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Author: James Finch Article source: http://www.articlealley.com/. Used with author's permission.
There are as many reasons to avoid investment in companies exploring for uranium in this country as there are benefits. The world's largest uranium producer, Cameco, hopes to someday mine 30 million pounds per year in Kazakhstan. The state-controlled KazAtomProm, which controls uranium mining and the subsequent marketing of the product, recently announced its production targets for 2010 to reach 30 million pounds.
There is no doubt Kazakhstan is rich in uranium. That is not the issue. Nearly everyone we interviewed did confirm Kazakhstan was one of the richest sources of uranium on earth, after the Athabasca Basin. Its reserves might become the world's largest, on the same level of Saudi Arabia's oil fields. Those brave companies, which hope to develop uranium properties, must certainly be aware of doing business with the Kazaks.
One chilling article we read, entitled, "The Reconstruction of the Uranium Industry in Kazakhstan," written by Paul A. Carroll of World Wide Minerals in 1999, made us ponder any but the most highly speculative of investment in this country. He wrote, "A word to the wise - get everything that you want down on paper, up front, and get it signed by all of the right people. Even then you are not assured of success, but at least you know what the deal was supposed to be."
One of the complaints his company had was selling its uranium outside the country, "Our inability to obtain an export licence for a straightforward sales contract should be a warning to all other foreign investors looking at Kazakhstan and wanting to export their production." The paper's author concluded, "Operating in Kazakhstan requires patience, flexibility and a temperament that can withstand the shifting sands of life in that country."
True, his paper was presented very close to the low point of the twenty-year uranium depression. From what we understand, litigation is ongoing, and we prefer to remain outsiders regarding their affairs. But what about ChevronTexaco? Between 1995 and 2003, the Chevron Corporation, later to merge with Texaco, was repeatedly stymied by the Kazaks. In September 1995, the New York Times reported Chevron was considering moving their oil through Iran, because it could not gain an export route through Russia. Eurasianet.org reported, "In November 2002, the energy conglomerate (ChevronTexaco) briefly pulled out of a $3.5 billion exploration deal in the Tengiz oil field over a dispute regarding how quickly it had to make payments to the government." Today, the tune is more harmonious, as the U.S. oil giant projects up to 9 billion barrels of recoverable oil from Tengiz, one of the world's largest oil fields.
Oil is bigger money than uranium, and provides a great source of revenues than uranium mining may ever provide to Kazakhstan. We reviewed the Economist Intelligence Unit's assessment of Kazakhstan for further chilling of any strong interest we had about investing in this country. The internationally respected magazine warned of a danger of political in-fighting in the future. The country risk assessment cautioned the political outlook could be harsh over the coming years. As with most dictatorships, even one where the "president" was elected, opposition forces vie to dethrone him. For now, the country's iron-fist has brushed off potential challengers and may be preparing his "dynastic successor." In May 2005, the Economist advised this may point to a rocky road ahead for Kazakhstan.
On the highly publicized production ramp up, there are more than a few industry skeptics. UxC president, Jeff Combs, whose consulting firm establishes the widely followed weekly spot uranium price, told us about Kazakhstan, "They definitely will continue to increase production, but perhaps not at the rates they are advertising. They've produced a lot in the past, in the old Soviet Union days. I think they can get back up to those production levels, but it's going to take some time." Combs explained the Kazak problem further, "One of the things that will slow them down is the infrastructure, including the skilled work force, needed to expand at that rate." He added, "A large part of it is just the time is takes to build the infrastructure, including training workers. You can have all of the investment in the world, but it still takes time to get things done, especially if the infrastructure isn't well developed in the first place."
James Finch is a contributing editor for StockInterview.com and other publications.
http://www.stockinterview.com
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