-- Posted Tuesday, September 2 2008 | Digg This Article | Discuss This Article - Comments:

By Andrew Mickey, Q1 Publishing

It’s called “burying.”

Governments have turned it into an art form.

At some time or another, every major organization is forced to release some bad news that they would like to hide.

But they can’t hide it.  So they bury it.

The best way to bury bad news is it to release it on a Friday evening. TV ratings are lowest on Friday evenings.  The weekend political talk show topics are set on Friday mornings. By burying a news story on Friday evening it won’t get much exposure.

In the last few months, the U.S. government has made a number of Friday afternoon announcements. For instance, the EPA buried the announcement it will not be testing the amount of sewage sludge used in fertilizer. Or that the U.S. Department of the Interior has reversed a rule limiting the amount of mining waste that can be dumped on public land.  The government also declared that commercial fishing practices that encircle dolphins with nets would have no impact on the dolphin population. They were all buried.

It’s not just the government burying unsavory news. Businesses do it too.

That’s why I was very intrigued on Friday when I saw an announcement from embattled uranium giant Cameco (NYSE:CCJ) come across the wires hours after the markets closed. It had to be something they wanted to keep as quiet as possible and could make these “Two Uranium Bulls to Jump on Now” even more valuable.

Preparing For the Worst

Cameco wasn’t able to bury this one though. Cameco announced it will be cutting a $28 million check to acquire 11% of GoviEx’s uranium exploration property in Niger. On the surface, I think it’s a wise move for Cameco to expand its exploration portfolio into Africa (and the uranium giant would be hard-pressed to find a better partner). After thinking about it for a while, I realized the timing of this news shows there could be some big problems brewing at Cameco.

Frankly, we’ve known Cameco has had some problems for a while. Cameco’s well-documented problems might be bad news for its shareholders, but it is good news for investors looking to catch onto the next leg of the uranium boom.

A little over a week ago Cameco announced its Cigar Lake uranium mine could face more delays…if it ever goes into production. News of the mine, which was expected to provide as much as 17% of the world’s uranium production, is facing more setbacks and it wasn’t received well. Cameco’s share price continued its 30% plunge in the past two months.

This boom isn’t going away. Learn how to take advantage of it here.

Cameco added to the selling frenzy by stating it expects its 2008 production to total 19.6 million pounds of uranium. That’s one million pounds short of previous expectations.

Cameco is facing an uphill battle. It’s going to take a long time for these stories to play out and no one outside of Cameco really knows for sure. Regardless, we know one thing for sure: Cameco needs more uranium projects. And now, with spot uranium prices back above $60 a pound and the long-term delivery prices for uranium at $90 a pound, Cameco is going to have to pay top dollar for them. And that’s where the investment opportunity lies.

A Buyout Boom Begins

In this case, I’m not going to fault Cameco.

Is it a horribly run company that’s made some major blunders in the past few years? I don’t think so.

Did they miss out on picking up some exploration properties in Africa, Canada, and Australia? Possibly…but Cameco is a major mining company and exploration is not its primary objective.

Exploration is left to the junior miners. The juniors shoulder the risk of spending millions drilling holes in the ground hoping to find a new deposit. The majors buy the exploration companies. They have the cash, personnel, and expertise to buy a junior exploration company and turn it into a mine. That’s what majors do.

Cameco is doing the right thing and aggressively acquiring new uranium projects. In addition to the GoviEx deal, Cameco recently bought the Kintyre uranium deposit in Australia from Rio Tinto (NYSE:RTP).

The way things are shaping up, Cameco is going to have to do a lot more acquisitions. Cameco has very few new sources of uranium to mine.

The key thing here is Cameco has the deep pockets to solve the problem. At the end of last year, Cameco had more than $1 billion of cash, receivables, and inventory ready to be liquidated. It also generated more than $800 million in cash flow from operations in 2007. All together, that’s plenty of cash to fund a shopping spree across uranium exploration companies.

The deal with GoviEx is likely just one of what I’m sure is many more to come. Cameco has to go shopping and it could spark some interest in the top tier uranium exploration companies. For instance, one takeover candidate is Hathor Exploration (TSXV:HAT) which will eventually be bought out by one of the major uranium mining companies.

The writing is on the wall for the resurgence of uranium mining and exploration. Cameco’s “buried” news story is just the start of what should be an exciting year ahead for uranium investors.

The days of overnight triple-digit gains from uranium stocks may be over, but there’s still plenty of opportunity out there for market-beating returns in uranium.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

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-- Posted Tuesday, September 2 2008 | Digg This Article | Discuss This Article - Comments: