Why?

Well, to be frank, because I got so many requests in the past twelve months that I recommend more uranium stocks.

It didn't take long for The U3O8 Investment Report to pay dividends. Just two months after my inaugural issue in April, one of our core positions announced it was being acquired.

The company is Energy Metals . . . and it'll be acquired at a 37% premium from our entry price. Not a bad two-month payday!

As the uranium market heats up, I expect more of my core positions to be takeover targets.

Here's why . . .

While uranium has been about as hot as any sector could possibly be, the problem is that so many of the junior uranium companies do not actually have any real value.

Worse, many that do have a legitimate chance of finding uranium are rapidly rising in price, far beyond their real worth, setting up investors for big losses.

In 2002, there were only 15 uranium companies on the planet. Now we have over 600! Most of these companies have no intention of ever developing a producing mine.

They know that in the current environment it is easy to raise money and take advantage of unsuspecting investors by hyping their stock.

In these circumstances, how does an investor sort through all these companies? And more importantly, how can we make the best returns with the least amount of risk in this uranium bull market?

In the following paragraphs, I want to answer those questions and share with you what I have uncovered from an exhaustive eight-month study of the uranium industry. Because of this study, I have determined that there are only a handful of companies worth investing in.

It was an eye-opening experience that I hope will help educate you to avoid losing money in your uranium investments.

The Quick and the Dead

The title of my first issue really stated the key to making profits in uranium in the next five years. It is the first thing that you need to understand if you are going to be successful.

The key is this:

It's all about who can get into production the quickest. It's not about exploration, as some would have you believe.

When I first started my research I was under the false impression that uranium was in scarce supply and there was a tremendous need to find more. Quite frankly, the truth is that uranium is not scarce. What is scarce or in short supply are qualified, competent people who have experience in the uranium business.

What is needed most is for companies that are either in production or close to production to bring more uranium to market, and fast. When you understand which companies those are, you have a very short list and the best choices for your investment dollars.

Even good, well-managed grassroots exploration companies that boast they have a good property or have shown some decent results are not really even in the game to get production quickly to market.

The reason for that is the time it takes to get a project permitted and or developed in most of the productive uranium areas around the globe.

In many cases, junior exploration mining companies that have recently had a big increase in their share prices are ten to 15 years away from ever producing any uranium. That is because of the permitting process, which can take ten years or longer in some of the key areas of known, high-grade mineralization.

When investors begin to find out just how far away from production most of these companies are, the stocks will be dumped and their prices will go down as quickly as they went up.

Yes, you can make money at that game for a period of time if you are very shrewd, but most investors will get burned. Stocks such as these can be hyped for only so long before the reality sets in. Then, look out!

Let's take some examples of the areas I am talking about. What are the most fertile areas in the world for discovering or developing uranium projects?

Percentage of World Uranium Deposits

Australia

Simply put, the greatest source of uranium is Australia. The Aussies have the largest low-cost uranium reserves in the world. It is estimated that Australia's total identified low-cost uranium resources (less than US$40/kg, or approximately US$15/lb.) come to 1.2 million tonnes of U3O8, which is roughly 38% of the global total in this category.

At current uranium prices, Australia's recoverable reserves increase to over 1.3 million tonnes U3O8, representing about 24% of the world's resources (at less than US$130/kg).

The major uranium miners in Australia are BHP Billiton's Olympic Dam Mine, producing 4,600 tonnes a year, Rio Tinto's Ranger Mine that produces 5,500 tonnes a year, and Heathgate Resources' Beverley Mine, which produces 1,180 tonnes a year.

In the past, Australian regulations have banned nuclear power and only three uranium mines have been approved in the last 40 years, even though Australia clearly has the largest amount of known resources in the world. The mining of uranium is a state government responsibility and there is an effort underway to make the necessary changes to allow Australia to develop its vast uranium reserves. Up until now, this would have seemed highly unlikely, but with the global growth in uranium demand it may now be possible to make those changes.

The problem here is that the battle between those favoring uranium development and those against could take years to play out. The controlling centrist Australian Labor Party has shown longstanding opposition to uranium mining and nuclear power. But a vote this past April shows that the tide may be turning. (More on that in an upcoming issue.)

The bottom line for the immediate future is that even though Australia possesses an amazing amount of uranium resources, it won't be bringing on any new uranium supply for years, even if the ruling political party were to allow development of these properties in the short term.

That is because of the time it would take to develop these assets. So again, the problem is not that uranium is scarce . . . it's that it cannot be brought to market fast enough.

And that means a sustained bull market for current producers of uranium . . . and small companies that are close to producing.

Recently, Bloomberg news ran a report quoting Australian uranium analysts as saying:

"In the near term, with the market expected to remain in significant deficit in 2007-08, risk on the supply side and growing speculative interest, it is hard to see what could prevent spot prices going higher," Macquarie analysts Max Layton and John Moorhead said. "We would not be surprised to see prices move up to around $200 a pound over the next two years."

I think they've got it wrong. I think you'll see uranium prices north of $200 a pound very soon. And that means quality uranium stocks will continue to increase in value as this bull market in the other yellow metal gains steam.

Good investing,

Greg McCoach