| The big question now being asked by investors, | | | | of Merrill Lynch forecast an average price of $75 |
| institutions, uranium speculators, fuel brokers, uranium | | | | pound in 2007 and $80/pound in 2008. The analysts |
| miners, industry consultants and utilities is: 'How high | | | | stated, "We don't see a major trigger on the horizon |
| will the price of uranium reach during 2007?' Growth | | | | that will force spot prices down." Adam Schatzker of |
| in the uranium sector continues to depend upon ever | | | | RBC Capital Markets remarked, "There is not a lot of |
| more convincing confirmatory evidence of global | | | | mine production. The inventories being sold into the |
| warming, caused by excessive fossil fuel use, in order | | | | market are disappearing and we're actually in a |
| to accelerate broad public demand for the expansion | | | | supply-demand deficit." He predicted the uranium price |
| of nuclear energy as a replacement source for | | | | would average $100/pound in 2007. |
| electricity. | | | | Canada's Scotiabank Vice President of Economics |
| In that context, it was a fitting end to 2006 when | | | | Patricia Mohr, who told us at the Platts Energy |
| Associated Press reported the Ayles Ice Shelf had | | | | Conference in September of a secular change in the |
| broken away from Ellesmere Island in Canada's | | | | global energy markets, forecast $80/pound average |
| northernmost shore, where polar bears are | | | | through 2007 and a year ending price close to $90 |
| reportedly drowning from the lack of ice to rest | | | | pound. She commented, "There has been little |
| upon. This 41-square mile block was one of six | | | | improvement in mine production." |
| remaining ice shelves in Canada's Arctic, some 800 | | | | In September, Mohr told us the uranium price would |
| miles from the North Pole. To put this into | | | | end above $60/pound, but in light of the Cigar Lake |
| perspective, the ice chunk was larger than New York | | | | episode, she has joined other analysts in ratcheting |
| City's Manhattan Island - about the size of 11,000 | | | | up her estimates. The same is true of Raymond |
| football fields. By next summer, oil and gas drillers | | | | James analyst Bart Jaworksi, whose latest estimates |
| may find the ice shelf interrupting their production | | | | show an average uranium price of $90/pound for |
| and explorations; shippers may need to re-route to | | | | 2007 and an average of $100/pound for 2008 and |
| avoid collisions. | | | | 2009. But, Jaworski did not budge from his price |
| While this news passed by generally unnoticed, a new | | | | forecast of an average uranium price of $60/pound |
| record January temperature in Manhattan's Central | | | | for 2010. |
| Park was widely reported. Global warming closer to | | | | Who can accurately and honestly forecast how much |
| home, as opposed near the Arctic Circle, obviously | | | | new mining production can come online by 2010? We |
| carries more weight. Juxtaposed against December's | | | | have been warned that Kazakhstan and Olympic |
| bizarre near-hurricane-like winds in the Pacific | | | | Dam should alleviate the tight supply situation. This |
| Northwest and three winter blizzards in Denver within | | | | was after being lectured to, by a Florida Power and |
| three weeks, cynics still dismissing abrupt climate | | | | Light utility vice president, about how quickly Cigar |
| change should wake up and smell the CO2. (Perhaps | | | | Lake would come online. In late October, nearly all |
| some should visit downtown Beijing for a ruder | | | | industry insiders discovered Cigar Lake wasn't the |
| awakening on this subject.) | | | | sure thing they expected. Following Sprott Asset |
| According to a 2002 report in the Christian Science | | | | Management Market Strategist Kevin Bambrough's |
| Monitor newspaper, three key countries - China, India | | | | guidance on the uranium price, anything is possible |
| and the United States - collectively plan to build more | | | | during the 2007 to 2010 time frame. Last spring, |
| than 800 coal-fired plants by 2012. These would emit | | | | Bambrough cautioned the Cigar Lake delays might |
| an additional 2.7 billion tons of carbon dioxide into the | | | | stretch out longer than expected. |
| atmosphere. Ironically, the Kyoto Protocol countries | | | | There are other troublesome areas which could |
| had proposed "reducing" CO2 emissions by a mere | | | | sustain a higher uranium price. According to John |
| 450-plus million tons by 2012. Climate change, global | | | | Busby, who writes an energy column for UK-based |
| warming and political tomfoolery worldwide should | | | | Sanders Research, utilities should not yet count upon |
| strengthen the case for stronger uranium prices at | | | | BHP Billiton's Olympic Dam project in Australia. He |
| higher sustainable prices. | | | | believes the feasibility study would not be completed |
| Will 2006 be remembered as uranium's watershed | | | | until 2009, and if the project goes ahead (which he |
| year? If for no other reason, the past year should be | | | | doubts will occur), it would mean four years of |
| marked as the transformation period for uranium | | | | digging to reach the first ores at 350 meters, after |
| mining projects. Those exploration and development | | | | shifting three cubic kilometers of rock. |
| uranium companies, which had uneconomic sub-$40 | | | | Busby also told us, in a November email, "The project |
| and $50/pound projects, became very economic | | | | needs Aus $700 million desalination and pipeline, a 400 |
| when uranium began trading north of $60/pound. | | | | MW connection, a rail link, and they will have to shift |
| After spot uranium broke through $70/pound in mid | | | | the airport and expand Roxby Downs." Busby also |
| December, and long-term uranium reached $69 | | | | explained BHP's current underground mine production |
| pound, those once-questionable uranium miners took | | | | is down with falling grades. As others also believe, |
| on shades of becoming potential cash cows within | | | | Olympic Dam is dependent upon the strength or |
| this decade. | | | | weakness of the U.S. economy and the copper price. |
| The Year of the Uranium 'Auction' | | | | Busby believes there might not be new Australian |
| "The year 2006 was undeniably the most | | | | uranium until 2014 at the earliest. |
| extraordinary in the history of the uranium market," | | | | As we have been advised through 2006, Kazakhstan |
| wrote TradeTech Chief Executive Gene Clark in the | | | | remains the wild card for uranium mining production. |
| December 31st issue of Nuclear Market Review. | | | | In an earlier article we reported upon the important |
| "Although there is no open exchange for uranium (in | | | | ingredient used to solution mine in Kazakhstan: |
| contrast to most other commodities), a new market | | | | sulphuric acid. For example, at Cameco's ISL project |
| mechanism evolved with the secondary benefit of | | | | in this Central Asian country, uranium mining might |
| providing such transparency: the (so-called) uranium | | | | annually consume about 2200 truckloads of sulphuric |
| auction." | | | | acid. That amounts to six truckloads of sulphuric acid, |
| Clark explained, "During the year, at least 13 such | | | | daily driven on what were once camel trails to |
| auctions (really, fixed bid price requests) were held - | | | | extract the rich uranium grades found down to 1500 |
| with nearly all resulting in spot market price | | | | feet. And this is one of many hurdles the country's |
| increases." He concluded, "It is clear that these public | | | | miners face. |
| auctions helped establish a level of market price | | | | While the potential for superlative uranium mining in |
| transparency throughout the year. In fact, the | | | | this country exists, how quickly can the government |
| auction results became the definitive word on the | | | | and its foreign joint venture partners construct the |
| price level, especially in the period after the Cigar | | | | infrastructure and mobilize the labor force for such |
| Lake flooding, which created rampant speculation | | | | mining? In emails exchanged with those on the scene |
| about the impact of the event on the market." | | | | in this country, we have been advised to remain |
| During 2006, less than 26 million pounds of U3O8 | | | | cautious and skeptical. |
| equivalent changed hands in the spot auctions. This is | | | | Kazakhstan has euphorically predicted a goal of |
| a relatively small quantity compared to the annual | | | | producing 39 million pounds of uranium by 2010. |
| uranium requirements of more than 175 million | | | | Analysts are questioning this time table. In |
| pounds, or the quarter-billion pounds of uranium | | | | September, Patricia Mohr called the timeline unrealistic. |
| contracted by world utilities in 2005. According to Ux | | | | Merrill Lynch forecasts the country's production might |
| Consulting's Jeff Combs, who presented a paper to | | | | climb to 26 million pounds by 2010. This doesn't |
| the World Nuclear Association Symposium, this past | | | | discount a possible regime change between now and |
| September production from some of the world's | | | | 2010 or later. On Monday, Kazakh's Prime Minister |
| largest uranium mines had fallen short of their targets. | | | | abruptly resigned, possibly because of disagreements |
| His statistics pointed out that actual uranium | | | | and tense relations with the country's strongman, |
| production during the first half of the past year was | | | | Nursultan Nazarbayev. |
| about 5.6 million pounds less than the companies had | | | | Growing Interest in Uranium Mining Sector |
| anticipated they would mine. Subsequently, Combs | | | | Lawrence Roulston wrote in the December issue of |
| downwardly revised the estimated 2006 production | | | | his Resource Opportunities newsletter, "Investors in |
| to 109 million pounds from the previously expected | | | | general are becoming increasingly comfortable with |
| 113 million pounds. So a million pounds auctioned by | | | | the idea that high metal prices are a fixture of the |
| privately held Mestena Uranium LLC in 2006 doesn't | | | | long-term investment outlook. As a result, more |
| even make a dent in the production deficit from the | | | | money is coming into the resource sector, propelling |
| major mines. Combs reviewed production shortfalls at | | | | the uptrend." We agree with Mr. Roulston who |
| Ranger, McLean Lake, Olympic Dam, McArthur River, | | | | expects the extremely bullish ending of 2006 will |
| Rabbit Lake and Rossing. | | | | bridge over into the first quarter of 2007. |
| What will happen over the early weeks of 2007? | | | | One unusual tracking statistic StockInterview has |
| According to TradeTech's latest Nuclear Market | | | | developed since September is the monitoring of |
| Review, "Current spot demand now stands at almost | | | | investor interest in the uranium sector through book |
| 6 million pounds U3O8 equivalent and is expected to | | | | and CD orders for "Investing in the Great Uranium |
| increase over the next few weeks as new demand | | | | Bull Market". Since the release of the uranium guide, |
| emerges." NMR editor Treva Klingbiel explained in the | | | | we have been able to not only determine the |
| January 5th issue, "Several buyers that were | | | | strength, but also the geographic interest, of the |
| considering purchases are now faced with the harsh | | | | uranium sector. Judging by the large and diverse |
| reality of much higher prices and securing less | | | | number of financial institutions across the world |
| material than they initially budgeted for or planned." | | | | ordering this book, we believe the state of the |
| At this time, nineteen buyers are seeking long-term | | | | uranium sector remains intact and very healthy. |
| contracts for 57 million pounds of U3O8. | | | | Since the Cigar Lake disaster, investors and |
| In his "Year of the Auction" essay, Clark made a | | | | institutions from more than 60 countries have been |
| case for subsequent price increases after each spot | | | | ordering the book. The strongest interest for this |
| auction. Investors seem to be trading in anticipation | | | | book is in areas where nuclear energy plays an |
| of the next uranium auction. | | | | important role. Contrary to what some might have |
| Lack of Major New Uranium Production Coming in | | | | believed there is also very strong interest in this |
| 2007 | | | | book in nearly all parts of the United States. For |
| Aside from the announcement by Paladin Resources | | | | many this became an introduction to the uranium |
| and the pre-announcement by SXR Uranium One of | | | | sector - some of whom were unfamiliar with mining |
| commencing uranium mining in early 2007, new | | | | stocks and the natural resource sector. The |
| uranium mining production is unlikely until later in the | | | | feedback about this book has also been |
| year when Energy Metals Corp commences its Texas | | | | overpowering for us. |
| in situ project. None of these are major uranium | | | | Accelerated interest in uranium mining stocks and the |
| mining projects. Although their mining operations | | | | uranium price is encouraging. According to our |
| would very likely benefit their shareholders, the | | | | research there could be more upside in the uranium |
| combined production from these three new uranium | | | | price during the first half of this year. But, can the |
| miners during 2007 would probably not make up the | | | | uranium price reach or surpass the century mark in |
| 2006 production deficit of six of the world's largest | | | | 2007? There could be bumps in the final leg of this |
| uranium mines mentioned in the previous section. | | | | journey. |
| It is no wonder the research analysts are bullish | | | | COPYRIGHT (C) 2007 by StockInterview, Inc. ALL |
| about the uranium price. Vicky Binns and Daniel Hynes | | | | RIGHT RESERVED. |