Prices have moved down from that speculative high to today’s price of about $40.00 a pound. But conditions look favourable for higher long-term uranium demand.

Risks and rewards of Canadian uranium stocks

Many emerging countries, such as China, India and Russia, are increasing their nuclear-power use as they switch from power plants that run on coal and oil. For example, China plans to build at least 60 nuclear power plants by 2020, including 24 that are currently under construction.

That’s brightening the prospects of one of the Canadian uranium stocks we’ve long covered in our Stock Pickers Digest newsletter. This company recently signed a big deal with a Chinese nuclear-power utility. Read on for further details.

In addition, there are now 59 nuclear-power plants under construction worldwide (including the 24 Chinese plants). That’s up from 34 in 2008 and 32 in 2007.

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While these factors look promising, investing in Canadian uranium stocks does entail some unique risks. With any mine, for example, there is a long lead time from exploration and discovery to production. That’s especially so with uranium, which needs extra regulatory approval because of its radioactivity.

Cameco: A world-dominating Canadian uranium stock that’s expanding production

In a recent Stock Pickers Digest hotline, we updated our buy/sell/hold advice on the world’s largest uranium producer, Cameco Corp. (Toronto symbol CCO).

The company supplies over 18% of global production. Most of the Canadian uranium stock’s uranium comes from its 70%-owned McArthur River mine and the Rabbit Lake mine, both of which are in Saskatchewan’s Athabasca Basin. It also owns the Crow Butte and Highland mines in the U.S.

Cameco is now developing Cigar Lake, the world’s richest unmined uranium deposit. The Cigar Lake mine could eventually produce more than 10% of global output. Production will likely begin in 2013.

Big Chinese contract adds growth prospects

The stock has moved up since June 24, 2010. That’s when the company announced its first major long-term uranium-supply agreement with a Chinese nuclear utility.

Under the agreement, Cameco will deliver 23 million pounds of uranium oxide to China National Nuclear Corp. (CNNC) by 2020. At current levels, that equals roughly one year of Cameco’s production.

CNNC is China’s largest nuclear-power producer. The state-owned company operates seven reactors with a total capacity of 5,100 megawatts. As well, it is building 10 of China’s 24 new reactors. Together, these new reactors will be capable of producing an additional 9,100 megawatts.

Separately, Cameco recently announced that it signed a memorandum of understanding with China Guangdong Nuclear Power Holding Co. (CGNPC). That will give Cameco the opportunity to negotiate a long-term supply agreement with CGNPC. The companies may also jointly develop some uranium mines.

CGNPC is China’s fastest-growing nuclear producer. Right now, it operates two nuclear-power stations with a total capacity of 4,000 megawatts. CGNPC is also building the remaining 14 new Chinese nuclear-power stations. That’s expected to push up its generating capacity to more than 50,000 megawatts by 2020.

You can get our latest buy/sell/hold advice on Cameco and dozens of other stocks that may be suitable for the part of your portfolio you devote to aggressive investing in Stock Pickers Digest. What’s more, you can get one month free when you subscribe today. Click here to learn how.

For example, in a recent issue of Stock Pickers Digest, we updated our buy/sell/hold advice on a junior mine that’s risen more than 300% for us in the past year. See below for further details on this up-and-coming diamond producer.

Keep risk in mind with junior mining stocks

Even though junior mining stocks have strong profit potential, they entail higher risk than more established mining companies, for a number of reasons.

For one, the odds that a junior mine will find an “anomaly,” or a geological formation that might attract a prospector’s interest, are slim. One rule of thumb is that you have to look at 1,000 anomalies to find one prospect. And fewer than one prospect in a thousand turns into a mine. In other words, finding a mine is a million-to-one shot.

Another reason is that it’s much easier to launch and promote one of these stocks than it is to build a profitable business. So junior mines attract more than their share of unscrupulous operators and stock promoters.

These 5 keys will help you cut your risk — and improve your profits — in junior mining stocks

Here are 5 guidelines we use to pick junior mines to recommend in Stock Pickers Digest. We’re sure they can help you find the gems among the rocks in this fast-changing industry:

1. We look for well-financed junior mines with no immediate need to sell shares at low prices. That’s because doing so would dilute existing investors’ interests.

2. We like mining stocks with strong balance sheets and low debt. Junior mines should have a major partner who can finance a mine to production.

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3. We want to see mining firms with experienced management with a proven ability to develop and finance a mine.

4. When we recommend mining stocks, we want to see positive cash flow, preferably even when commodity prices are low. Even better, we like to see mining companies that have cash flow from an existing mine that is sufficient for, or at least contributes to, the cost of developing a second mine.

5. We avoid mining stocks that trade at unsustainably high prices because of broker hype or investor mania. Instead, we focus on reasonably priced mining stocks with favourable geology.

Good news keeps coming for this junior mine

Stornoway Diamond Corp. (symbol SWY on Toronto), one of the junior mines we cover in Stock Pickers Digest, matches up well with our 5 keys. However, it’s not a perfect match. That’s why we took a close look at the stock in a recent issue of the newsletter.

The company owns 20 diamond-exploration properties across Canada. Gold producer Agnico-Eagle (Toronto symbol AEM) holds a 15.8% interest in Stornoway.

Stornoway’s projects include a 50% interest in the Renard diamond project in Quebec. The company recently revealed an updated preliminary economic assessment that predicts Renard could be nearly twice as profitable as expected.

Stornoway now envisions a bigger mine at the site. This mine would produce almost 30 million carats of diamonds over its 25-year life. At today’s prices, these diamonds would be worth a total of about $4 billion. There is also potential to further expand the mine’s reserves through exploration.

The company aims to complete a full feasibility study and make a production decision by the end of 2011. If it goes ahead, Renard could become Quebec’s first diamond mine.

For our latest buy/sell/hold advice on Stornoway and dozens of other companies that could be suitable for the part of your portfolio you devote to aggressive investing, you should subscribe to Stock Pickers Digest. Best of all, you can get one month free when you subscribe now. Click here to learn how.

The company earned $0.01 a share in the three months ended December 31, 2009. A year earlier, it lost $0.12 a share. Breakwater’s cash flow was $0.016 a share in the latest quarter.

Early last year, Breakwater raised $23 million in a share issue. That let the company pay off $16 million of debt that was due immediately. It now holds cash of $41.8 million, and has $8 million of long-term debt.

Zinc is trading around $1.08 U.S. a pound, up 68.8% from $0.64 a year ago, but below its late-2006high of over $2.00.

Breakwater’s shares could rise sharply if zinc prices keep moving up along with an economic recovery. That’s because Breakwater’s cash flow per share rises $0.02 for every $0.10 a pound of zinc rises.

However, a rapid fall in the price of zinc would lower Breakwater’s cash flow just as fast.

The shares trade at just 2.4 times the $0.16 a share that the company is likely to earn this year.

Breakwater is a buy, but for highly aggressive investors only.

AMERIGO RESOURCES $0.85 (Toronto symbol ARG; SI Rating: Speculative) (604-681-2802; www.amerigoresources.com; Shares outstanding: 170.9 million; Market cap: $145.3 million; No dividends paid) has jumped 148.6% over the last year on higher copper and molybdenum prices. Copper is up 73.3% during that period, to $3.47 U.S. a pound. Molybdenum is up 116%, to $17.50 U.S. a pound.

Amerigo processes copper and molybdenum from the waste rock from Chile’s El Teniente, the world’s largest copper mine. The company gets 94% of its revenue by processing copper. The remaining 6% comes from molybdenum.

In the three months ended December 31, 2009, Amerigo’s revenue was $33.9 million. (All figures except share price and market cap in U.S. dollars.) Because of one-time accounting adjustments, year-earlier results are not comparable. The company earned $3.9 million, or $0.03 a share, in the latest quarter. Cash flow was $6.4 million, or $0.05 a share.

Amerigo’s total debt of $21.3 million is a manageable 14.7% of its market cap. It also holds cash of $17.9 million, or $0.10 a share.

An 8.8-magnitude earthquake hit Chile on February 27. As a result, Amerigo lost about seven to 10 days of production. However, its operations have continued uninterrupted since then.

The company’s long-term outlook is bright, and copper and molybdenum prices should continue to benefit from an improving global economy.

Amerigo is a buy, but only for aggressive investors.

Stornoway now envisions a bigger mine at the site. This mine would produce almost 30 million carats of diamonds over its 25-year life. At today’s prices, these diamonds would be worth a total of about $4 billion. There is also potential to further expand the mine’s reserves through exploration.

The company aims to complete a full feasibility study and make a production decision by the end of 2011. If it goes ahead, Renard could be Quebec’s first diamond mine.

Stornoway Diamond Corp. is still a buy for highly aggressive investors.

The purchase is small for Major Drilling, but it lets the company enter the environmental and geotechnical drilling businesses. Environmental drillers recover soil and groundwater samples to determine if they are contaminated. Geotechnical drillers investigate the type and stability of soil.

Major Drilling plans to immediately invest $5 million to expand SMD’s operations.

Major Drilling is still a buy.

(In a recent Stock Pickers Digest hotline, we updated our buy/sell/hold advice on a junior mine that’s risen more than 50% in the past six months, Baffinland Iron Mines. It’s got an iron-ore project with strong potential on remote Baffin Island. Read on for further details.)

Despite the strong potential of top junior mining stocks, it’s important to remember that these stocks are among the riskiest you can buy. That’s why we think it’s a mistake to load your portfolio up with these highly volatile companies. Instead, make sure your investments are diversified by spreading your holdings out across the five main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities).

However, junior mining stocks can play a role in a portion of your portfolio, specifically the part you devote to aggressive resource investments.

Here are five things we look for when we analyze junior mining stocks for our investment services, including Stock Pickers Digest, our newsletter for aggressive investing:

1. We like to see well-financed junior mines with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. Even better, we like to see a major partner who can finance a mine to production.

2. We want to see experienced management with a proven ability to develop and finance a mine.

My #1 Aggressive Stock Pick: In this special report, I reveal a company with such explosive potential that it could make you profits of 50% to 100% over the next 12 months -- and I believe if you hold it for a couple of years it could triple in value. You get this exclusive report and much more when you subscribe to Stock Pickers Digest today. Click here to learn how you can start profiting from Stock Pickers Digest right away.

3. We avoid junior mines that trade at unsustainably high prices as a result of broker hype or investor mania.

4. We compare the market cap of the junior mines with the estimated value of their assets or future earnings stream. Some need to quickly find or develop a mine to justify the current share price and avoid collapse.

5. We automatically rule out investing in juniors that promote themselves too aggressively, or do so misleadingly. Success is more likely if the managers focus on finding a mine, rather than touting their stock.

Baffinland seems to match up well with these standards. However, its commercial success is still unproven. That’s why we continue to keep a close eye on its progress in Stock Pickers Digest.

Baffinland may soon have the funds to tap into a rich vein of iron ore

Baffinland is focused on developing its Mary River iron ore project on Baffin Island. The company aims to spend four years building an open-pit mine at Mary River. It then plans to produce 18 million tonnes of ore a year for 21 years.

The company still needs to find a partner to help pay for the project’s $4-billion price tag. However, Baffinland seems to be making progress on this front. It recently said that as many as 20 companies have expressed interest in the project, including major Chinese firms. As well, the German government has declared the project eligible for $1.2 billion in loan guarantees. And German steelmakers have signed contracts to buy most of the mine’s iron ore.

If Baffinland could find a partner to put up $1 billion of the necessary funding, it could then take out loans to cover the rest. However, aside from a suitable partner, the project needs a continued economic rebound and a rise in steel demand to keep to schedule.

For our latest buy/sell/hold advice on Baffinland and dozens of other companies that could be suitable for the part of your portfolio you devote to aggressive investing, you should subscribe to Stock Pickers Digest. Best of all, you can get one month free when you subscribe now. Click here to learn how.

The company has reduced its total debt by $6.7 billion since it borrowed $9.8 billion U.S. to buy Fording Canadian Coal Trust in October 2008. Sales of gold mines and other assets helped Teck raise cash for debt repayments.

As well, Teck sold $1.7 billion of class B subordinate-voting shares (which carry one vote per share) to a Chinese sovereign wealth fund. This fund now owns 17.5% of Teck’s class B shares, and has a 6.7% voting interest. Insiders still control 61.8% of Teck’s total votes through class A multiple voting shares (100 votes per share). Despite the dilution caused by the extra shares, this investment is helping Teck win new supply contracts from Chinese steelmakers.

Teck’s $6.4 billion (Canadian) of long-term debt is a manageable 26% of its market cap. As well, rising prices for coal and other commodities should give Teck more cash to keep lowering its debt.

Meanwhile, Teck earned $1.8 billion in 2009. That’s up 162.0% from $668 million in 2008. Because of the extra shares outstanding, earnings per share rose 122.4%, to $3.27 from $1.47. However, if you exclude gains on sales of assets and other unusual items, overall earnings fell 44.8%, to $924 million from $1.7 billion. On that basis, per-share earnings fell 53.2%, to $1.73 from $3.70. Cash flow per share fell 47.1%, to $4.26 from $8.05.

Every year, Teck negotiates new coal contracts with its major customers. The company, along with other big coal producers, now wants to switch from annual deals to quarterly contracts. That would let coal producers take better advantage of rising coal prices as the global economy recovers.

However, coal producers may have to offer their customers discounts to get them to agree to this change. Still, the switch would improve Teck’s long-term prospects.

Teck’s 2010 earnings should improve to $3.29 a share. The stock trades at 12.8 times that estimate. It also trades at just 7.3 times its projected cash flow of $5.75 a share.

As well, Teck’s improving earnings should let it resume paying dividends in the next year or two.

Teck Resources is a buy.

Cameco gets most of its uranium from its 70%-
owned McArthur River mine and the Rabbit Lake
mine, both of which are in Saskatchewan. The company
also owns the Crow Butte and Highland mines in
the U.S.

Through subsidiaries, Cameco holds a 31.6% interest
in Ontario’s Bruce Power partnership, which operates
four of the eight reactors at the Bruce plant, North
America’s largest nuclear-power complex.

In the three months ended September 30, 2009,
Cameco’s earnings (excluding one-time items) fell
18.1%, to $104 million from $127 million. Earnings
per share fell 29.7%, to $0.26 from $0.37, on more
shares outstanding. Revenue fell 4.8%, to $694.1 million
from $728.9 million. Lower uranium prices offset
improved electricity sales and prices.

In December 2009, the company sold its 48.5%
stake in Centerra Gold Inc. (Toronto symbol CG) for
$871 million. When added to Cameco’s cash holdings,
the sale gives the company about $1.3 billion.

Cameco could use some of these funds to buy properties
or companies related to its core businesses.
Many of these are trading at attractive prices because
of the weak economy.

Cameco is still a buy.

NORTHGATE MINERALS CORP. $2.85 (Toronto
symbol NGX; SI Rating: Speculative) (604-681-4004;
www.northgateminerals.ca; Shares outstanding: 290.5 million;
Market cap: $827.8 million; No dividends paid) is focused on
developing its Young-Davidson property in northern
Ontario.

The company recently completed a positive final
feasibility study that envisions a $339-million gold
mine starting up on the site in 2012. The mine would
produce 180,000 ounces per year. After two years, this
would rise to 190,000.

Northgate also owns and operates the Kemess
South open-pit mine in north-central B.C. However, it
expects to exhaust the ore at Kemess South by late
2010.

To replace Kemess South, Northgate paid $257 million U.S. for Australian gold miner Perseverance Corp. in 2008. Perseverance produces roughly 225,000 ounces of gold a year from two mines, both of which are in Australia. Northgate aims to keep raising this total, while cutting costs at Perseverance’s mines.

In the three months ended September 30, 2009, Northgate’s revenue rose 21.1%, to $120.2 million from $99.3 million, largely due to the Perserverance purchase. (All figures except share price and market cap in U.S. dollars.) Cash flow per share was $0.15.

Northgate expects all of its mines to produce 316,000 ounces of gold this year.

In the near term, Northgate’s Kemess South mine and the Perseverance mines are generating steady cash flow. Young-Davidson adds growth prospects.

Northgate is a buy.

That’s one reason why junior mining stocks are highly speculative. Another reason is that it’s much easier to launch and promote one of these stocks than it is to build a profitable business. So junior mines attract more than their share of unscrupulous operators and stock promoters.

But there are little-known ways to cut your risk. Here are 9 “secrets” we use to pick junior mines to analyze in our Stock Pickers Digest newsletter. We’re sure they can help you find the gems among the rocks in this fast-changing industry:

1. We generally stay away from mining companies that operate in insecure and politically unstable regions like the Congo, Venezuela and Colombia. We also avoid those in countries with little respect for property rights and the rule of law, like Russia or Mongolia. That’s because mining is vulnerable to political instability. You can’t move the mine to another country, and local citizens sometimes believe that a foreign mining company is robbing them of their birthright, even though they need the foreign company’s capital and expertise to get any value out of the ground.

2. We look at environmental constraints where the junior mines are looking for minerals. In Europe and certain parts of the U.S., junior mines need a particularly rich find to justify the costs of overcoming environmentalists’ objections.

3. When we recommend junior mines that only explore for minerals, we prefer those that operate in an area with geology that is similar to that of nearby producing mines.

My #1 Aggressive Stock Pick: In this special report, I reveal a company with such explosive potential that it could make you profits of 50% to 100% over the next 12 months -- and I believe if you hold it for a couple of years it could triple in value. You get this exclusive report and much more when you subscribe to Stock Pickers Digest today. Click here to learn how you can start profiting from Stock Pickers Digest right away.

4. We look for well-financed junior mines with no immediate need to sell shares at low prices. That’s because doing so would dilute existing investors’ interests. The best junior mining firms have a major partner who has agreed to pay for drilling, or other exploration or development, in exchange for an interest in the property.

5. We like mining stocks with strong balance sheets and low debt.

6. When we recommend mining stocks, we want to see positive cash flow, preferably even when commodity prices are low.

7. Even better, we like to see mining companies that have cash flow from an existing mine that is sufficient for, or at least contributes to, the cost of developing a second mine.

8. We want to see mining firms with experienced management that has a proven ability to develop and finance similar projects by working with other junior-mining companies.

9. We avoid mining stocks that trade at unsustainably high prices because of broker hype or investor mania about the underlying commodity (such as gold). Instead, we focus on reasonably priced mining stocks with favourable geology.

If you’re interested in junior-mining stocks, you shouldn’t be without a subscription to Stock Pickers Digest. The newsletter analyzes dozens of stocks that would be suitable for the part of your portfolio you devote to aggressive investments. Its selections include several mining firms that could explode for big profits. Click here to learn how you can get a one-month free trial.

The drop was caused by a fire at an upgrader, which converts the tar-like bitumen into refinery-ready crude. The outage has forced Suncor to cut daily production at its main oil-sands project north of Fort MacMurray, Alberta. However, the lower output should have little impact on the company’s cash flow. Suncor expects to complete repairs by the end of January 2010.

Suncor Energy is a buy.