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Uranium Spot Price Decline Stops for A Week

Commodities / Uranium Jul 22, 2007 - 09:12 PM GMT

By: James_Finch

Commodities Just when the uranium markets begin to look dull – like they did in the 1980s and 1990s, along comes bad news planting the seeds of renewed interest. In October 2006, it was Cigar Lake. In March 2007, flooding at the Ranger operations attracted more investors.


According to Friday's edition of Nuclear Market Review (NMR), “The spot price held steady this week, in large part, due to the uncertainty created by Cameco's announcement late Friday that its Port Hope (Ontario) conversion facility will be shut down for a minimum of two months.” The weekly industry trade magazine left the TradeTech spot uranium price indicator unchanged at US$129/pound.

News announcing the facility's closure for two months ‘is expected to place significant upward pressure on the spot price,' according to NMR editor Treva Klingbiel. She estimated a ‘minimum loss of 2,000 tU of UF6 production' during the shutdown.

Although Cameco reported the company has adequate inventory to meet its delivery commitments through the end of the year, Klingbiel pointed out, “The psychological impact on the market of this event can not be discounted, given historical experience with previous conversion disruptions.”

Soil within the perimeter walls of the plant was reportedly contaminated with uranium and production-related chemicals. Cameco's conversion facility is located about 60 miles east of Toronto near the Port Hope (Ontario) harbor. Cameco Fuel Services, at 1 Eldorado Place, is about one-quarter mile from the shores of Lake Ontario.

During the previous three weeks, the spot uranium price slid because of weak demand and ample spot supplies. Klingbiel explained, “Sharply rising prices have led to budget constraints that have prohibited some utilities from participating in the spot market.”

More supply is coming into the market, but not in the overpowering quantity some feared, e.g. five million pounds from the U.S. government.

Nearly 200 metric tons of UF6 was offered earlier this week by the U.S. Department of Energy (http://stockinterview.com/News/07182007/DOE-Summer-Uranium-Auction.html ) for delivery by September 21st. This sale represents slightly more than 10 percent of the sizeable amount bandied about in the media a few months ago.

And some buyers are still active. According to NMR, “One non-U.S. utility is expected to enter the market soon to secure approximately 200 thousand pounds U3O8.”

While the uranium market has been quiet, it is far from dead. A week ago, Klingbiel wrote that the underlying fundamentals of the long-term uranium market were instead very much alive.

And it's no wonder considering the realistic length of time many of the newer uranium projects will take to actually become uranium mines.

The Follies of Forecasting Future Uranium Supply

On Thursday, a local newspaper, Northumberland Today, reported rumors of something significant possibly taking place at Cameco Corp's Port Hope conversion facility, and which could also impact local residents. Cameco communications spokesman Doug Prendergast told the reporter on July 18th, “There's nothing major that's imminent.”

The story's headline: Cameco Quashes Rumors.

Prendergast also said, “If there's anything to announce, we get it out immediately. Unless they (employees) know something I don't.” Maybe they did, because…

On Friday afternoon, Cameco issued its third piece of bad news for the week, shutting down the Port Hope facility for at least two months. Earlier in the week, Cameco had announced another delay at the company's Cigar Lake uranium project and lowered estimates on gold production on another property. As has been the case with Cameco in the recent past, at some future point we should be greeted with ‘further developments.'

Although uranium is abundant in many regions around the world, economically and expediently recovering uranium is not as easy as many ‘armchair quarterbacks' suspect.

During this past week, we expanded our commentary about problematic uranium projects, present and future, in the world of uranium mining. Initially, we discussed several potentially ‘tainted' major mining projects in key uranium-producing regions in our Uranium Outlook 2007-2008 (http://bookstore.stockinterview.com/productcart/pc/home.asp ).

Our intent was to help educate many analysts and investors who have taken far too seriously the many forward-looking news releases and overly optimistic power point presentations by uranium mining company executives.

Take for example Citigroup's (NYSE: C) Alan Heap. Our Australian colleagues at FNArena.com often have a few laughs at Mr. Heap's expense, reporting on his seemingly misguided analysis of the uranium market. Out of pity, we sent Mr. Heap a complimentary copy of Investing in the Great Uranium Bull Market. We hoped he would more accurately analyze the commodity which his firm has charged him to accurately report upon.

Although Mr. Heap recently capitulated and upgraded his uranium price forecast – this time to US$100/pound for the next three years – in his early July ‘Mutation to Uranium Utopia' commentary, his long-term analysis is lacking.

Hopefully, uranium miners will skip this next part to avoid uncontrollable chortling.

Mr. Heap wrote, “Barriers to entry for mine production are relatively low. Exploration and mine development are not particularly complex.” As a result of these deep thoughts, Mr. Heap forecast a long-term uranium price of US$25/pound, sometime after 2010.

In an article this past week (http://www.stockinterview.com/News/07182007/Uranium-production-uncertainty.html ), we warned, “Too much water, too little water, politics, greenies, economics, indigenous tribes, desalination plants, NGOs, camel trails, regulators and rebels are but a few of the land mines analysts face when hoping to forecast long-term uranium price peaks.” We also cautioned, “The safest bet is seemingly against future uranium production.”

We wrote this because developing uranium mines can be especially complex in today's regulatory climate. Having reviewed hundreds of presentations, filings, prefeasibility and more advanced studies and other documents, it is a tribute to the persistence of uranium miners that any uranium mining actually takes place.

Of the world's large mines, where we anticipated problems this year and next, we included Rio Tinto's (NYSE: RTP) Rossing in Namibia. In a news release this past week, the company announced Rossing's production fell about 400 metric tons in the second quarter – down by 29 percent compared to the same period a year ago.

In 2006, Rossing ranked third, behind Cameco's McArthur River and ERA's Ranger, in terms of uranium producing mines. This quarterly production shortfall represents about 13 percent of the Rossing mine's production last year and about one percent of the world's total uranium mined for the year.

Progress is taking place in moving uranium projects forward, but they are not happening as fast as many analysts believe. Mr. Heap did highlight in the summary of his report, “Mine supply is not responding immediately.” No kidding, Mr. Heap.

In this past week's coverage, we pointed out some of the reasons why mine supply is not coming online as rapidly as some once believed. There are more problems ahead, which have come across our radar, and we are following up on these. Please stay tuned.

 

By James Finch
http://www.stockinterview.com

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED

James Finch contributes to StockInterview.com and other publications. He has contributed to the widely popular “Investing in the Great Uranium Bull Market,” and “Uranium Outlook 2007 - 2008.” His recent work, “Investing in China's Energy Crisis,” is now available at http://bookstore.stockinterview.com/

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