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Why Mickey Fulp Thinks Uranium is the Next Big Thing

on 11/26/2010

Many investors follow the most popular stocks, joining the crowd and buying into stocks that have already started to climb. It’s the contrarian investors who buy while prices are still low that make the real money in the stock market. They find “the next big thing” (while it is still the underdog) and they invest… and wait. When it becomes a big thing, they cash in.

Mickey Fulp, also known as “the Mercenary Geologist” is proudly contrarian. While other investors are clamoring for gold, Mr. Fulp is shying away from it and looking elsewhere. Recently, we sat down with Mr. Fulp and asked him for some insight into metals investing – what he’s selling and what he’s buying.

First, we started talking about what seems to be everybody’s favorite topic – gold. Not surprisingly, the Mr. Fulp held a contrarian opinion: “The market is overbought, especially gold stocks right now,” he said. “Gold has taken a correction and, in my opinion, is overdue for a greater correction. Oftentimes, corrections happen in December because there are international settlements that have to be wound up in dollars before year end. So this generally leads to a stronger dollar and a correction in the gold price. We saw that last year. Gold stocks, with a few exceptions, have high valuations right now.”

So, what is Mr. Fulp investing in? He’s focused on uranium. “I’m looking at uranium companies right now. It’s finally starting to move; it’s my next big thing.”

At a recent conference, he spoke about uranium and in that presentation he covered two uranium companies – Strathmore Minerals (TSX: STM) and Mawson Resources (TSX: MAW). We asked him about these two companies: “Strathmore Minerals, in my opinion, is the most undervalued of uranium stocks. They’re a uranium development generator,” he said. “And Mawson Resources has a new play – a very high grade gold-uranium discovery in northern Finland. It’s a grassroots discovery and is very early on. It has bonanza grades of both gold and uranium. Geologists have never seen anything like it. I just covered the company in a Mercenary Special Alerts – only available to my free email subscribers. The stock has gone from $1.00 to $2.50 in six trading days. I woke some people up, I guess.”

Next, we talked about the supply and demand of uranium and why he thinks uranium is going to increase. Savvy investors won’t be surprised to discover that this is a supply and demand issue. “We’ve seen the spot price go up since mid March from $40.25 to $60.50. That’s a 50% rise in eight months. There are more buyers than sellers.  We’re seeing buying from numerous sources so the spot price has gone up rapidly. Buyers include: Hedge funds; speculators and traders; China; Kazakhstan; producers buying on the open market because the spot price was less than cost of production, and some had shortfalls. When buyers outweigh sellers, prices go up. So, what is driving this demand? “There are 57 reactors under construction. There are another 500 or more either planned, proposed, or projected. So, where’s the uranium going to come from? It has to come from new mines. And new mines are not going to be cheap to build or operate. So we’re going to need higher prices to support the economics of new mining.”

In addition to the need for prices to rise, supply is threatened by an impending reduction: “The Russians are going to cut off the Megatons-to-Megawatts program in 2013 and it will not be renewed,” explained Mr. Fulp. “13%% of the uranium supply last year came from Russian bombs being converted to low-enriched uranium. [With that program ending], where is the uranium going to come from? It has to come from new mines.”

Along with Strathmore and Mawson, we talked about a couple of other uranium companies that Mr. Fulp is paying attention to. There is growing interest in new production now and he believes we’ll see even more in the very near future: “Uranium Energy Corp (NYSE: UEC) announced recently that they’re in operation in South Texas. ISR mines will be opening in Wyoming, probably in 2012. [Other companies include] Uranerz (AMEX: URZ), UR Energy (AMEX: URG), Energy Fuels (TSX:EFR), if they can get their mill built in Colorado, Uranium Resources (NASDAQ: URRE) in New Mexico, and some private companies that will eventually become public with commanding land positions in various jurisdictions.”

 Mr. Fulp explained: “We’re going to see major uranium production in south Texas, Wyoming, and New Mexico – probably in that order. All of those old districts had deposits that were ready to be developed or were in development when Three Mile Island happened and the uranium industry cratered in the early 1980s. These are recycled projects.”

Moving north, Mr. Fulp is optimistic about Canada’s uranium mines but admits that they are higher cost and longer term projects. “The Athabasca Basin is king. It’s the world’s largest and richest uranium district and there are new discoveries but these are high cost deposits. The deposits are underground or high strip ratio open pits, they’re hard to mine, the ground conditions are poor, and it’s a harsh climate. In the longer term, there will be new production coming out of Athabasca.”

Among the companies he’s keeping an eye on in the Athabasca Basin include: “Areva-Denison, Hathor Exploration (TSXV: HAT), Fission Energy (TSXV: FIS), and Forum Uranium (TSXV:FDC) along the Midwest Trend. There’s the new discovery to the south in the Wheeler River area – another high grade deposit discovered by Denison and some junior companies.”

And, although supply is growing, Mr. Fulp is confident that demand will continue to stay strong: “I don’t see a quick end for this increased demand. With all of these reactors being built, and a 4% year-over-year increase in demand, we could see a strong uranium market lasting until 2020 or 2030.”

So, what’s Mr. Fulp’s secret to success? Along with his contrarian mindset, he’s also adamant about buying and selling at the right time. He said: “I’m taking profits on gold stocks and rare earth stocks. I’m speculating in uranium as a contrarian. I’m bullish for that sector right now. You do not have a loss or gain until you sell. A stock certificate is simply a fancy piece of paper – it has no real value until you sell it.”

Disclaimer: I own shares in Strathmore Minerals, Mawson Resources, Hathor Exploration, Fission Energy, and Forum Uranium. Strathmore Minerals and Mawson Resources are sponsors of my website.



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