Risks in Uranium Stock Investing: Africa

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Author: James Finch

Article source: http://www.articlealley.com/. Used with author's permission.

We talked with the former chief geologist of the Rossing uranium mine, Graham Greenway, who currently works as a mining consultant in Johannesburg, South Africa. We wanted him to describe the risks for Uranium Stocks in Africa.

As with investing in any natural resource company, the most significant item to consider is whether there is an economic deposit to be mined. Of course, there are numerous other considerations, which a knowledgeable registered investment advisor might clarify. From his perspective as an experienced geologist, Greenway suggested investors consider at least the following six items when studying uranium companies who are developing a property in Africa.

1. Political Risk. As with any "exotic" country or continent, such as Mongolia or Central Asia, there is the questionable political risk. Case in point, we asked Greenway if there were any African nations to avoid. "Zimbabwe has a lot of certainty as what's happening there at the moment," he responded. "Niger has political and water issues." From our analysis of news items, Namibia appears to be a politically stable.

2. Infrastructure. Unless the deposit is world-class, if there is no infrastructure in place, then the deposit will stay with Mother Nature a little while longer. Infrastructure can mean roads, a pipeline, or whatever transport system is required to move ore to a processing facility. If the project is sufficiently large, infrastructure will be built to service the deposit. In the case of Forsys Metals' Valencia Deposit, it is near the Rossing mine. Not so near that some additional infrastructure might be necessary, but not hundreds of miles away from a mill, either.

3. Water. Many parts of Africa are arid. The world's largest desert, the Sahara, is part of the African continent. Namibia's uranium deposits are in a desert. Therefore, there must be readily available water to explore and mine the deposit. "Niger has been having a drought." (Note: Greenway did, however, commend Niger for having developed infrastructure.)

4. Electricity. "Namibia is very reliant upon South Africa for their electrical supply," said Greenway. "But they are talking about expanding their KUDU gas fields in the south, to build gas-fired electricity plants." Other countries may rely upon expensive diesel to generate electricity. Ironically, the cost of uranium mining may be dependent upon the price of crude oil, more so in Africa than a major coal-producing region, such as Wyoming.

5. Tenure of Ownership. "Previously, Angola and Congo had issues with the tenure of ownership," said Greenway. "You'd find two companies owning the same piece of ground depending upon who got bribed the most." Greenway suggested this might still be found in the Democratic Republic of Congo (DRC). "Land ownership is pretty clear cut in Namibia," Greenway noted.

6. Mining Code. Basically, this defines how much the government gets to keep from the uranium mining. That's what a mining code is really all about: royalties. "South Africa has become a bit of problem with that," Greenway quietly stated. "Most of the other countries will let you get your money out of the country. Generally, the government will tax you 10 or 20 percent on your project, and then allow you to get your money out of the country." He added in discussing South Africa, "There is a published code and there is a code that can be translated differently depending upon who you speak to." Greenway concluded, "I don't think you'll find the same problem within Namibia." He added that Burkina Faso had a pretty good mining code (formerly known as Upper Volta).

With any project, the maturity of an area strengthens the economic possibility of a worthy uranium project. The number of years it took for Rio Tinto to help develop relationships within Namibia may help smooth the way for Paladin, Forsys Metals and UraMin. Again, having a big guardian, such as the Rossing uranium mine, in the country where you wish to develop a mine, could expedite the mine development process.

James Finch contributes to StockInterview.com and many other publications. His articles are archived at http://www.stockinterview.com. Feedback to James Finch is encouraged and greatly appreciated. Simply email him: jfinch@stockinterview.com. The main company discussed in this article is Forsys Metals, which can be further researched at this website: http://www.forsysmetals.com/s/Home.asp

James Finch is a contributing editor for StockInterview.com and other publications.
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