Active Spot Uranium Demand Dropped by 65 Percent in April

Includes: DUK, ETR
by: James Finch

Trading in the spot uranium market came to a standstill in the latter half of April. According to Nuclear Market Review’s [NMR] month-end report, “Uranium spot market volume was relatively low for the month of April.” Only three transactions, amounting to slightly more than 550 thousand pounds U3O8 equivalent, were reported for the month.

NMR editor Treva Klingbiel wrote, “All three transactions were concluded early in the month.” According to records supplied by TradeTech, uranium transaction volume for the first four months of 2007 stands at the lowest in a decade.

“The severe upward price momentum, witnessed in early April, had largely dissipated by month end,” wrote Klingbiel. “Sellers became even more reticent to submit spot offers.” The drop in demand could also have been impacted by the upcoming NYMEX uranium contracts, as many wait for developments and liquidity in the futures markets.

Since the NMR month-end report for March, active uranium supply increased slightly to 1.9 million pounds U3O8 equivalent. The supply-demand ratio jumped in April to 1.5 compared to the previous month, when the ratio stood at 0.4. For the first time this year, there is a greater active uranium supply than demand for yellowcake.

Treva Klingbiel added, “The spot uranium market was extremely slow during the second half of the month.” Near the end of April, new uranium demand for August delivery emerged, but only for a modest lot of 250 thousand pounds U3O8.

Although the spot U3O8 price jumped to US$113/pound during April, the long-term U3O8 price indicator failed to budge. Long-term uranium remained at US$85/pound.

At Monday’s NYMEX educational seminar, which was held to prepare money managers and others for uranium futures trading, we were told that several utilities attended the New York City seminar. Nuclear Utilities, which sent representatives, included Entergy (NYSE:ETR), Duke Energy (NYSE:DUK), Progress Energy (PGN) and PPL Susquehanna LLC.

According to statistics supplied to us by the Nuclear Energy Institute [NEI] in a report dated April 20th, there were sixteen U.S. nuclear reactors in refueling outages during April. Five finished refueling during the week of the report, and four are undergoing maintenance.

Australian Uranium Stocks in Uncharted Territory

According to Matthew Smith of chart-tracking service, “The Australian Index seems to be forming a base, and at this point one cannot determine whether it will move down or is getting ready to move higher.” Smith pointed out, “We are now in uncharted territory.”

Smith, who is not a registered investment advisor, suggested:

I would focus on companies with deposits or projects in South Australia or the Northern Territory. The local government in South Africa is very receptive to uranium mining and exploration, and the Northern Territory is governed by the Federal Government. South Australia is going to fast track something like 100 projects now (exploration stage).

He admitted, when referring to companies hoping to develop uranium properties in other states, “Queensland and Western Australia scare me at this point.”

Of specific Australian stocks, Smith favors Compass Resources [CMR.AX], PepinNini Minerals [PNN.AX], and Curanoma Energy Limited [CUY.AX].

“Compass Resources could provide investors an interesting play in the Northern Territory as they are looking into spinning out their uranium properties into a new company,” Smith told StockInterview. “They actually have a deposit with 14.5 million pounds at a cut-off grade of 0.5lbs/ton U3O8 in the Northern Territory. Theoretically, they could be one of the first to bring on a new project.”

Smith remained committed to PepinNini Minerals. “This company could have the fifth mine after Uranium One [TSX: SXR] starts their Honeymoon Project. PepinNini could have some downward pressure in the coming weeks as 36 million shares came available for sale by the company’s executive.”

Rounding out his top Australian favorites, Smith said of Curanoma, “It has had a really nice run-up and has been one of the top performers in the Australian Index.” Smith also invests in both Canadian and Australian uranium stocks found in his indexes.