The World Today - Investors put stock in uranium

ELEANOR HALL: Already the speculation about Australia's atomic future is fuelling investor appetite for uranium stocks.

Hundreds of millions of dollars are being poured into uranium exploration companies and their shareprices are soaring, yet many are unlikely to produce anything.

And Fund managers are warning that we're looking at an investment bubble that's ready to burst.

Finance Correspondent Andrew Geoghegan reports.

ANDREW GEOGHEGAN: One of the best performing companies on the Australian stock exchange is the uranium explorer Paladin Resources.

Investors can't get enough of it. Paladin's stock price has appreciated 50 fold in the past couple of years and the company is now worth around $2 billion, yet it still hasn't producing anything.

JOHN BORSHOFF: Paladin is the first one with a new mine coming on. So I guess that's… that's one of the reasons that our shareprice is what it is, because being in that position also makes great opportunities for Paladin in the next five to 10 years.

ANDREW GEOGHEGAN: John Borshoff is Paladin's chief executive.

JOHN BORSHOFF: We're not currently producing, but our Langer Heinrich operation in Namibia is set to commission in September of this year. And that'll be the first new complete mine that'll come on online in 25 years.

ANDREW GEOGHEGAN: While John Borshoff maintains that Paladin will be producing uranium in Africa, it heads a long list of uranium explorers in Australia which are far from producing any yellowcake.

The Labor state governments are still blocking any further expansion in Australia's three mines policy.

But even if uranium mining is expanded, there are still many explorers which haven't even found a deposit to exploit.

WARWICK GRIGOR: They're trying to cash in on the enthusiasm and the ability to raise capital and they would love to have uranium.

ANDREW GEOGHEGAN: Uranium analyst Warwick Grigor set up the private investment bank Far East Capital which specialises in resources.

WARWICK GRIGOR: There is a bubble in exploration. At the moment it's a scramble to get ground. Everyone's just grabbing ground to say they have got uranium.

At some stage over the next six months, 12 months, as companies fail to deliver reserves, investors are going to be asking themselves, well, is this really just a promotion, or is this something worthwhile?

Just because they've got some ground where there's some radioactive indicators, that means nothing. And any of those stocks could easily fall by 75 per cent if there was a real wash-out amongst the exploration side.

ANDREW GEOGHEGAN: Yet seemingly as each week passes another uranium explorer lists on the Australian stock exchange, satisfying investor demand for the speculative stocks.

MICHAEL BIRCH: We'd certainly say they have high valuations based on speculation, and one of the tell-tale signs for us is when in the past a company's been a shell company, it might have been a company left over from the tech boom, that company's changed its… or mutated into a uranium company, if you like, and we certainly try to stay away from those if we can.

ANDREW GEOGHEGAN: Investor Michael Birch from Wallace Funds Management is often approached by stockbrokers keen to flog new offerings in uranium explorers.

MICHAEL BIRCH: Brokers are happy to spruik those to you. We… at this stage we haven't participated and we're unlikely to in the near future.

Now, I don't want to tar all these companies with the same brush. There are certainly some companies in there that do have certainly good prospects and have got tenements there which are likely to have uranium assets.

However, it's just a matter of doing the work and working out which companies those are and putting your money into that if you believe that uranium is going to become a sort of source of power, if you like, for the future.

ANDREW GEOGHEGAN: And Paladin's John Borshoff thinks his company is well placed to supply the next generation of nuclear power stations.

JOHN BORSHOFF: There'll be about 550 reactors probably on the line and as you can… and these are needing fuel currently.

So there needs to be a lot more exploration. These deposits that are already known are not sufficient to maintain this business, you know, the supply site, till 2050/2060, which is the life of these nuclear reactors and never mind the new ones that are coming on board.

ELEANOR HALL: John Borshoff from Paladin resources ending that report from Andrew Geoghegan.