By Barry Fitzgerald
BHP Billiton
BHP Billiton's go-slow on a multibillion-dollar expansion of its Olympic Dam copper/uranium/gold operation has created a bit of buzz in pure uranium production and exploration plays.
The idea is that it has to be a good thing for the uranium price in the long run that a mine capable of producing 30 per cent of world mine supply of the radioactive stuff is going to stay much smaller for the time being.
As analysts at EL & C Baillieu noted last week, it is the equivalent to the oil industry "losing" three Saudi Arabias. Baillieu said that when it is remembered that current (global) mine supply only sustains roughly 40 per cent of current demand, the question is, what is going to fill the gap?
BHP did not actually say it was slowing down the expansion of Olympic Dam, one that would lead to its uranium production surging from 5000 tonnes a year to an eventual 19,000 tonnes a year, the equivalent of 46 per cent of current world mine output.
But it might as well have. About 200 jobs associated with expansion project were recently shed, ostensibly because their design and planning work on the expansion is all done and there is now a lengthy wait for an environmental clearance by February 2010 from "Mr Blue Sky Mine" himself, Federal Environment Minister Peter Garrett.
BHP was big enough to acknowledge that the long approvals process was not the only reason for the go-slow on the expansion. There was also the need to align the "speed level" of the expansion to the "current economic environment", was how BHP's chief financial officer Alex Vanselow put it.
Initially at least, the uranium price has not responded to the Olympic Dam slowdown as you might suspect. It's actually off $US3 ($A4.7) a pound to $US48 a pound.
It seems that the global financial crisis is raising question marks over the ability to finance all of those shiny new nuclear power plants that were going to be built to combat global warming.
Nuclear power plants are expensive bits of kit all right but it has got to be assumed that if the world is fair dinkum about reducing greenhouse gas emissions, they will be built and commissioned, maybe even as projects of global significance, if there is such a thing.
Most analysts, including those at Baillieu, assume a long-run uranium price of $US55 a pound, with pressure on the upside from supply "shocks" such as the go-slow on Olympic Dam can cause.
So locally listed producers such as ERA and Paladin can expect an improvement in investor sentiment in 2009. The same goes for the uranium explorers. Only trouble there is many of them will run out cash in coming months if equity markets stay where they are.
So the focus should be on those with forthcoming exploration programs, preferably fully funded and with a better than average chance of causing some excitement. Failing that, those with corporate situation appeal might be worth a look.
In the first category sits Encounter Resources (ASX:ENR). It last traded at 6.6 cents a share for a market cap of $4.50 million and is holding cash of $3.1 million. It is planning to drill a bunch of holes at its Yeneena joint venture with Barrick. The ground is close to the Kintyre uranium deposit (sold by Rio Tinto last year to Cameco for $US495 million) and the Nifty copper mine, so there is a twin focus.
In the second category of corporate situations is Jindalee Resources (ASX:JRL). It has a market cap of $10.2 million and is holding cash of about $670,000.
The small cash balance doesn't matter all that much as it is pretty much an investor, its key holding being 40 per cent of uranium explorer Energy Metals (ASX:EME).
That stake is worth about $18.25 million and at last year's annual meeting, Jindalee tipped it could realise the investment to get cash for opportunities and perhaps pay a fully franked dividend to shareholders. Energy Metals is a partner with Paladin in the promising Bigrlyi uranium deposit in the Northern Territory. No prizes then for guessing where the 40 per cent Energy Metals held by Jindalee might end up.
Ampella
GOLD stocks are very much back in fashion, thanks to the advance in the local dollar gold price to record levels of more than $1450 an ounce.
Gold's strong showing reflects the lack of confidence in the global financial system. Should gold head higher to $US2000 ($A3131) an ounce as some suggest, we're all in trouble. But at least there'll be some fun in the gold stocks while we eat our baked beans.
In the junior sector, the focus (again) needs to be on those with cash and a program capable of delivering a leveraged response. Veteran campaigner Billy Ryan has set up west African gold explorer Ampella (ASX:AMX) along those lines.
It is now bedding down a $2 million fully underwritten rights issue to fund accelerated exploration work at its Batie West exploration project in Burkina Faso.
Results from a 5000-metre drilling program will begin to flow in June quarter and, with a bit of luck and good planning, there will be confirmation of the impressive first-pass results from the initial program in 2008 (22 metres at 5.04 grams of gold a tonne, etc).
Ampella last traded at 9 cents a share for a market cap after the right issue of $9 million.
Garimpeiro owns BHP shares.