Article Series
The Arctic Cold War Looming
The Uranium Merger Mania Pending
The Paradigm Behind Global Trade Protectionism
The Stealth Rally in Mining Mergers
Special Memorial Day Weekend Report
Special Report
The Paradigm Shift of Sky-High Oil
The Stealth Rally in Mining Mergers
By George Bell
Under the radar of Wall Street there's an abundance of "rollups" taking place in international mining companies...right now!
While the U.S. and European economies show continued signs of weakness throughout the summer, there's another investment paradigm out there investors may want to be aware of: JV mining mergers.
Over the past few months, many natural resource mining and exploration companies have seen an unprecedented amount of deals from key international players. And while investing on foreign exchanges may not be "business as usual" for many who covet Wall Street, the present may be the time to consider the possibility of doing so. Here's what's happening.
Beating the Markets
Over the past few years, many commodities have seen a torrid rally in the underlying prices. Case in point, according to Kitco.com, the Dow Jones industrial Average, NASDAQ and S&P 500 are on the bottom of the barrel, when looking at cumulative returns -- other than palladium that is.
| Cumulative Return '99-'07 | Annualized Return | |
| Crude Oil | 695.5% | 25.9% |
| Nickel | 542.9% | 23.0% |
| Lead | 409.5% | 19.8% |
| Copper | 358.6% | 18.4% |
| Platinum | 317.9% | 17.2% |
| Natural Gas | 284.7% | 16.2% |
| Wheat | 220.4% | 13.8% |
| Silver | 193.8% | 12.7% |
| Gold | 189.3% | 12.5% |
| Zinc | 150.0% | 10.7% |
| Corn | 113.4% | 8.8% |
| Aluminum | 90.8% | 7.4% |
| Coal | 88.1% | 7.3% |
| DJIA | 44.5% | 4.2% |
| NASDAQ | 21.0% | 2.1% |
| S&P 500 | 19.5% | 2.0% |
| Palladium | 10.2% | 1.1% |
It is precisely because of the "long-haul return" in commodities that many larger companies are now eating up the little guys -- on foreign exchanges -- to make sure they are well positioned from the stance of a well diversified asset base. But there's even more, with the earth's population growing by the day, commodity consumption will likely continue to surge in the years to come. At the end of the day, it just makes sense to hold commodity based assets, hence the uptick in JV company merger mania lately. One item of note, many commodity reporting sites do not usually cover uranium prices, though for the sake of argument, we can truly consider uranium (in the sellable form of U308 'uranium oxide,' better known as yellow cake) a commodity too, as it is an underlying building block of energy though nuclear fuel. Since 1999, the cumulative return in U308 right around 580%, when considering today's price of $68 per pound.
Effecting Mergers
Looking at some recent news within the "stealth merger market" that we're discussing, Cameco (NYSE: CCJ) recently signed an agreement to acquire a 70% interest in Kintyre uranium exploration project in Western Australia for $346.5 million (US). The event was a "joint venture comprised of Cameco (70%) and Mitsubishi Development Pty Ltd (30%) purchased the Kintyre project from Rio Tinto for $495.0 million (US) through a bidding process," according to Mining Exploration News.
It's important to note for disclosure purposes that Cameco owns 19.5% of my company UNOR, Inc. On a personal note, I'm not attempting to promote Cameco here, the news simply deserved mention in this story.
Moving on throughout the world, much of the aforementioned pickup in companies like Cameco buying assets today, comes from the idea that countries like China will seemingly only see more demand for energy in the years to come. The country's China Huaneng Group is precisely in this category, and in recent times, has purchased power assets in Queensland, Australia and Singapore. According to Mining Exploration News, "The company shopping list also includes Australian uranium deposits, which it desperately wants in order to supply new-generation nuclear power plants it is building in Shandong province."
Some of the fuel behind China's appetite (and the present merger/buyout mania) also comes from the massive uranium shortage presently underway across the world. In the 1980's and 1990's, because oil was so cheap, uranium exploration was "put on the backburner." The result is the present shortage of mined uranium, whereby nuclear power plants are now seeing only about 55% of their nuclear fuel come from mined sources. The remaining 45% comes from secondary sources, like above ground stockpiles and decommissioned warheads.
When we consider that in India, many nuclear plants are now operating at 40% capacity -- due to the shortage -- it's easy to see why we could be sitting on the forefront of one of the most significant rallies in uranium ever witnessed. Again, this is why many larger companies are now trying to position themselves within smaller JV explorers.
Mainstream America Even
What gives the story even more meat, is that with global warming's ever increasing presence, even U.S. regulators are seeing that nuclear power is an extremely viable carbon free source of energy for the future. Paguntaka.org stated, "French-owned energy services company Areva NC Inc. will build a $2 billion uranium enrichment plant near Idaho Falls, after winning tax concessions from the state Legislature." Though the company doesn't quite have full approval for the plant just yet, it's clear even the U.S. is changing its stance on nuclear development.
In the end, it's not just uranium that could benefit from the global desire to increase energy supply. Coal, natural gas, oil and even ethanol could still see significant rallies in the years to come, as the earth's population simply demands more energy. And for investors who consider looking at smaller JV exploration companies on foreign exchanges, their portfolios could also see an "electrified rally" too.
Copyright 2008 © UNOR Inc.
LIMITED LICENSE
Permission to use the Information available within the UNORINC.com website is granted for all media redistribution uses, provided that no Information available from the UNORINC.com website is modified in any way.