Editor’s picks: top stories of the week (February 19, 2007)

No commodity has more questions marks around it right now than uranium, with its very tight supply and continued projections of steep demand increases as the world returns in a big way to nuclear power and weaponry.

The result has been a soaring uranium spot price, which resumed its upward march in late January to hit a whopping US$75 per lb. U3O8 at presstime.

* That’s why we paid extra attention to Cameco’s fourth-quarter conference call on Feb. 7, hoping to get a better read on the status of the advanced Cigar Lake project in Saskatchewan. It suffered catastrophic water inflow in October 2006, completely flooding the new underground mine workings. Cameco is half-owner and operator of the mine, which had been slated to produce 10% of global supply by 2010.

While Cameco is exceedingly cautious in its statements and projections, personnel on the conference call were pretty confident that the remediation was progressing well. It’s tough, slow work, but the uranium ore is so substantial and rich at Cigar Lake, the effort’s well worth it, and should only delay the mine’s opening by about a year.

Cameco expects to completely seal off the inflow in the second quarter, and will update the market on Cigar Lake’s status in early March.

* True, we’re in the middle of a generational bull market in commodities, but we’ve already seen several commodities peak in price and pull back significantly in the last 18 months: oil, natural gas, copper, coal . . . and now diamonds, too.

In contrast to the triumphalism earlier this decade, there was more than a little anxiety about the weakness of the rough diamond market during De Beers’ year-end conference call on Feb. 9.

Excluding two one-time events — the sale of 26% of its South African assets to a Black Economic Empowerment group, and the sale of its stake in the Fort la Corne diamond project in Saskatchewan — De Beers’ “underlying earnings” were chopped in half to US$425 million in 2006 due to substantially reduced diamond supply from Russia’s Alrosa and the “continued challenging environment in the wholesale market for rough diamonds, where a lack of liquidity, margin pressure, and increased financing costs impacted pipeline demand.”

And yet, De Beers is by no means throttling back: it’s now building four new mines — one of the busiest periods in the company’s history — including Snap Lake and Victor in Canada.

* Meanwhile, it was a highly significant week for Alrosa, a key De Beers competitor, with the ascendance of the young, bright and super-dynamic Sergei Vybornov to the position of president and CEO, replacing Alexander Nichiporuk.

As part of a wider trend in Russia’s increasingly Kremlin-dominated natural resources sector, look for Alrosa’s new leadership to more readily shun joint ventures with De Beers, Israel’s Lev Leviev and any other Westerners, and go it alone in mining and selling its substantial diamond production.

* Top amongst the week’s head-scratchers was the proposed merger between Denver, Colo.-based Queenstake Resources and Vancouver-based YGC Resources. With perennial underdog Queenstake limping along at its Jerritt Canyon mine in Nevada and YGC holding some cash and its small, undeveloped Ketza River gold project in the Yukon, it’s difficult for us to see the rationale for this deal.

* Sign o’ the times: as anticipated, Bolivian President Evo Morales and 200 soldiers occupied and nationalized Glencore International’s Vinto tin smelter complex southeast of La Paz on Feb. 9, in the latest step in Morales’ drive to nationalize natural resource assets in the country, after having grabbed natural gas assets last year.

Some advice to readers who are new to investing in mining stocks: a good way to gauge the nationalization risk in some of these distant countries is to research how the government there has treated foreign oil and gas producers. If governments are going to nationalize anything, they’ll generally start with the more lucrative oil and gas assets before tackling the mining industry. You can only do so many things at once.