From a broader perspective, the history of the past 30 years in the uranium industry with respect to previous incidents at Three Mile Island in the USA and Chernobyl in Russia, demonstrated that base demand did not fall, as existing reactors in use worldwide were not shut down.

Older reactors will be reassessed and some will see early decommissioning, but the reactor-construction programs underway in places like Russia, China and India will continue. Modern-day reactors are much safer than the problematic older ones.

But even if there is a somewhat lower level of investment in uranium development, this in turn is likely to generate higher prices due to supply tightness.

Accordingly, I remain confident with respect to the medium to longer-term nuclear energy picture and anticipate that uranium prices and uranium equities should begin to recover during 2012.

Accordingly, investors should begin looking for quality uranium opportunities to include in their portfolio.

Gavin Wendt is the founder of MineLife, publisher of the MineLife Weekly Resource Report

JETT RINK: Oklahoma-based ASX-listed Oil & Gas exploration and production company Red Fork Energy has agreed to purchase gas currently being produced by a neighbouring operator in the shallow Woodford shale gas project in Wagoner County.

The agreement was reached through Red Fork’s wholly owned mid-stream subsidiary EastOK Pipeline.

Under the terms of the agreement, EastOK will transport, process and sell approximately two million cubic feet of gas per day from this project.

In consideration of this, EastOK will recover its costs and generate a margin by retaining a percentage of the gas from this stream for sale.

This gas will be added to the stream currently being produced by Red Fork from its East Oklahoma South project.

It will be processed, compressed and transported to sales via EastOK’s existing Wagoner ‘A’ facilities.

EastOK has already built and commissioned the required gathering and transportation infrastructure and has already commenced receiving gas under the agreement.
 
“This agreement is an important step in the development of Red Fork’s mid-stream business,” Red Fork Energy managing director David Prentice said in the company’s announcement to the Australian Securities Exchange.

“We are very pleased that EastOK has been able to secure this agreement to transport, process and sell gas from one of its neighbouring operators in Eastern Oklahoma.
 
“In the current soft pricing environment for natural gas in the United States, this agreement will improve the margins being achieved at the company’s Wagoner ‘A’ facilities by lowering unit costs as volumes are increased.

“We expect EastOK will continue to grow its mid-stream presence in Oklahoma as it expands to support all of Red Fork’s exploration and production initiatives, including at the company’s Mississippian holdings in the northern part of the State.”

JETT RINK: Golden Gate Petroleum has been busy lately on its  Permian Basin project in West Texas with the commencement of a two well drilling program scheduled to start late September.

Since purchasing four leaseholds totalling 8,806 gross acres in Reagan and Irion County, Texas; Golden Gate, through its wholly owned US subsidiary, Cathie Energy Texas, has been focusing on a development program covering the leasehold where Golden Gate holds all rights to all intervals from the surface.

Golden Gate has executed a rig contract with Union Drilling to drill two wells starting in September with rig 205 to drill both wells back to back.

UDI has over 50 rigs in operation, many of which operate in the Permian Basin. It has drilled numerous wells on the adjacent acreage surrounding the GGP leasehold with much success, both from a commercial and financial standpoint.

The lessor, the Texas Scottish Rite Hospital, has given consent for the drilling to commence on the leasehold and approval has been given for the two wells to be drilled at the identified locations.

All permits are in place and the initial surface location has been built with the second currently under construction.

Golden Gate is currently putting plans in place for a 10 well drilling program to begin before the end of 2011.

New drilling locations are being considered and UDI is reviewing rig scheduling to support the new program.

The company expects approximately half the new well locations to be identified shortly with permitting to start.

Investigations carried out by Golden Gate into the drilling and completion success in the area have identified horizontal wells into the Wolfcamp intervals, which the company identified as being some of its most commercial and financially successful wells.

Work has commenced on identifying drilling locations where 4,000 to 6,000 feet laterals can be drilled and completed at competitive rates with significantly higher production levels than straight holes.

Golden Gate said that in its leaseholds, where not all intervals are available, horizontal drilling appears to be an excellent option to exploit hydrocarbon.

Several experts in drilling horizontal wells in the Wolfcamp have expressed interest in assisting the company in these efforts.

Golden Gate has elected not to enter into a formal agreement with Roswell Capital Partners for a $15 million Equity Funding facility due to the change in market conditions since signing the Term Sheet.

The company has received a proposed terms sheet with an alternative source of capital for this project and this is under discussion.

In my job I tend to spend a bit of time in traffic. I can’t remember where I was, but I clearly remember first hearing about graphene. It was when I was listening to the raido while driving my car.

This is not graphite, which was discovered in the early 1500’s in the Cumberland Mountains of England, but graphene.

I was interested in graphene as a ‘material’ because the announcer said it was completely ‘new’.

A new substance is interesting, but he said it was not only the thinnest material ever but also the strongest ever.

Then it got a whole lot more interesting when he said graphene conducted electricity better than copper.

As a conductor of heat the radio presenter said graphene outperforms all other known materials.

He also said this material has remarkable mechanical and electronic properties and is set to revolutionise modern technology as we know it.

Graphene is the thinnest electrical material known, comprising just a single atomic layer.

Three million sheets of graphene on top of each other would be one millimetre thick.

The electrons in graphene are faster than in anything else known and are extremely thin.

 

Image courtesy of Condensed Matter Research Group, University of Manchester

Graphene also has extremely good connectivity, it sounded like graphene could do anything.

So remarkable was the story that I quickly forgot about it.

However, the word graphene is starting to pop up more regularly so I felt I should find out what this graphene really is and what it does.

The Royal Society tells us “Graphene is a single atom thick two dimensional film of carbon atoms, arranged in a ‘chicken wire’ like structure.

“It is very strong, transparent and highly conductive with potential applications from strengthening aircraft wings to making mobile phone touch screens and faster computers.”

It is reported that there are already more than 3,000 research projects dedicated to the research and development of graphene.

Currently there are about 200 companies working with the material simply because the advantages of graphene include strength, weight and electrical properties.

If this material is 200 times stronger than steel and harder than diamonds and conducts electricity – hello – that says opportunity.

It is expected that this material will influence the design of cars, aircraft, and plastics.

Nearly everything that needs to be strong and light will benefit from the ongoing development of graphene.

The new material has 5-6 times lower density and 13 times higher bending rigidity of steel.

It is estimated that 80% of the body weight of a car is steel.

The breakthrough discovery of graphene has the capacity to revolutionise automobile production as future cars and aircraft would be lighter, cheaper to run be ecologically sustainable while generating less pollution.

Although current applications for graphene are in their infancy, the potential applications for the material include the replacement of carbon fibres in composite materials that will eventually lead into the production of lighter aircraft and road transport. 

Computer engineers believe next generation computers made using graphene will be faster than their silicon counterparts; it will be the ‘next big thing’ in the world of computing.

Graphene is a flat sheet of carbon atoms and is a promising material for Radio Frequency (RF) transistors.

Typical RF transistors are made from silicon or more expensive semiconductors like indium phosphide.

In graphene, for the same voltage, electrons zip around 10 times faster than in indium phosphide, or 100 times faster than in silicon.

Replacing silicon in transistors and embedding graphene in plastics will enable them to conduct electricity while generating less pollution, run cheaper while being ecologically sustainable.

Graphene is ideally suited to computing as it is a conductor of heat and electricity, the material will be used to develop incredibly strong semiconductors.

It maybe a few years away but in theory you will be able to roll up your iPhone and your credit card will contain as much processing power as your current smart phone.

Maybe consumers will have movies and music streaming into their lives via their credit cards.

The download costs to be deducted from the card as the process happens, ideal for suppliers and consumers.

Governments are hell bent on reducing carbon dioxide emissions and the emphasis today is on renewable energy.

In Australia this includes the ramping-up of solar, the construction and commissioning of wind farms and subsidised work on geothermal technologies among other things.

Existing battery technologies are failing to address the marketplace needs for high-power energy storage.

Commentators continue to point out these technologies are expensive and will not deliver the base load power needed into the future.

It appears graphene could form the basis of the next generation of ultra-fast energy storage systems.

Couple this with the new generation of ultracapacitors and graphene clear batteries the potential is unlimited.

Wind turbines could become more efficient, go super-fast and store more energy with this material!

Solar panel technology will be more efficient, governments will be able to stop worrying about dirty and non-renewable combustion-based forms of energy production.

Graphene will play a great part in our green future.

Graphene could have long term implications for the Australian resource Industry and Australia.

Australia is a leading exporter of iron ore and coal and the economy is heavily reliant on the mining and resource sectors.

Could something like graphene paper lead to lighter stronger more efficient automobiles, aircraft and shipping?

This could lead to a reduction in the demand for Australian exports like coal and iron ore.

Will composite materials using graphene revolutionise industrial design and constructions allowing all surfaces coated in thin layers of graphene to become energy cells, reducing energy costs?

When the weight of a rechargeable family car is reduced to just a few hundred kilos this will have an impact on our resource industries.

We will change the way we live and that change will be driven by innovation, regulation and tax.

With this kind of strength graphene demonstrates, the material will affect the design of airplanes, cars, bridges, roads, tyres, ships, sports equipment, and plastic containers and so on.

Nearly anything that needs to be strong and light will benefit from graphene.

Darryl Ellis
Fortnum Financial Advisers
darryl.ellis@capitalsg.com.au

The full version of this article appeared in the August 2011 issue of

THE DRILL SERGEANT: Burkina Faso-focused gold exploration play Canyon Resources has had more good news from its Tonbody project.

Canyion has received shallow high-grade gold results a 7,005m reverse circulation (RC) drilling program that was completed in July 2011.

Canyon said the most significant aspect of the results is the wide gold intercepts returned from the southern end of the program.

The company considers these to have confirmed continuity of mineralisation over 2.5 kilometres of strike length that remains open to both the north and south, and at depth.

These results included:

– 20 metres at 4.46 grams per tonne gold from 44 metres, including 4 metres at 19.01 grams per tonne gold;

– 8m at 4.00 g/t gold from 44m;

– 8m at 2.42 g/t gold from 108m; and

– 8m at 2.24 g/t gold from 32m.

“To achieve such outstanding results from our maiden RC program at the Tondoby prospect is extremely encouraging, and demonstrates the sound efforts of our exploration team in generating these drill targets,” Canyon resources managing director Phil Gallagher said in the company’s announcement to the Australian Securities Exchange.

“The Board and management are very excited by these initial results at Tondoby, and look forward to commencing the next round of drilling to further define the extent of gold mineralisation at Tondoby.”

With the recent drilling having identified 2.5km of gold mineralisation that is open in all directions, Canyon is now planning substantial follow up drilling programs at Tondoby that will be designed to test the strike and depth extent of the mineralisation.

The company said additional drilling will also be carried out to help delineate the geometry of the mineralisation and for the company to gain a better understanding of the structural controls on the gold lodes.

It is expected that drilling will recommence at Tondoby in the coming months.

The company has been encouraged by mineralisation in the southern drill holes, which it said demonstrates mineralisation extends to surface, covered only by a thin layer of soil and clay.

It appears this cover material was enough to hide the mineralisation from local prospectors as there is no evidence of active or historical gold workings present in this area.

As the structure remains untested by effective modern exploration, Canyon said it will also focus exploration activities on identifying additional gold mineralisation along the length of the structure.