Texas Uranium to Guide Utilities on Purchase Price

Includes: CCJ, EGRAF
by: James Finch

For uranium stock investors, all eyes are on Corpus Christi (Texas), where privately held Mestena Uranium LLC is headquartered. To the south, in Brooks County, is the company’s Alta Mesa uranium mine. This may be one of the least significant of the 254 counties in Texas with a population hovering around 7,700. Median annual household income in the last census was reportedly less than $19,000. But, one commodity produced in this county continues to set record uranium prices at each of the past few auctions.

By the end of March, Mestena is expected to offer another 100 thousand pounds U3O8 in a sealed-bid auction from the company’s ISR (in situ recovery) mining operations at Alta Mesa. “Bidding is expected to be aggressive,” wrote Nuclear Market Review editor Treva Klingbiel in the March 16th issue. The TradeTech weekly spot uranium indicator remained unchanged for the week as no new transactions or demand was reported. Every Friday, after surveying fuel brokers and utilities for market activity, the consulting service posts changes in the weekly spot uranium price on its website.

“The market is already under upward price pressure due to thin supply,” said Klingbiel. The uncertainty of supply accompanying the recent flooding at ERA’s Ranger mining operations in Australia has not yet worked its way through the market. “Several parties are nearing completion of negotiations of deals,” Klingbiel wrote. With nine buyers hoping to obtain about four million pounds U3O8 equivalent, “more demand (is) on the horizon,” she added. Much of the current demand depends upon how soon ERA can bring Ranger’s operations back to the expected production level.

For now, it appears buyers show willingness to pay more to obtain a fixed price for their supply of uranium. How high will this ‘fixed price’ reach at the next uranium auction? One source told us the next uranium auction would yield triple digits. In an earlier phone conversation we had with Joe Card of American Fuel Resources LLC, he wasn’t as certain. “It will get there eventually,” Card told StockInterview.

Whether the new spot uranium price will reach $100, $110 or an even higher price, some two weeks hence, would mostly rely upon additional and disappointing remediation news from Cameco Corp (NYSE:CCJ) about Cigar Lake or through an interim update from Energy Resources of Australia (OTCPK:EGRAF) confirming an anticipated production loss from the Ranger operations at greater than two million pounds. Of course, either or both companies could surprise with encouraging news about their flooded uranium mines.

StockInterview made numerous attempts to reach Mestena Uranium president George Tanner for a comment or interview. Mr. Tanner's primary operations are in the oil and gas sector, but at these prices one wonders how much more U3O8 Mr. Tanner will offer into the market through the auction method. In a separate interview with Mark Pelizza of Uranium Resources (to be published tomorrow), we were told Alta Mesa was a ‘good-sized deposit.’ This deposit differs from many of the small and scattered one-million pound uranium deposits common in the state.

For now, we suspect Tanner is relishing the impact his modest lots of 100 thousand pounds of U3O8 are stirring up within the uranium mining sector, while at the same time agitating utilities. If the spot uranium price crosses the century threshold in March, his U3O8 would then be worth more than $6/ounce. Do we hear $7/ounce next?

Note: Article was co-authored by Julie Ickes and James Finch

Disclosure: Authors have no positions in the above-mentioned securities.