Polo Res.(See LSE:POL) Share Discussion Threads

[sagem] 27/2/2010 22:07

Why Uranium Commodity Price Rise is Inevitable
Commodities / Uranium
Feb 26, 2010 - 01:54 AM

By: DailyWealth


Chris Mayer writes: In the most recent issue of my Special Situations advisory, I showed my readers the most compelling resource investment around. I've spent the past month digging into this story and looking for the best opportunities. Here's what I've found.

The most compelling thing about uranium is probably best expressed in the chart below...





The uranium market has been in deficit for several years, living off the stockpiles of the Cold War. Put simply, we use more than we make.

Looking out to 2018, we're about 400 million pounds short. To get some perspective on that number, here is a look at the top 10 producers of uranium in 2009 and the percentage each makes up of the total market.

Top 10 Uranium Producers

Company Uranium Production
(million lbs) Primary Supply
Kazatomprom 21.4 17.0%
Cameco 20.2 16.0%
Areva 18.5 14.7%
Rio Tinto 14.1 11.2%
Atomredmetzoloto 11.7 9.9%
BHP Billiton 7.7 6.1%
Navoi 6.6 5.0%
ERA 3.6 2.9%
Uranium One 3.6 2.9%
Paladin 3.5 2.9%
Total 110.6 87.6%

The top producers, which make up nearly 90% of the market, produced about 110 million pounds of uranium last year. So essentially, the industry needs to produce almost four times that to meet the estimated new demand through 2018. On an annual basis, the industry will need to about double in size.

A sidelight to this is the fact that 63% of all uranium comes from just 10 mines. This means that the global supply of uranium is susceptible to supply shocks. If one big mine floods or goes down for whatever reason, it'll make a big wave in the uranium market.

It gets even more interesting...

Most of the best mines are already in production. As with everything else in the resource world these days, the low-hanging fruit is all gone. Future grades will be lower, meaning we'll have to mine a lot more ore to get a given amount of uranium. New mines are in more geologically challenging places. New supply is also coming from riskier places, such as Africa and Kazakhstan. All of this means that costs will go up.

These facts are reflected in the industry's cost curve, as you can see in the chart below.




This tells you that at current production – about 130 million pounds – those last million pounds are a lot more expensive to produce than the first million pounds. It also means that as the industry ramps up beyond 130 million pounds to meet demand, costs will rise sharply.

This is not a perfect predictor, of course. There are new mines that will come online and produce uranium at low costs. But it bodes well for a higher uranium price in the future. The current spot price is around $45 a pound. Only around 10%–30% of the uranium traded in any year is sold on the spot market. Most uranium is sold to utilities via long-term contracts. The longer-term price of uranium is north of $60.

For some perspective on uranium pricing, consider that when uranium got hot in the summer of 2007, the spot price hit $136 a pound. It's done nothing but go down since then. If you are a contrarian thinker, which is to say a good investor, that fact will attract you. I can tell you with great certainty that the uranium price won't go to zero. That downward trend will reverse, and based on all the data I presented above, it looks like a higher uranium price over the next few years is a sure thing – or about as close to a sure thing as you can get in markets.

That's why the uranium price has to go up. If it doesn't, there is no incentive for producers to make more, and hence a lot of reactors are going to go without fuel. More importantly, it can go up. Simply put, the uranium price could double and it wouldn't affect the economics of a nuclear reactor much. This is not true with a lot of commodities. If the price of oil doubled, the global economy would double over in great pain and probably grind to a halt. Not so with uranium.

The biggest potential negative I see is the risk of some nuclear accident that derails this whole thesis as people abandon nuclear. But the industry has a clean safety record going back more than two decades now.

There are 436 reactors in the world that provide about 15% of the world's electricity. The new reactors have fewer moving parts and are much better than the old ones. And most of the world seems to be coming around to the green benefits of nuclear power; even President Obama's administration promises loan guarantees and other goodies for the builders of nuclear reactors. In our carbon-worried world, nuclear is a relatively clean source of energy.


For all these reasons, we see a massive buildup in reactors under construction, planned or proposed. The World Nuclear Association (WNA) says there are 52 reactors under construction, 135 reactors planned and 295 reactors proposed. This is what underpins that demand we talked about up top. Where are all those reactors going to be? Mostly, from China, India, Japan, and the U.S.

Once again, we have a resource story driven by China and India. Neither country produces much uranium. China produces less than 2% of the world's uranium. If you believe "buy what China needs," as I do, then uranium fits well with that worldview. In conclusion, I want to own uranium.

Good investing,

Chris

[bearingup] 26/2/2010 10:29

Morning all
I'd like a top up here but TRP wiped out my (to be) free float :-( ah well, easy come, easy go. Remember kids, dusters are not just for Mr Sheen!
Here's hoping Mr Dattels can get this glowing to radioactive levels for us :-)
BU

[barryrog] 26/2/2010 08:41

yes i noticed that.
Polo has some 14 mill shares there (over 10%) and BKY shares have increased over 400% in 12 months - another good uranium play.

[katylied] 25/2/2010 14:28

Online NMS to buy at Selftrade now 250K...

[azalea] 25/2/2010 10:18

Online MM setting a ridiculous 5k 'buy' limit, 100k 'sell' not a problem.Hmmn!

[barryrog] 23/2/2010 18:14

Nil Pd,
of course it will mate.
day to day share price volatility is inevitable in penny shares as there are always many short termers and when volumes are low and there are no news releases they go in search of other opportunities.
i'm more than happy to hold and wait for news - it won't be long imo.

[nil pd] 23/2/2010 14:49

Great information flow from posters - thanks, it's all very useful.

I'm not here for only a few % gain. I'm sitting tight and today looks right for my first "adding opportunity". The upward momentum will resume - my opinion.

[gurp] 23/2/2010 13:21

....probably quite early in the 21st century, China, India et al are playing a canny game
Not sure what the solution is for us (emigrate?) but our home manufacturing has gone, foreign cos here closing & moving to either their own or cheaper-labour countries & presumably service/financial will follow. Even so many of our suppliers of basic needs are foreign owned & our infrastructure found lacking.
Seen comments that a banana republic is where a country is bust but rulers keep in power by keeping the people sweet on borrowed money - just need to get rid of the royals & I think we are about there.
Still, things could be worse.....................

[azalea] 23/2/2010 11:15

brian1944
The Japanese are not in strong position to bargain, however even a 40% hike would be impressive, that said it's a seller's market with demand greatly boosted by China.
China's own huge expansion plans are under threat from lack of electricity supplies,a situation that is unlikely to change in the next 5-10 years until nuclear power stations can fill the gap and meet ongoing demand. Steel along with cement are the two fundamental ingredients for every major contsruction project especially power stations coal/nuclear; a vicious circle of interdependence.

[marben100] 23/2/2010 11:11

Hi fordtin,

I have no info on the UNX disposal either - sorry. As Polo's holding was under 5%, I guess they're under no obligation (under ASX rules) to disclose a disposal. It is understandable that Polo may not wish to disclose more than it has to about its share trading activities! [though it makes it a pain for us to try to track its NAV]

My spreadsheet gives the current value of the UNX holding (ignoring recent disposals) as US$1.4m, so not too significant - but it also shows net debt of US$6.4m (against assets with a current market value of US$251m), so unless Polo is using financing, I guess it must have sold something.


Malagate (xigris?) since your last update, looks like Polo bought another 100K Extract, per this RNS: . Their holding now stands at 22,550,849 shares - so we know where funds from other disposals are going!

Cheers,

Mark

[azalea] 23/2/2010 07:49

SAGEM
The global building of nuclear power plants is already on a roll and with the U.S. adding to the numbers an indication of it gathering pace. With PRL sitting astride stakes in two energy assets, it is only a matter of time before both in their different ways are turned into cash.

[sagem] 23/2/2010 07:01

WELL THIS WILL GET THE BALL ROLLING WORLDWIDE

Posted on February 22nd, 2010
Great news for uranium - two new US reactors

US President Barack Obama announced last week that the Department of Energy (DoE) has offered conditional commitments for a total of $8.33 billion in loan guarantees for the construction and operation of two new nuclear reactors at a plant in Burke, Georgia, USA. The project is scheduled to be the first US nuclear power plant to be constructed in nearly three decades.
"To meet our growing energy needs and prevent the worst consequences of climate change, we need to increase our supply of nuclear power and today's announcement helps to move us down that path. But energy leaders and experts recognise that as long as producing carbon pollution carries no cost, traditional plants that use fossil fuels will be more cost-effective than plants that use nuclear fuel. That is why we need comprehensive energy and climate legislation to create a system of incentives to make clean energy profitable," said Obama.

The two new 1,100 MW Westinghouse AP1000 nuclear reactors at the Alvin W. Vogtle Electric Generating Plant will supplement the two existing reactor units at the facility. "This is a significant step by the Obama Administration to restart our domestic nuclear industry, helping to create valuable long-term jobs and reduce our greenhouse gas emissions," Energy Secretary Steven Chu said. Project sponsors include Georgia Power Co, Oglethorpe Power Corp, the Municipal Electric Authority of Georgia and the City of Dalton, Georgia.

The Energy Policy Act of 2005 authorised the DoE to issue loan guarantees for projects that avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases and employ new or significantly-improved technologies as compared to technologies in service in the US at the time the guarantee is issued.

The nuclear facility is eligible for loan guarantees because it achieves substantial environmental benefits by reducing greenhouse gases and other pollutants. In addition, the Westinghouse AP1000 reactor has incorporated numerous innovations resulting in significant operational, safety, and cost enhancements.

The DoE says Georgia's need for electricity is growing and is expected to increase by around 30% over the next 15 years. When the new nuclear reactors come on line, they will provide reliable, base-load electricity capable of serving about 550,000 residences or 1.4 million people.

[malagate] 22/2/2010 17:13

fordtin,

I think UNX is gone, but as PRL arn't a major shareholder anymore, they don't have to declare it to the market. From what I rememeber at the time Hanson implied that they'd talked to PRL management and got a 'steer' that the UNX was gone.

I'll update my spreadsheet as soon as I get confirmation (probably at the interims)

[azalea] 22/2/2010 13:05

The trades @ 4.22p are buys, I know because I just added 100k @ 4.22p.

The whole point of appointing MBO is to examine all the pros and cons as to how best to "enhance shareholder value with respect to its shareholding in Extract Resouces". Whatever option is finally decided upon, ultimately it will mean cash in the bank for all holders in PRL.

[fordtin] 22/2/2010 13:02

Hi Mark,

I've been trying to catch up with all the changes to PRL's portfolio to update my spreadsheet but notice Hanson Westhouse reported the sale of Polo's entire UNX holding in their 21 January report. I can't find any confirmation of this or any idea of how much they would have added to the cash reserves. Have I missed something or do Hanson have insider information?

[marben100] 22/2/2010 12:45

Read the information that I posted and you might understand why there is some buying interest in Extract & Kalahari. It has taken the market some time to digest the implications of last weeks drilling results. See also Ambrian's comment on Kalahari:

Expect an acceleration in the pace of news & interest as a) the focus switches back from infill drilling to extension/explo drilling and b) the mid-year JORC upgrade and feasibility study results approach... if there hasn't been an offer in the meantime.

The clock is ticking.

But if Polo sell their stake to Rio, I'll eat my hat. There are potential bidders with much deeper pockets than Rio. Polo's directors will want to get full-value for their stakes in Kalahari too - which they won't get if they sell Polo's Extract stake to Rio. Further, if Rio bought Polo's stake they'd almost certainly have to make a full offer for Extract at a share price no less than they paid Polo, as those extra shares would push them above the ASIC 20% T/O limit.

Mark

[haff1] 22/2/2010 10:20

..that excitement didnt last long!..

[barryrog] 22/2/2010 09:55

I don't think so.
I believe they are close to selling their Extract Investment at a sizeable premium, possibly to Rio Tinto who would be keen to keep any other big players at bay.

[energiser01] 22/2/2010 09:46

Could this be helping ?

Full article at :-




Snip below.....

Major world nuclear group Areva is thinking of constructing a uranium-processing plant in South Africa.

"This is a project which is being discussed within Areva," reveals Areva South African chairperson Mohamed Madhi. "We are still in the investigation stage.

Certain technical and commercial issues need to be overcome before we start the prefeasibility study. If these issues are settled soon, we expect that the prefeasibility could be finished by the end of this year."

If built, the plant would process uranium from across Southern Africa.

"We are exploring vigorously for new uranium opportunities in South Africa and we are negotiating with existing South African uranium-miners for partnerships," he highlights. "We are busy with a major project in Namibia, which is going according to plan. We are now one of the biggest foreign investors in Namibia."

dyor etc....

[daniel81] 22/2/2010 09:15

im in here , whats poeples views on price within the next 4 weeks thks dan

[barryrog] 22/2/2010 08:53

looking at the share price friday pm and this morning there could well be some news in the background.

[energiser01] 22/2/2010 08:24

EXT up 6%, any views on the rise ?

dyor etc.