<div id="subtitle">China interest focuses investor sights on junior uranium and potash stocks</div><div><p>Junior agriculture and uranium players may soon see signs of life as China tries to buy out a small TSX uranium player in Mongolia and BHP and Vale expand their hunt for potash and phosphates. </p><p>Uranium </p><p>Monday morning it was announced that a subsidiary of China National Nuclear was interested in buying out Khan Resources (TSX: T.KRI, Stock Forum). Khan's asset of interest is a uranium project in Mongolia that has been the subject of other takeover attempts since November. In typical market fashion (of being wrong) you couldn't give Khan away in the 0.30s and 0.40s for much of 2009. This stock traded near its cash value of 30 cents for the longest time but the market discounted its uranium assets to zero. </p><p>Through my newsletter we speculated on this stock in the 20s just prior to the first takeover in late November, but we made the mistake of thinking a65 cent offer was fair value. Unfortunately the discount we applied to Mongolia was excessive. Neighbouring China is obviously more than happy to assume the risks of doing business in Mongolia. </p><p>This is not the first time we have seen China buying a junior Canadian exploration company and it for sure will not be the last. China continues to put its huge war chest of cash to work in an effort to secure a large basket of commodities. The Khan property attracted interest from the Chinese, the Mongolians, and the Russians. It was a strong endorsement for the junior uranium sector as a whole. </p><p>Our personal favourite from a risk perspective is Western Uranium (TSX: V.WUC, Stock Forum). </p><p>The company is very well funded and provides exposure to lithium, uranium, and gold. </p><p>Its cash at the end of September was $46 million and after estimating expenditures for the past four months and allowing for the extra 1.5 million shares of WLC bought at 95 cents in October, the company should have cash near $43 million for January. This is worth 73 cents per share and its large ownership interest of Western Lithium (TSX: V.WLC, Stock Forum) is worth anywhere from 40 to 60 cents per share. Western Lithium is tough to value as it currently trades near $1.70, was worth $2.40 a couple weeks ago, and I have seen analyst targets of $4. </p><p>From the MD&A (Management discussion and analysis), here is where the remaining value lies. It currently carries NIL value by the market because the stock trades well below the cash and value of WLC stock. </p><p>1) The company owns an 80,000 acre project in Nevada called Kings Valley that hosts uranium and potentially gold. Western Uranium has worked this property for several years but has been delayed with permitting for the past couple of quarters (something they hope to resolve soon). WUC believes that the geologic setting of the McDermitt Caldera (cauldron like volcanic feature) is similar to that of the Streltsovka Caldera in Transbaikalia, Russia which hosts reported uranium resources of greater than 600 million pounds in 20 deposits. </p><p>2) WUC recently acquired 14,000 hectares located in the La Rioja province of Argentina that demonstrate strong potential for hosting uranium mineralization. In addition, the agreement extends to any other uranium properties identified by the HB syndicate within Argentina. The Cateos cover areas that are similar geologically to the producing basins in the Western United States that have been mined and have produced hundreds of millions of pounds of uranium. However, these areas have not been subjected to the intense level of exploration or mining as by the private sector as in the United
States. </p><p>3) The company has an option agreement with AuEx Ventures (TSX: T.XAU, Stock Forum) to earn a 70% interest in the Baza property in southeast Spain. The project exhibits potential for discovery of one or more gold and copper deposits. The company believes this property represents a sound opportunity to explore a property with widespread indications of hosting a large mineralized system. This is an area that has not been subjected to modern exploration methods. The project is in a region that was historically mined for iron. The last iron mine closed in 1992 but there are no records of copper and gold being exploited. Significant quantities of gold and copper are found in many samples taken from various small mine workings and dumps scattered over the entire 25 kilometre length of the project area, suggesting that both commodities were not recovered during any of the historic periods of small scale mining activity. </p><p>Currently two areas have been identified, Cerro del Gallo and El Valenciano, that with some additional field work will be drill ready by first quarter of 2010. Individual rock chip samples have returned gold values up to 20.0 g/t and copper values up to 10%. Due to the large size of the property and the number of areas that have significant amounts of mineralization at surface, drilling programs will be conducted in several phases. The first phase of drilling will be focused on testing near surface gold/copper targets at the main two areas identified. A ground magnetic survey is currently underway over Cerro del Gallo which will supplement the geochemistry and geologic mapping to assist in defining drill targets. A larger airborne survey designed to cover the entire project area is in the planning stages and is planned for the latter part of the second quarter of 2010. </p><p>Agriculture </p><p>With more than 2 billion people in China and India, these developing countries will fuel long term demand for agriculture products and services. This is also the reason we have seen huge interest in the sector over the past few months. The Chinese have recently made potash acquisitions in Saskatchewan, and two large Saudi companies started a joint venture to move phosphates from a large port in their region, and in the past week we have seen BHP paying $341 million for Canadian based Athabasca Potash (TSX: T.API, Stock Forum) and Vale spending $3.8 billion to get access to phosphate and fertilizers through Bunge in Brazil. </p><p>Studies have shown that as developing countries invest heavily in highways, ports, construction, etc., their investment in food production (meats, grains, etc.) lags. China is already eating more protein, but on a per capita basis is much lower than other nations. Growing crops is not just for human consumption but necessary in feed for animals. This requires huge amounts of potash and phosphates. </p><p>We have seen prices in this sector weaken throughout 2008 and 2009 but lately Wall Street analysts have been bullish on Potash Corp (NYSE: POT, Stock Forum); (TSX: T.POT, Stock Forum) and Mosaic (NYSE: MOS, Stock Forum). </p><p>Phoscan (TSX: T.FOS, Stock Forum), has almost $65 million in the bank (about 40 cents a share) and owns a large undeveloped phosphate project that currently carries NIL value by the market - yet Phoscan has spent almost $80 million on it. The capital costs to develop are too high for a company like Phoscan but renewed interest in this sector (as we're seeing lately), may eventually spark interest by overseas investors. In the interim, FOS is also looking for oil & gas projects to utilize this hoard of cash. </p><p>Market & economic insight: From a large list compiled over the past decade, we track the world's best money managers, market strategists, and economists. Weekly we summarize some of the most relevant insight. </p><p>Current rating: 46% cautious / 29% bearish / 25% bullish </p><p>Note: While the negative commentary was in full force last week, only a small handful forecast a strong recovery heading into February - no one saw Monday's strong rally coming but we'll see how well it holds up this week. </p><p>According to Harvard economics professor Kenneth Rogoff, there are huge debt problems brewing in Europe, while the U.S. is facing the prospect of more job losses before the employment landscape shifts. “If you took away the props of the (European Central Bank) and the (International Monetary Fund) half a dozen countries in Europe would fail tomorrow,” He still expects that aggressive policies should keep growth reasonably strong in 2010. </p><p>Nouriel Roubini, also known as "Dr Doom” forecast these same problems would create a U-shaped recession and very slow recovery. </p><p>Marc Faber (a well known bear) restated his negative market outlook and this was echoed by brilliant money manager Jeremy Grantham who said the market was overbought, overvalued, and the real economy remained weak. The economy has stabilized, but isn’t really expanding. With unemployment staying at a relatively high level and with the revenue side being weak, I don’t think that corporate profits will be great in 2010. Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak. </p><p>S&P chief investment strategist Sam Stovall is among those who believe that earnings during the past couple of weeks present a positive tilt. </p><p>Analyst David Rosenberg notes that despite all the economic stimulus in the United States, people still aren't buying homes, so you can imagine what will happen when that stimulus is removed. </p><p>Charles Schwab Chief Investment Strategist Liz Ann Sonders thinks a correction will hit the stock market in the near term. She’s optimistic on the economy, however, and says current equity valuations aren’t bad. "I think we’ll see more corrective phases like the one we seem to have gotten a signal of last week. While they’re not undervalued like they were last year at this time, stocks aren’t overvalued. At best, we’re reasonably valued." </p><p>Tobias Levkovich, North American strategist with Citigroup, said the earnings environment in late 2010 and 2011 may be “under pressure” from the expiration of Bush tax cuts this year, the $1.35 trillion expected fiscal budget deficit, and the a clamp on Federal spending. Levkovich says trade policy is the next big issue to watch: "Structural unemployment could lead to increased anti-trade sentiment as joblessness resonates in political circles and the yuan-dollar peg is part of the problem. Moreover, powerful trade surpluses in Germany could further contribute to pressure to restrict imports from Europe. In addition, high unemployment rates in parts of Europe may also drive an anti-China wave." </p><p>Disclosure: Danny Deadlock owns 30,000 shares of WUC and 35,000 shares of FOS. </p><p>To send an email (tips, rumours, research) for consideration in the StreetSignal report, please contact Danny at microcap(at)telus(dot)net or post directly to our moderated message board.. You can also get further information at www.streetsignal.com </p><p>Danny Deadlock has specialized in microcap and smallcap companies for over 25 years and is a registered member of the Stockhouse community since 1997. You can find his website at www.MicroCap.com - a service which has specialized in TSX and TSX.V penny stocks since 1998. </p><p> </p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=68286530&bid=informcom" /></div><div id="copyright"><div>

Copyright 2010  <a href="http://www.stockhouse.com">Stockhouse</a></div></div>