Quantcast

Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Saskatoon, the Next Great Investment Frontier?

Saskatchewan's resource-based balance sheet shows plenty of upside for investors. While I've traveled over 44,000 kilometers to 12 different cities in 2009 (my obsession of the month is Tripit.com), the city with the most investment potential just might be Saskatoon, Saskatchewan.

Saskatoon is the headquarters to energy giant Cameco (CCJ). Cameco's Senior Vice President and COO, Tim Gitzel likes to point out that "Saskatchewan doesn't realize how important it is in the world...About half of the Paris lights are on thanks to Saskatchewan uranium."

Cameco supplies about one-third of the world's uranium, predominantly from extremely high-grade (ore grades up to 100 times the world average) ore deposits in the Athabasca Basin of northwest Saskatchewan. While innovative mining techniques are required in order to safely handle such concentrated uranium ores, there's plenty of economic incentive to do so. Gold ore (at 27 grams/tonne) from Red Lake in Northern Ontario, one of the richest mines in the world, is currently valued at  approximately $800/tonne.

Uranium ore from Cameco's McArthur River mine averages 20.7% U3O8 or over $2700/tonne. Cameco's $10.2 billion market capitalization is nothing to sneeze at, but it pales in comparison to the $32.9 billion valuation of Potash (POT).

Potash mines the world's largest potash deposits in south-central Saskatchewan, but also produces nitrogen and phosphorus. These 3 primary plant nutrients (listed as NPK on fertilizer bags) familiar to gardeners and greens-keepers, are critical to global agriculture. Supplying approximately one-third of the world's potash puts Potash Corp. in an enviable position. When the potash price drops, they curtail production in order to minimize over-supply.

A year ago, Potash was busily planning mine expansions that would increase productive capacity almost 80% by 2012. Recently, potash shipments have slowed and Saskatchewan potash miners who were striking for their "fair share" of the action a year ago, are enduring temporary layoffs.

CEO Bill Doyle appears confident, stating "We'll just be patient, and as long as it takes, we'll keep our mines shut down." This cartel-like behavior is justified as long as competing potash supplies are unavailable. There hasn't been a new potash mine in Saskatchewan in nearly 40 years, and while finding potash is relatively easy, finding the capital to finance a mine is challenging.

The airport art at Saskatoon's John G. Diefenbaker airport may not delight or inspire: A series of murals describing the nuclear-fuel cycle line the airport walls. Outside, a monument to the Blairmore Ring attests to the challenges of sinking a large mining shaft through water bearing rock.

These exhibits do serve as a reminder that Cameco and Potash Corp. are major suppliers of critical commodities. That's what's putting Saskatoon on investors' maps.

Reprinted by Permission C 2009 Minyanville Media, Inc.