Hedge Funds 101 : Understanding Current Concepts and Lingo

485
” Hedge Funds ” are both a trendy investment and an exciting play.

The problem in this raidly changing fluid market is that both the terminolgy , concepts and practices change on an ongoing basis.

Be fluent with both and you will be in a much better position to discuss your investment stategy and not be ” buffaloed. into wrong choices .
nvestment ,investments , risk , interest , hedge , funds , hedge funds , capital
What exactly is a “hedge fund ” ?

In essence , it is a managed pool of capital for institutions or wealthy individual investors that employes one of various trading strategies in equities, bonds or derivatives , attemting to gain from market inefficiencies and , to some extent hege underlying risks.

Hedge funds are often loosely regulated and usually are much less transparent than traditional investment funds. That helps them to trade more stealthilyt. Funds typically have minimum investments periods, and charge fees based both on funds under management and on performance.

Many experts contend it is a mistake to talk about hedge funds as an assett class : rather the industry embraces a collection of trading strategies. The appropriate choice of hedging strategy for a particular investor depends largely on its existing portfolio; if for example , it is heavily invested in equities, it might seek a hedging strategy to offsett equity risk. Because of this, discussion of relative returns between hedge-funds strategies can be misleading.

Hedge funds use investment techniques that are usually forbidden for more traditional funds , including “short selling: stock – that is borrowing shares to sell them in the hope of buying them back later at a lower price – and using big leverage rhrough borrowing.

The favoured strategies tend to change. It has been said that the hedge-fund industry was equity driven but that now in 2006 there is less long/short. It seems to be a much more diverse picture in 2006 with less of a concentrated exposure format.

Some of the most common strategies include

Convertible arbritrage : This involves going long in the convetible securities ( that is usually shares or bonds) that are exchangeable for a certain number of another form ( usually common shares) at a preset price , and simultaneously shorting the underlying equities. This strategy previously was very effective and was a standard. However this type of action seems to have lost effectiveness and seems to have lost favour in the crowd.

Emerging markets : Investing in securities of companies in the ever emerging economies through the purchase of sovereign or coporate debt and /or shares.

Fund of funds : Inveting in a “basket” of hedge funds. Some funds of funds focus on single strategies and other pursue multiple strategies These funds have an added layerof fees.

Global Macro – Investing in shifts between global economies , often using derivatives to speculate on interest-rate or currency moves.

Market neutral : Typically , equal amounts of capital are invested long and short in the market, attempting to neutralize risk by purchasing undervalued securities and taking short positions in ovevalued securities.

As you can see the terminolgy in dealing with “hedge funds ” is both everchanging and confusing.

You should be fluent in both the language and the concepts in order that you can discuss and make intelligent rather than confused choices in your investments.

Remember it is you and not your broker / adviser who will pay the ultimate costs of negligent comprehension and investment planning.

Technorati Tags: , , , , , , , , ,

How to boost your stock returns while lowering your risk

529
An options strategy called Covered Call Writing is a conservative strategy designed to reduce risk and increase income when investing in stocks. Briefly stated, stock options are contracts in which you buy or sell the right to buy or sell. Although there are eight types of options contracts, we’re interested here in low-risk “Covered Call Writing.”
Covered Call Writing, stock options
An options strategy called Covered Call Writing is a conservative strategy designed to reduce risk and increase income when investing in stocks. Briefly stated, stock options are contracts in which you buy or sell the right to buy or sell. Although there are eight types of options contracts, we’re interested here in low-risk “Covered Call Writing.”

Here’s how it works: Say it’s August and you buy 300 shares of XYZ stock at the price of $48 per share. XYZ pays a quarterly dividend of 50 cents per share. Therefore, if the price never moves, you’ll earn 4.2% per year.

At the same time, you would participate in Covered Call Writing. To do so, you, you would “write three January 50 Calls.” This means you are selling (“writing”) the right for someone else to buy the stock from you (they “call” it away) between now and the third Friday of January at the specified price of $50. (All contracts expire the third Friday of the month.)

Each contract represents 100 shares, hence three contracts. The buyers pay you a fee (called a “premium”) of $3.5 per share, or $1,050. (The premium is based on the amount of time until expiration and the spread between the current price and the “strike price,” in this case $50. Therefore, the premium changes constantly.)

Assuming you don’t cancel, only two things can happen next: The contract will get exercised or it will expire worthless in January. Either way, you keep the $1,050. Clearly, this strategy can yield big rewards. Among the advantages are:

1. You are establishing a profitable sell price the day you buy the stock. If exercised, you are guaranteed a profit;

2. You reduce risk because premium in effect reduces the price you paid for the stock;

3. Your annual yield is boosted far above that of the dividend alone.

However, there are other considerations. For one, you are limiting your potential profits. No matter how high the stock rises, you won’t sell for more than $50. You can solve this problem by buying your option back, in effect canceling it out. You would do this if you later think the stock will dramatically rise and you don’t want to miss the gains to be made.

Also, you have not reduced the risk that your stock may drop in price. The only certainty is, should XYZ drop $25, your option will not be exercised – a small consolation. To protect yourself, you may “buy a January 45 put” giving you the right to sell your stock for $45. This is the opposite of what we’ve reviewed here, and is designed to minimize losses, rather than protect gains.

Because of the potential for price drops, you should choose a high quality, blue-chip stock that fits your budget, an which offers a stable trading range, solid fundamental, high dividends, and good growth potential.

Covered Call Writing is not a reason to own stocks, but the strategy might be of help if you already own them. Prior to opening an account, you must receive and urged to read “Characteristics and Risk of Standardized Options,” which is published by the Options Clearing Corporation in cooperation with NASD and all major U.S. stock exchanges. The booklet is available from any broker or financial advisor.

Technorati Tags: , , , , , , , , ,

How Profitable is Online Penny Stock Trading – By An Expert

544
Did you know that Penny Stocks can go up percentage wise faster than any other type of share? Either with your own resource, or with the guidance of a specialist web site, turns cents into loads of dollars fast! For more info, read on?
online penny stocks, penny stocks, profitable investments
Copyright 2006 Geoff Morris

If you don’t want to risk vast sums of money on speculative stock market adventures, then Online Penny Stock Trading could be the solution you are looking for to provide quite profitable investments.

There are websites that pick penny stocks that are trading under $5.00 on both the NYSE, the NASDAQ, and other major Exchanges such as the London Stock Exchange. You have the chance to become a penny stock trading winner at any time. But the risks are very big and if you do take the advice, you could become a big winner in the penny shares market.

Simply looking at raw numerical data is not going to help you if you are new to the stock market. But you can get the advice that you need from almost any penny stocks trading website; these companies do not want to see you fail in the stock trading world. Instead they would rather see you succeed, so that they can then add another success story to their website and so they can continue to collect commissions on your trades.

There are hundreds of penny stocks trading websites available all over the Internet and you can sign up for any one of them. You get all the usual services that you would expect from a stock trading website. You get the portfolio management tools and the updated stock prices.

But some of these penny stocks trading websites will offer you the chance to sign-up to their weekly newsletter, which will contain which companies they believe will be the next big winner on the stock market.

One of the best that I have come across is the Red Hot Penny Share system, by Fleet Street Publications. Some years ago, I drew all of my various employment pensions ( which were sinking in value fast) and put them into a Self Invested Pension Plan (SIPP) , which is only available to UK taxpayers, although there may well be equivalents in the US.

By enjoying periods of very profitable online Penny Stocks Trading I actually managed to transform my $122,000 pension fund into an amount approaching $430,000 – and in less than 3 years.

The other major benefit of using the SIPP as an investment vehicle of course was that all the profitable investment returns were tax free – no capital gains tax due.

In this facility, you can actually act as you very own Pension Fund manager, only unlike the usual City Fat Cats, you have a real and determined desire to make your money work at its hardest for you.

As long as you are willing to subscribe to this sort of service, and when they say BUY you buy and when they say SELL you sell, you can make quite an improvement to what may probably be a pathetic little pension nest egg. And the further beauty is that with SIPP’s, you don’t have to cash it in at age 65 for some hit and miss annuity – you can continue to trade profitably until you are 75.

Take your time when you are looking for a penny stocks trading website. There are many websites that won’t actually offer as much services as other stock trading websites. So take your time and choose the site that best suits your needs as a trader.

Technorati Tags: , , , , , , , , ,

How to Evaluate an ISL Uranium Company

2571
The key to in situ leach (ISL) mining is not necessarily its uranium pounds-in-the-ground. Key factors include permeability of the uranium orebody, size of the area covered by a deposit and the average grade of the ore body. We talked with leading geological and hydrology experts to help you better understand ISL mining to avoid getting misled.
uranium, uranium mining, nuclear energy, energy, Wyoming, utilities, U3O8, ISL, mining
Over the past two years, the common myth circulated among investors has been “pounds in the ground.?How many pounds of U3O8 does a company have in the ground? The more pounds a company claims, and more importantly gets institutions and investors to believe, the higher its market capitalization has run. Bigger is always better in most cases, but recovering uranium through an ISL operation, like any other mining operation, has its quirks.

During the early stage of this uranium bull market, pounds-in-the-ground was an important yardstick. But just as one can have a million-ounce gold deposit, with a complexity of metallurgical problems that prohibit a robust economic recovery or offer a paltry grade of gold in the ore, investors may discover the same problems in properly evaluating a company uranium claims. Instead of asking a company investor relations department how many pounds of uranium they have in the ground, find out how much uranium pounds they can actually recover and produce, and how much it will cost them to mine their property. Ask instead these questions:

?How permeable are the ore bodies you plan to mine?
?What is your average grade?
?Over what area does your rollfront extend?
?What is the depth of your ore body?

By the time you have finished reading this feature, you should have a better grasp on the economics of ISL mining. You should be better equipped to make a more intelligent decision about your favorite company. First, let examine the nature of a uranium mineralized rollfront. Understanding the rollfront will give you the key tools required to accurately evaluate the prospects of any ISL uranium development company.

THE OLL FRONT?IS YOUR FRIEND

In the first article, we interviewed Charles Don Show, who helped pioneer ISL uranium mining as an economic means to extract lower grade ore from underground mining operations. In Snow 1978 article entitled, “Gas Hills Uranium District, Wyoming ?A Review of History and Production,?published in the Wyoming Geological Association Guidebook, he wrote about the development of the “roll front?theory. He wrote about discussions the project geologists were having in the summer of 1955 about Utah Construction Company recently acquired option on the Lucky Mc uranium properties in Wyoming Gas Hill District:

“Offset drilling Project 4 intersected one major mineralized zone with a grade thickness product over 10 percent U3O8. An offset of this and one other mineralized hole about 2500 feet away were barren. Many discussions of why the ore was in these ‘isolated?pods were carried on late into the night?It was during the period of development of the reserves that members of the staff started referring to different layers and separated pods as areas of mineralization where chemical changes had caused deposition and soon the word ‘chemical front?was in common usage.?
Three years later, Paul A. Riddell prepared a report to document the ore occurrences at the Lucky Mc mine. He was among the first to use terminology that has since become an integral part of the oll Front?concept. In his project report, Riddell wrote:

“In conclusion, the uranium appears to be restricted to more porous beds, but is not evenly distributed within these beds. The boundaries between ore and lean material are erratic ?sometimes sharp and sometimes gradational. They do not appear to be related to changes in sedimentation within the beds. Others have suggested that the boundaries represent ‘chemical fronts,?and this theory appears reasonable in light of present information.?
Originally called chemical fronts, these “pods?contained various grades of uranium. Each pod or roll front is comprised of different mineralization. Understanding that mineralization and how to extract the uranium alone determines how viable a deposit might be.

If you imagine roll fronts in a uranium area as if they were lily pods in a pond, you are off to a good start. When a company announces it has uranium mineralization on its property, this could mean it has many pods, or fronts. Ideally, you hope to have multiple “fronts?available on your ground. “Typically, the meat of the front (multiple percent of uranium) is only a few feet to ten feet wide at the most,?Strathmore Minerals president David Miller explained. “This is the part that your ISL wells have to address correctly. If you look at all the mineralization in a single front system, above 0.03 percent, then from the tails to the front could be 100 feet or more. If you look at the multiple fronts in stacked sands, and you look at one end of the system to the other, the width can be several miles. The length of any of these can be tens of miles, but the good stuff comes and goes.?

Miller compared these multiple fronts to “pearls on a string.?There may be one, two or three roll fronts in one well field. “There may be more than three roll fronts,?Miller added. “There may be that many or more even in one pattern.?Again, they are pods and they may be stacked in layers, like lasagna. “The number of roll fronts in a pattern does not really matter, except for operational reasons,?Miller explained. “It is more complex to properly address multiple roll fronts than a single roll front, and you may not be able to optimize recovery of all of them.?
PERMEABLITY IS THE KEY

Getting down to the business of ISL mining a roll front requires that we understand the role permeability plays in this mining method. Permeability is the flow rate of the liquids through the porous sandstone. Knowing what the permeability of the orebody will let you know how much water you can get through the sandstone formation. According to Uranerz Energy Chief Executive Glenn Catchpole, who is also a hydrologist, the typical porosity of sandstone is 10 to 20 percent. Porosity is the void space between the sandstone grains. By comparison, clay has a porosity of between 45 and 55 percent. Catchpole said, “A property formation has to have sufficient permeability to make the project economic.?

In order to dissolve the uranium into solution, you have to know the “pore volumes.?That the measure of the pore space in the rock. “Youe passing fluid through the formation about 30 times to dissolve the uranium,?explained UR-Energy Chief Executive William Boberg. “Part of a successful operation is knowing how many pore volumes we feel it going to take to make it all work.?Uranium Energy Corporation Chief Operating Officer Harry Anthony, an internationally recognized ISL expert, noted, “You need higher grade ore for tight formations. With high permeability, you can space your wells further apart.?
As with any industry, it boils down to economics. How much to operate the plant? Anthony gave an example of an ISL plant operating at 5000 gallons per minute. Running 24 hours daily, the plant would process 7.2 million gallons of water. That more than 2.6 billion gallons of water processed every year. Operating costs are based upon cost per thousand gallons of water. “This includes electricity, reagents and labor,?said Anthony. On a daily basis, it would cost more than $21,000 to run an ISL plant, based upon Anthony calculations of $3.03 per thousand gallons of water. Using a 5,000 gallon per minute scenario, a plant might produce 2360 pounds of U3O8 every day or 80,000 pounds monthly. The cost to produce each pound would be $8.18. Using that math, the uranium grades would be about 44 parts per million (ppm) or 0.08. Anthony said, “I like to see 70ppm or higher.?A grade of 0.13 is 75ppm.

With low permeability in a tight formation, you may need to space more wells in a typical well field pattern. How much does each well cost? That depends upon the depth of the roll front deposit. While explaining that costs are fixed and variable, Anthony computed the cost of a production well for a 500 foot deposit at $15,000. An injection well could cost $11,000 to install. By comparison, in New Mexico, where the deposits are wider and of higher grade, a 2000-foot production well might cost $27,000 and the injection well could cost $18,000, and it would still be economic.

Why are we talking about well installation costs? Again, it comes back to permeability. If the flow rate is lower, bringing an ISL well field into production costs more. Glenn Catchpole explained, “If your plant is running at 3000 gallons per minute (gpm), and the formation is tight, each production well might only have 10gpm flowing. A more permeable formation might have 20gpm flowing.?That means twice as many production wells are required to satisfy the ISL plant 3000gpm flow level. Installation costs have doubled, and that would also impact operating costs. And a company which once might have looked like it had an economic orebody could now smell like week old fish.

PUMP TESTING FOR PERMEABILITY

“The pump tests are extremely valuable,?explained Boberg. “The pump tests are one of the go/no-go considerations for what wee doing.?Boberg told us UR-Energy expected to start drilling by the end of April or May on their Lost Soldier property in Wyoming. “We’ll be putting in the initial drill holes for the tests, and we’ll be doing the pump tests following that.?In one of series of tests, Boberg explained, “We take a core out of the hole (3 inches diameter and 6 inches tall) and test it vertically by forcing fluid through it.?Because the movement of the fluids in the substrata, from one well to another, is horizontal, the only way to really find out the permeability and porosity is by drilling a hole and putting a pump in it.

Catchpole explained the procedure, “You put the equipment down your monitor wells to measure drawdown.?Quite simply, you measure how far the water goes down. “The pump test will tell you permeability.?A good pump test takes between 24 and 72 hours to complete. Catchpole Uranerz Energy plans to run their pump tests this summer on their Excalibur property in the northeastern Wyoming Powder River Basin.

The make-break point for a formation permeability is its Darcy rating. How high is the Darcy? A typical Darcy can range from minus 1000 to plus 3. The higher the Darcy, the more permeable the formation and that would help determine how economic the orebody is. An acceptable range would be one-half to one Darcy. What is a Darcy? Catchpole said, “It is gallons per day over feet squared.?He added a pure hydrologist would calculate the feet per day or centimeters per second to get a more accurate permeability assessment. However, the Darcy is a widely accepted measuring unit in the industry.

Until a company gets its Darcy rating on its property, one can’t be completely certain the property can be mined by ISL. What guidelines does one depend upon? Catchpole said, “Historical research can give you permeability levels for a formation.?So we asked Catchpole how he felt about his Excalibur properties. He answered, “We know our properties are permeable enough.?How permeable will be answered with the pump tests.

OTHER FACTORS

Uranium grades can be a contentious point, so we asked our ad hoc panel of experts. “Grade is the driving force,?Harry Anthony shot back. We asked him about companies which said they could run an economic ISL operation with grades as low, or lower than 0.02. Anthony laughed, “They are crazy. They’d be out of business before they started.?Catchpole was more reserved in responding, “It probably wouldn’t have an economic recovery.?Strathmore David Miller offered a more technical analysis, “Frankly, that will not likely have enough recoverable pounds. The operating grade feeding the plant will be too low. What is the best grade? 0.5, 0.10, or 0.15. It depends upon the deposit.?
How much can you actually recover? Boberg explained the problems of pounds-in-the-ground. “Let say we’ve got 100 million pounds of uranium now. How much of that can we actually mine? There may be 10 million in a particular orebody that looks like we can mine it. If we build an operation around that, we might be able to develop an access to maybe 7 million pounds of that. And in a recovery process, we might only be able to recover 70 percent of that.?Every company has to also be very careful in studying their orebodies before building their plant. “We’ve got to make sure that the plant wee building isn’t built over a potential resource,?Boberg emphasized. “We’ve got to drill under that to make sure wee not accidentally putting the plant over another part of the deposit.?
Another worry with an orebody is channeling. “You don’t want channeling,?Catchpole insisted.?Channeling suggests the water is going through a very narrow path. “If your orebody has a thickness of ten feet and your channel of flow is one foot, you are missing most of the uranium formation,?said Catchpole. “You may have good flow rates, but not much U3O8 recovery.?Sometimes, a channel can be a natural occurrence, where the flow is along a fault. The channel creates a smaller, but preferred path for the fluids to flow through. . Unlike fracturing a formation to release natural, or coalbed methane, gas, a fractured channel has the opposite effect on ISL uranium mining.

How much does it cost to install a well field pattern, and is it economic to do so? “The art part of an ISL operation is interpreting the ore body and the hydrology,?Catchpole explained. “Your hydrologic test results determine where you think the solutions are going to flow best. In other words, which direction has the best or least permeability. This has to get factored into how you lay out those patterns, the width of your orebody, and how far out to the edge of the orebody you go.?

In a well field pattern, Strathmore David Miller can determine the economic viability of the ground. “The keys to what is recoverable are: (a) how many pounds are recoverable per pattern? And (b) what does it cost to install a pattern??Miller explained. “If you have 10,000 pounds in place and can recover 8000 pounds, your well field development cost can be $8/pound, if it costs you $80,000 to install that pattern. Add your operating cost, capital amortization and restoration cost, and you would have a total cost.?
Finally, the cost to install a pattern also depends over how much territory your roll front deposits run. “Ten million pounds over an area of one-half mile will cost less than those same pounds over an area of two to four miles,?remarked Terrence Osier, senior geologist for Strathmore Minerals. “That means more injection wells and more production wells.?Depth of the wells influences its installation cost, as mentioned previously, and impacts its daily operating cost. “When uranium costs were very low, a few years ago, a company needed 70,000 pounds per pattern,?Harry Anthony commented. “Now a company might only need 20,000 pounds per pattern to make it economic.?
There are many variables within the above advices provided by these experts. However, the important point to realize is the time of hyperbole and hoopla over “pounds in the ground?has passed. As more uranium development companies move closer to establishing an ISL operation, the go/no-go consideration, as William Boberg aptly described it, will come down to permeability. After that, the economics of a project will either make it viable or not.

Technorati Tags: , , , , , , , , ,

Beyond the Brink

796
Learn the techniques needed to become a successful penny stock trader.
penny stock investing smallcap microcap
Penny stocks represent an excellent investment vehicle for producing gains, while the risks are equally as high. When you finally decide to get involved in penny stocks, to go ‘Beyond the Brink,’ there are some things you need to know.

In fact, whether you have been burned by penny stocks in the past, or have never even invested, the following theories are designed to give you an instant and significant advantage over all those inexperienced and uninformed traders. After all, to make money in stocks someone usually has to be losing money. Which side of the fence do you want to fall on?

Glass Jaw

Lots of people have made lots of money from trading penny stocks. Lots of people have lost plenty, as well. What is the difference between a successful micro-cap trader, and one who continually takes it on the chin?

Uses professional stock picks and research. Does their own due diligence. Observes patience. Takes lessons from past trades and stock activity. Takes lessons from other traders. Decides between 10 stocks at a time.

Uses tips at work, rumors, and so-called ‘inside scoops’ to pick stocks. Doesn’t investigate financials and corporate position. Falls victim to negative emotions like greed, anger, and desperation. Makes the same mistakes more than once. Looks at one stock alone on its own situation.

So Let’s Learn

The fact that you have taken the time to review this feature demonstrates that you have the characteristics of a successful trader, specifically the willingness to learn from experts and the experiences of other traders.
So let’s learn. As mentioned above, you should always examine groups of stocks together when looking for a new issue to invest in. For example, make a chart and write down the revenues of each. In the next column list the earnings. Follow this by each of the subsequent criteria you think are important. With all of the data on one table and available at a glance, you can easily get a clear picture of which are the one or two strongest companies from your pool of potential investments.

However, understand that stock prices do not necessarily act in concert with the underlying fundamentals of a company. For example, there is nothing saying that the stock of the worst company on your list won’t out perform the top ranked one.

For that reason you should also include factors such as trading volatility, your opinion of a potential break-through due to some new product, potential positive press releases, etc… This method is not intended to reveal the best stock, but instead to give you additional clarity about which are the best few and worst few according to your own weighting of the various factors you have chosen.

Available Advantages

Get a discount broker. Monitor your portfolio online, do your research online (and offline), and place your trades online. Embrace the technology, because it provides superior advantages all across the board. You can screen stocks, put those into comparative charts, instantly access the corporate press releases, check the latest industry news, and then place your trade… all for about $20.
Then you can monitor your trade order fulfillment, verify that the money and shares traded hands, track the progress of the stocks, get instant alerts for press releases… It is truly endless and complete, and each step that you take full advantage of leaves other traders one step behind you.

Keep small amounts of money in each stock, and only ‘risk’ money for penny stocks. While these low-priced, volatile investments can produce some truly incredible gains, they usually bounce among all sorts of price ranges.
On a related note, if you get ‘freaked out’ or worried about a stock you hold, you should consider selling your position. Try to invest in solid penny stock companies that have a low share price because they are small or undiscovered, not because they are having business troubles.

Be sure to read our related articles Falling in Hate, Fools Rush In, and Trading Myths, and our tools section on Choosing a Broker.

Beyond… And After That

Some of the most successful traders have a few things in common. Firstly, they have made some major trading mistakes in their day. However, they learned more from these mistakes than they ever did from any of their great trades. Don’t squander your failures by trying to put them behind you.

Secondly, keep a journal with dates, specific trade amounts and prices, and even the stocks you were thinking of investing in but didn’t. You can use this for a hundred different purposes as you become a more advanced trader, such as seeing opportunities you missed, or learning that your strategies are valid, or just to monitor your improvement as you become more experienced from month to month.

Technorati Tags: , , , , , , , , ,

New Mexico Joins the Nuclear Renaissance

1585
The Urenco enrichment facility could spark another New Mexico uranium boom. Another uranium boom may now be in progress. How is that possible?
New Mexico, Uranium, Mining, Uranium enrichment, nuclear power, energy
New Mexico hasn’t had a uranium boom since 1950. After Navajo shepherd Paddy Martinez woke up from his nap, beneath a limestone ledge with a handful of funny looking yellow rocks, only to be later told he had discovered New Mexico first uranium, the state was swarmed with thousands of prospectors hoping to cash in on the nuclear metal.

Another uranium boom may now be in progress. This time, the charge is led by the European consortium Urenco Ltd, general partner of Louisiana Energy Services (LES), which was issued a draft license, this past Friday, by the U.S. Nuclear Regulatory Commission to build and operate a $1.5 billion uranium enrichment plant in Lea County, New Mexico. Louisiana Energy Services is a Urenco-managed partnership, whose members include Exelon Corp, Entergy Corp and Duke Energy Corp. This is the first permit issued for a uranium enrichment facility in thirty years; the first ever to a private company.

Announcement of the uranium enrichment facility came nine days after International Uranium Corporation (IUC) announced it was reopening its uranium mines in the Four Corners region of the western United States. In a company news release, Ron Hochstein, president of IUC, announced, “We intend on utilizing our large capacity mill to its full advantage through toll milling contracts with other future miners in the area? The company White Mesa Mill, only one of two operational uranium mills in the United States, is across from the New Mexico border.

Uranium development companies have acquired uranium properties, abandoned by major oil companies during the uranium drought of the 1980s and 1990s, and could be well positioned to advance those properties through the permitting process. Over the past year, newer uranium companies have entered the state, optimistic the record-high spot uranium price may help finance their exploration and development costs in New Mexico.

With a uranium mill, just past the western border of New Mexico in neighboring Utah, and the soon-to-be-built uranium enrichment facility in southeastern New Mexico, when might the state again become a world-class production center? Only over the past few years has Canada Athabasca Basin, with its ultra-high grades of uranium ore, surpassed the cumulative production of New Mexico. The Grants Mineral Belt in northern New Mexico produced more than 340 million pounds of uranium oxide (U3O8, yellowcake) before the uranium depression of the 1980s and 1990s brought New Mexico mining to a standstill. The Grants Mineral Belt produced about 40 percent of all the mined uranium in the United States.

Who is Urenco?

Urenco is short for Uranium Enrichment Company. Three countries ?Germany, the Netherlands and the United Kingdom ?signed the Treaty of Alemlo (Netherlands) on March 4, 1970 as a way to collaborate in developing centrifuge technology for uranium enrichment. In 1971, three industrial partners ?British Nuclear Fuels plc (BNFL), Ultra-Centrifuge Nederland N.V. (UCN) and Uranit GmbH ?founded Urenco Ltd. The company has since spun off its Enrichment Technology Company. There are now three wholly owned subsidiaries, based in each of the respective countries.

The Louisiana Energy Services partnership plans on building the National Enrichment Facility (NEF) about five miles east of Eunice, New Mexico. The NEF plans on providing a sustainable domestic supply of slightly enriched uranium, also called ‘low enriched uranium?or LEU, using Urenco gas centrifuge technology. Currently, USEC is the other uranium enrichment facility, using the more expensive gaseous diffusion technology. USEC is a publicly traded company, created under the Clinton-Gore Administration for the purposes of the Russia-US ‘swords for plowshares?HEU deal. Under the HEU agreement, Russia counterpart supplied USEC with uranium from decommissioned Russian nuclear weapons. This uranium now supplies U.S. utilities with about 50 percent of the uranium used to power domestic nuclear power plants.

In 2001, the domestic uranium industry only produced 12 percent of its required supply of enriched uranium, while Russia exported 55 percent to the United States. Urenco supplied 16 percent of the U.S. demand. Urenco plans to increase its percentage of enriched uranium to about one-quarter of U.S. enrichment demand, once the plant is running at full capacity. This amounts to annual production of 3 million Separative Work Units (SWUs). A Separative Work Unit is the unit used to express the effort necessary to separate U-235 and U-238. The capacity of enrichment plants is measured in tons SW per year. For example, a large nuclear power station with a net electrical capacity of 1300 MW requires an annual amount of 25 tons SW (enriched uranium) to operate (with a concentration of 3.5 percent U-235).

The National Enrichment Facility will become Urenco North American debut of the company gas centrifuge technology, which the company boasts is the ‘world most advanced, energy-efficient and cost-effective uranium enrichment technology.?It has reportedly been used for more than thirty years.

What is Gas Centrifuge Technology?

Only 0.7 percent of the weight of natural uranium, the U-235 isotope found in nature uranium, is the isotope needed to power a nuclear reactor. The U-235 isotope is the one that splits inside the core. It is this isotope which releases energy in the fission process. Because natural uranium can not power a nuclear reactor, the concentration of U-235 must be slightly increased, also known as ‘low enrichment,?from 0.7 percent to between 3 and 5 percent. The enrichment occurs during the centrifuge process.

It is called the ‘gas centrifuge process?because gaseous uranium hexafluoride (UF6) is fed into a cylindrical, high-speed rotor. The gas is whirled around inside thousands of centrifuges in a nearly friction-free environment, separating the fissionable U-235 isotope from the heavier U-238 isotope. The centrifugal motion pushes the heavier U-238 gas away from the useful U-235 gas, which remains closer to the rotor axis. The process is repeated until the desired enrichment percentage is achieved.

Let back up the process a few steps. First, the uranium is mined and milled. The finished product, which is shipped off to the conversion facility, is called yellowcake.

The next step in creating nuclear fuel for a reactor is the conversion process. The yellowcake, or U3O8, is converted into uranium hexafluoride, or UF6. Yellowcake is dissolved in nitric acid to create a new solution, uranyl nitrate. Hydrogen is then used to reduce this to UO2. This is then converted to UF4 with hydrofluoric acid. The UF6 is obtained with the uranium is oxidized with fluorine. At ambient temperatures, UF6 forms solid grey crystals. Depending upon its temperature, uranium hexafluoride can be a solid, liquid or gas.

After the U3O8 has been converted to UF6, it is transported to the enrichment site in an internationally standard transport container. The solid UF6 is heated up in an air-tight pressure vessel until it returns to its gaseous state. It is then fed into the centrifuge. The Urenco ‘gas centrifuge?has two pipes, one which removes the enriched uranium and another which removes the heavier uranium, depleted of U-235.

Because a single centrifuge won’t enrich the uranium to the desired level, a number of centrifuges are connected together. The connected, parallel centrifuges are called a cascade. By passing through each of the centrifuges in the cascade, the U-235 is gradually enriched to the level required by the customer, a nuclear power plant.

After the desired enrichment level is achieved, the enriched UF6 gas is passed through a series of compressors and packaged into product containers. The UF6 gas is cooled until the vapors solidify onto the walls of the container. The finished product is shipped to the fuel fabrication plant where the solid, enriched uranium is manufactured into fuel pellets.

Uranium Enrichment Means Big Money

The key to expansion, after sufficient U3O8 has been mined, is ensuring the uranium is converted and enriched so that it can fuel nuclear power plants. Until now, U.S. utilities have relied upon Russian HEU to LEU supplies to fuel their nuclear reactors. Urenco NEF in New Mexico gives a boost to the nuclear energy sector, and provides U.S. utilities with an alternative to having uranium enriched at USEC Kentucky plant, or worse yet, shipping domestically produced uranium overseas for enrichment. For instance, Brazil was forced to have its uranium enriched in Europe, until recently.

Value-adding to the fuel supplying reactors can mean big money for LES, and especially for Urenco Ltd. But, the investment of $1.5 billion will also produce hundreds of new jobs for the border towns of both New Mexico and Texas. Estimates show about 800 construction jobs will be created as the facility is being built, and as many as 1200 during the peak of the construction. About 300 employees will be required to operate the facility. Nearby Andrews, Texas has been celebrating the National Enrichment Facility. The city manager expects the number of new homes under construction to jump by 10-fold this year. School enrollment has grown over the past year while newcomers have moved into the area, hoping for construction jobs.

Urenco National Enrichment Facility should begin construction later this summer, probably in August. Louisiana Energy Services (LES) hopes to start selling enriched uranium in 2009, probably to its U.S. utility partners, who hope to build new reactors. A statement issued by the Nuclear Energy Institute (NEI) on Friday, congratulating LES for the approval of its NRC license pointed ahead to the U.S. expansion of the nuclear energy sector. The NEI chief nuclear officer, Marvin Fertel, said, “This experience bodes well for the construction and operating license applications for new nuclear power plants that are expected to be submitted to the agency beginning in 2007.?

Technorati Tags: , , , , , , , , ,

Explosion in Nuclear Energy Demand Coming

1896
Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg?of the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.?He said many price projections may be inaccurate because “people are underestimating future demand.?
uranium, China, Russia, HEU, Canada, Athabasca Basin, nuclear energy, mining, Cameco, Australia Sprott Asset Management uranium expert Kevin Bambrough talked with us about the “second leg?of the current uranium bull market. He sees a massive nuclear build up heading our way with “the environmentalists leading the charge.?He said many price projections may be inaccurate because “people are underestimating future demand.?
StockInterview: Price forecasts on spot uranium are widening. Some insiders have predicted uranium prices may drop back into the $30/pound range; others, such as yourself, continue to suggest $50/pound or higher. Any comments on the forecasts others are making?

Kevin Bambrough:
There are many people forecasting uranium prices now. It important to consider their track record of forecasting prices. Look at the contracts that have been written by many companies in the industry, over the last number of years. Anyone who had ceilings, or had signed fixed-priced contracts, has been punished. Very few people in the industry predicted what has happened. Looking forward, I think that in our view, the cost of production of current producers isn’t going to be as relevant as it has been in the past. It will be the more marginal, much higher cost producers who will be setting the price.

StockInterview: Isn’t there a sense of false optimism that “projects in the pipeline?will ensure an ongoing stream of uranium oxide for the nuclear fuel cycle?

Kevin Bambrough:
There are a lot of people looking at the supply situation going forward while underestimating future demand. They are very optimistic that mining projects are going to go as planned. We had recent news that Cigar Lake had a problem. There was a flood the. There a couple million pounds shortfall to most people models for at least two years. All because of one mine six month delay.

StockInterview: Would that have the kind of impact the McArthur flooding (Athabasca Basin, Cameco) had on the spot uranium price a few years ago?

Kevin Bambrough:
I think it could. It was forecast to go up to 18 million pounds of production. That would have been ten percent of the world current consumption. Cigar Lake would need to ramp up over a three year period, once it gets started. Now, there is a six month delay. What if it delayed a year? That really changes the production profile for the next decade. There are many projects that could see delays. The mining business is always full of delays. Remember that when we bring on new nuclear plants, they take on average about 1.6 million lbs when commissioning. What will happen, if in a decade, we bring on just 10 or 20 reactors each year? That another 16 to 30 million pounds per year of demand just because of the start up.
StockInterview: Does this mean the current uranium bull market still has strong legs?

Kevin Bambrough:
I think wee entering the second leg of the bull market here. It is going to move away from a supply shortage story, where we focus on the fact that we only get about 60 percent of the current consumption from mines, while the inventories are being worked off. Now, wee moving into a situation where wee seeing an explosion in demand growth. Just a couple of years ago when we first started investing in uranium, we could see probably about a dozen nuclear facilities being planned for construction throughout the world. Now we’ve got well over 100 being planned. It seems there are new additions and talk of more additions every day.

StockInterview: How you envision this nuclear buildup rolling out?

Kevin Bambrough:
I don’t think it unreasonable to think, looking ten to twenty years out, there are going to be a lot of countries that will be trying to get in the position that France is in, with a much higher percentage of their power coming from nuclear generation. We could see a move to where maybe 50 percent of global energy production or more could eventually be supplied by nuclear. There is nothing else that can really step up and fill the void and take care of this problem that wee having. France produces 78 percent of their electricity from nuclear. Why isn’t that reasonable for others? Look out a decade or two, and it doesn’t appear like wee going to have the oil and the gas in order to handle our needs. Obviously we can do more with coal, but if wee going to keep using coal we’ve got to put in place technology to take care of the carbon dioxide sequestration. If you want to have a stable, secure supply of electricity, it seems that youe going to have to go with more nuclear or eventually with these new coal technologies. I think there is going to have to be a balance of both, because the oil and gas just isn’t going to be there.

StockInterview: What do you think is the catalyst for this anticipated growth in nuclear energy demand?

Kevin Bambrough:
The most interesting thing is the fact that some environmentalists are leading the charge to go more nuclear. It because they realize nuclear energy is the only practical alternative and because of the situation with the carbon dioxide (CO2) levels. There have been some recent reports about CO2 levels reaching 381 parts per billion, just spiking out of the range that has kept the world in a relatively stabile environment for the last 400,000 years. If you look at the work of people like James Hanson, the correlation between CO2 levels and temperature is undeniable. Basically, mankind has increased the CO2 levels beyond a level that hasn’t been seen in over a million years. We are just starting to see the weather impacts. There are problems with droughts across the world as well as elevated hurricane activity. Going nuclear on a mass scale is starting to become recognized as one of the only ways to have a real impact. I think what wee going to see is an unprecedented build out in nuclear capacity throughout the world in the coming years and decades. I’d equate this to what happened when we went from using oil for just lamps and home heating to using it as a transportation fuel. What going to happen with the people who have the higher quality uranium reserves and lower cost production? They are going to be able to reap massive profits over the coming decades.

StockInterview: Looking ahead, do you think we’ll see more deals between a small uranium producer, such as Uranium Resources (OTC BB: URRE) and the Japanese multi-national conglomerate, Itochu Corporation?

Kevin Bambrough:
I have no doubt that it going to continue to happen. More importantly, I’ve heard that some of the major builders of nuclear facilities around the world, companies such as Areva are quite concerned about the availability of supply going forward. When these companies are talking to countries and utilities that potentially could contract to build nuclear facilities, theye basically being told that buyers want uranium supply assurances, or they aren’t going to give an order to buy a nuclear facility. I’ve heard they are looking to do joint ventures or at least contract with emerging producers to try to get future supply. Then, they will be able sell their nuclear technology to countries and ensure supply.

StockInterview: Will the Chinese be satisfied with the uranium they plan to buy from Australia, or will they have to tap into uranium production from another or other countries?

Kevin Bambrough:
I think that the Chinese will probably look elsewhere as well. Countries have strategic oil reserves. Why shouldn’t they have strategic uranium reserves to supply their nuclear reactors? It makes sense to have a good stockpile of uranium considering the relative cost of nuclear power versus anything else. I don’t think that the nuclear power industry should operate on a just in time basis, considering the costs and the risks of making sure you can secure supply. Don’t get me wrong. There is plenty of uranium in the world, but wee just going to have to pay up for it. I believe wee going to consume lot more than what wee consuming nowadays ?a decade or two out. The world is waking up to the reality of peak oil production, and how it is going to affect all aspects of energy production.

StockInterview: How much of a factor will Russia play in the nuclear build up?

Kevin Bambrough:
Looking at some of the recent statements made by Russian officials, it completely clear to me that we’ve been correct in what we’ve been thinking for a long time: the HEU agreement (to deliver highly enriched uranium and have it blended down) is probably not going to be renewed. The Russians are planning to make nuclear technology a key export for them, really as a value added product to go with uranium production. They desire to be able to offer a complete solution, not just uranium, but the actual building and technology around the nuclear facilities themselves. They will also have growing uranium demands domestically and have voiced concern about being able to meet their own needs beyond 2015.

StockInterview: But nuclear energy critics claim all of these power plants won’t secure financing and most plans are just pipe dreams never to be built.

Kevin Bambrough:
Two years ago, the critics said there would never be any more nuclear plants built in the U.S. People used to say nuclear was over for Germany, and that many countries would exit nuclear power. Now wee seeing the exact opposite. Wee seeing proposals being done, incentives put in place, and a multitude of projects moving ahead. If what the leading scientists from NASA, the NOAA and from many organizations around the world are saying about global warming, and the acceleration we’ve recently seen continues, people are going to be begging to have more nuclear facilities and cut CO2 emissions. The environmentalists will be leading the charge.

StockInterview: How long will it take before the proposed nuclear build up impacts the uranium mining companies?

Kevin Bambrough:
The actual build of all this takes time. I think the increase in the positive perception, of the nuclear industry is going to continue to accelerate. All demand for uranium can come from just the planning stage for nuclear power plants, as companies look forward and try to contract future supply. Ultimately, that what will keep driving the uranium price higher.

StockInterview: How seriously is the nuclear industry taking the global build up?

Kevin Bambrough:
I think the industry is starting to take it very seriously. That why the uranium price keeps pushing higher. People are going around trying to contract for uranium, and they are finding it more difficult. People are also starting to realize that as you have problems, such as the McArthur River flooding, which got the uranium bull market jump started, and now a problem at Cigar Lake, you really should have a good build up of inventory in order to protect yourself in this environment. Especially when the relative cost of having to switch off a nuclear facility to go to something else in a pinch is multiples higher.

Technorati Tags: , , , , , , , , ,