Near-Term Uranium Market Could Get ‘Very Ugly’

Bids are due in Corpus Christi, Texas on April 3rd for the sealed-bid auction, conducted by Mestena Uranium LLC, for another modest lot of 100 thousand pounds of U3O8. “Buyers are once again expected to compete aggressively for the material,” Nuclear Market Review [NMR] editor Treva Klingbiel wrote in the monthly edition of the nuclear industry trade magazine. “Any material offered at fixed price is highly sought after by potential buyers.”

Earlier this past week, Entergy Corp’s director of nuclear fuel told Dow Jones MarketWatch, “There’s a period where the market is going to be very ugly from a buyer’s standpoint.” The New Orleans-based nuclear utility holds the second largest number of nuclear power plants behind Exelon Corp. Nuclear fuels vice president for Exelon Corp Jim Malone expects the impact of the rising uranium price to impact utilities at some unspecified future date, but not now.

TradeTech’s Price Outlook for April is $95 - $110/pound, compared to the March 31st Exchange Value of $95/pound. According to NMR, no new long-term transactions were reported for March 2007, but one U.S. utility entered the market hoping to obtain more than 2.4 million pounds U3O8 for delivery between 2010 and 2013. A non-U.S. utility is evaluating offers recently received to buy 2 million pounds U3O8 for delivery starting in 2008. Another 12 utilities are seeking or evaluating offers for approximately 37 million pounds U3O8 equivalent for delivery starting this year.

Nuclear Market Review shows the monthly Exchange Value and the long-term base uranium price continue to rise in tandem. Chart Courtesy of TradeTech’s Nuclear Market Review. The consulting service posts weekly changes in the spot uranium price on its website at www.uranium.info

How much strength remains in the uranium price momentum? In a not-yet published interview with Dr. Robert Rich, he told StockInterview that this depends upon whether major mining companies will continue buying, among other factors. During our interview, Dr. Rich discussed his recent role in obtaining material on behalf of an unnamed major mining company to honor clauses in its uranium sales contracts with utilities. According to a bio snapshot published by Yellowcake Mining in a March 5th news release, Dr. Rich has consulted or worked directly for BHP Billiton , Sumitomo Corp, Ontario Power Gen and several utilities, including Yankee Atomic Electric Company (a subsidiary of New England Electric Systems). Dr. Rich was recently announced as a member of the board of directors for Yellowcake Mining Inc.

Courtesy of TradeTech

According to NMR, active supply and demand dropped during March. The corresponding supply/demand ratio for U3O8 stands at 0.4. In a surprise development, two uranium loan transactions were reported in March. Several parties continue to pursue potential uranium loans. TradeTech’s Loan Rate, for the month ending March 31st, remained at 7.50 percent per annum.

Uranium Stock Indexes Moving Higher

Chart courtesy of www.theinvestar.com which tracks both Canadian and Australian stocks. In the Canadian chart, 43 uranium companies – each with more than C$40 million in market capitalization comprise this weekly index. The Australian Index tracks 25 companies, which own uranium assets.

According to TheInvestar Group, Canadian and Australian uranium stock indexes moved higher. Matthew Smith of TheInvestar reports, “Australia closed the week just off of an all-time high reached earlier in the week. Canada seems to be moving along steadily up, and I do not see anything changing right now. Right now the explorers are lagging behind those companies with proven reserves or projects close to production.”

Companies moving closer to production include Forsys Metals, which recently announced a significant resource estimation increase at the company’s 100-percent owned Valencia uranium project in Namibia. The company plans to issue a Pre-Feasibility Study shortly. Forsys plans to follow the success of Paladin Resources in this country.

One widely watched industry development is Strathmore Minerals’ exclusivity agreement with a Fortune Global 500 company. From what we understand, the due diligence is in progress regarding the development of the company’s Roca Honda project and the construction of a uranium mill in the Grants Mineral Belt of New Mexico. Also in the Grants area, independent consulting firm Behre Dolbear & Company affirmed that six properties held by Uranium Resources hold 91.7 million pounds U3O8. One of those properties is also in the Roca Honda area; all six are in the Grants Mineral Belt.

New Mexico continues to heat up as privately held Neutron Energy was issued a permit to drill five holes near Ambrosia Lake. This is the third drill permit issued over the past twelve months in the state of New Mexico. Laramide Resources recently completed drilling in the Lara Jara Mesa area, reporting encouraging results. In a March 21st news release, the company announced, “Currently Laramide is investigating options on how the (La Jara Mesa) project may be permitted and advanced to a production decision, including discussions with other parties to explore the possibility of a new, regional mill facility in the Grant's District. We believe the potential of New Mexico may be underappreciated by the market…”

To date, New Mexico has been largely ignored by investors based upon various geographical misperceptions – mostly the wide difference in sentiment between Cibola and McKinley counties in the Grants Mineral Belt. Investors have not yet realized the political climate has shifted in New Mexico.