| The year gone by was the warmest in England | | | | restrictions "would seriously harm the American |
| since 1659. Australia may be doomed to suffer | | | | economy." |
| the country's worst drought since the Federation | | | | Those clamoring for Russian enriched uranium are |
| Drought of 1894 - 1902, and at least one Dun | | | | the U.S. utilities. Last spring, 85 percent of the |
| & Bradstreet consultant believes if conditions | | | | nuclear power plants formed AHUG (Ad Hoc |
| do not improve, the country's Reserve bank may | | | | Utility Group) to lobby the U.S. Commerce |
| be forced to lower interest rates. Abrupt weather | | | | Department about loosening up those restrictions. |
| changes could increasingly become a significant | | | | Head of Russia's Federal Agency for Nuclear |
| element in determining business expectations and | | | | Power Sergei Kiriyenko wants a maximum |
| national growth. (While Florida didn't have the | | | | 25-percent share of the U.S. uranium market. He |
| hurricanes the weatherman forecast, Asia got the | | | | wants to directly deliver the enriched uranium to |
| brunt instead with typhoons.) | | | | the U.S. utilities, bypassing USEC at market prices. |
| The green light for accelerated demand of nuclear | | | | In December, Kiriyenko said, "We would like to |
| energy could come about because of a potential | | | | provide direct deliveries to the U.S. nuclear market |
| loss of up to 20 percent global gross domestic | | | | now and after 2013 (when the HEU-LEU contract |
| product annually. This estimate was courtesy of | | | | is terminated with USEC)." |
| Sir Nicholas Stern, a senior UK economist, who | | | | Russia's direct sales to U.S. utilities might minimize |
| calculated the impact of climate change. And 2007 | | | | the current panic. Perhaps it would stimulate some |
| might pass 1998 by as the world's warmest year | | | | anxiety on the weaker uranium price speculators? |
| on record. Eight of the twelve warmest years on | | | | Smart money weighs the risks and rewards on |
| record have occurred since 1990. | | | | an investment. After a steep price appreciation - |
| This must be welcome news to uranium | | | | nearly 100 percent during 2006 - and up by more |
| speculators, especially those holding the physical | | | | than 1000 percent since Christmas 2000. |
| metal. Speculators outsmarted U.S. utility fuel | | | | The loan rate for uranium has also jumped since |
| managers and industry consultants by hoarding | | | | the year 2000. According to TradeTech's Loan |
| yellowcake in anticipation of the supply deficits | | | | Rate for uranium purchases, the carrying cost is |
| now growing. That's why they are the smart | | | | the highest since September 1978. It is |
| money. But will the nearly 200 consecutive weeks | | | | one-half-percent lower than the peak months of |
| of a rising uranium price sustain through 2007? | | | | 1974. |
| By all accounts, uranium miners and future | | | | Speculative upside expectations on price |
| developers should be ecstatic over the $72/pound | | | | appreciation for yellowcake may be limited. For |
| announcement of the spot uranium price. The | | | | the past year, it was an easy ride. Dwindling |
| latest long-term uranium contract brought $69 | | | | inventories, inadequate new mining production and |
| pound. Many of the new uranium projects, which | | | | increased demand for new nuclear power plants |
| we have been tracking since mid 2004, are likely | | | | made 2006 an easy year for speculators. |
| to be economic at or below $60/pound. The | | | | Nonetheless, interest had begun waning during the |
| broad purpose of a rising uranium price was to | | | | fourth quarter, before Cameco's Cigar Lake |
| dust off the old uranium projects and reopen | | | | flooding. |
| previously explored, nearly developed uranium | | | | DC-based energy consultant Julian Steyn, who |
| mines. This is in the process of bearing fruit. | | | | helped co-author A Brighter Tomorrow with U.S. |
| So why do we see continued hoopla for a higher | | | | Senator Domenici (R-NM), had told us in May 2006 |
| uranium price? It's because the speculators need | | | | that interest about uranium mining companies had |
| the excitement and panic buying by utilities to | | | | nearly vanished. In the early months of this past |
| unload their uranium stockpile. | | | | year, he remarked of the large number of phone |
| Speculators holding physical uranium hope to make | | | | calls he received from institutions and investors. |
| a king's ransom should the uranium price zip | | | | Judging from the refusal of Florida Power and |
| through the inflation-adjusted record of | | | | Light to participate in last summer's U.S. |
| approximately $111/pound and race even higher. | | | | Department of Energy auction ("because the price |
| Uranium oxide, or U3O8, very well could race to | | | | was too expensive at $50/pound"), many |
| $100/pound and beyond. The momentum and | | | | believed uranium's price rise would eventually tank. |
| panic leading to a much higher uranium price is | | | | We were told uranium would peak at about $55 |
| evident in our research and discussions with | | | | pound, perhaps higher, in the fourth quarter of |
| industry insiders, but the pendulum might also | | | | 2006. |
| swing backward later in 2007. | | | | Where is the upside and how does that compare |
| According to Treva Klingbiel, editor of | | | | to the downside? |
| TradeTech's Nuclear Market Review, which first | | | | The positive development is the changing political |
| publishes the weekly spot uranium price on | | | | climate worldwide. For example, Australia's Labor |
| Fridays, "Speculators are holding about 24 million | | | | Party may allow expansion in this country. This will |
| pounds of U3O8 equivalent." This amounts to | | | | benefit a large number of Australian-based and |
| about eight times the current U.S. uranium | | | | Canadian-based exploration and development |
| production, more than double the Kazakh 2006 | | | | companies for a short period of time. As we |
| production - some 22 percent of global uranium | | | | have come to expect, Western Australia is very |
| production in 2005. The speculator's hoard easily | | | | unlikely to change its uranium mining policy ban. |
| outnumbers the U.S. Department of Energy's | | | | The coal unions overpower the state's politicians; |
| announcement of 5+ million pounds of annual | | | | the loss of jobs would probably prevent this |
| sales. | | | | western state from allowing uranium mining. |
| Smart money got the uranium the utilities | | | | This spring, the hoopla over uranium mining |
| previously thought they could get on the cheap, | | | | expansion should create a bubble frenzy for the |
| by accumulating it fair and square in the | | | | smaller Aussie uranium miners. The excitement |
| marketplace. And by squeezing on an already tight | | | | should spill over to the Canadian, U.S. and U.K. |
| pipeline, the speculators drove the price to a | | | | traded uranium mining stocks. However, as |
| record high this past December. While the kings | | | | professional speculators know, the time to sell is |
| that the speculators are holding for ransom are | | | | "on the news." Until now, the Australian story |
| the utilities, at some point we anticipate a | | | | remains a mystery, but when the news comes |
| backlash. | | | | out, it is history. And this gives the speculators |
| The Downside of A Rising Uranium Price | | | | another reason to begin unloading their physical |
| There should be fireworks through 2007 as the | | | | uranium. |
| uranium price approaches and probably crosses | | | | Conclusion |
| the $100/pound threshold, perhaps as early as | | | | Between the invasion of Russian-enriched uranium, |
| late spring. While there will be bumps before and | | | | which may reach a settlement before Labor Day |
| after the century mark, anxieties over energy | | | | 2007, and the anxiety of speculators now |
| disputes could help sustain a production-friendly | | | | hoarding physical uranium, which we believe has a |
| uranium price well beyond 2007. | | | | limited upside potential, 2007 may be |
| One powerful example of an energy dispute is | | | | remembered as the year of wild uranium price |
| the ongoing struggle between Russia and its | | | | swings. We nicknamed it the 'Year of the Hiccup,' |
| former Soviet states. The Gazprom-Belarus gas | | | | because although the uranium price won't collapse, |
| dispute, settled on this past New Year's Day, | | | | it will not provide the near-triple-digit appreciation |
| suddenly evolved into Russia's Monday cutoff of | | | | experienced over the past year. |
| the Druzhba oil pipeline across Belarus to | | | | The spectacular price rise convinced Rio Tinto to |
| Germany. Although it is likely to be settled without | | | | rescind its offer to sell its Sweetwater Mill and U.S. |
| much fanfare, European leaders again question | | | | assets to SXR Uranium One. This confirmed Rio |
| Russia's reliability as an energy supplier, especially | | | | felt the uranium price rise was sustainable above |
| of oil and gas. | | | | production costs for its assets. (Again, the |
| This event reminded Europe of last year's | | | | purpose of the uranium price rise was to |
| Ukraine-Russia gas dispute and subsequent soaring | | | | encourage the development of new uranium |
| energy prices. While not endorsing nuclear power, | | | | mines - dusting off projects which had been |
| as this would anger her Social Democrat coalition | | | | mothballed during the twenty-year uranium |
| partners, German Chancellor Angela Merkel | | | | drought.) With the current forward momentum, it |
| announced in a television interview, "...one must | | | | is very possible the price of uranium will surpass |
| consider well what consequences there would be | | | | the inflation-adjusted high before edging backward. |
| if we shut down nuclear power plants." Germany | | | | Despite the Russian invasion, do not believe the |
| plans to shut down four nuclear reactors by 2009 | | | | Russians will roll over and flood U.S. utilities with |
| and may close an additional thirteen by 2020. | | | | 'sweet deals.' Believing this is foolishness. |
| As we have seen since 2005, the political climate | | | | Comparing how the Russian energy companies |
| toward a continued nuclear renaissance has grown | | | | have played hardball with the former Soviet |
| more favorable. But with all politics, one must | | | | states, U.S. utilities may later wish they'd not |
| expect downsides, too. One such downside for | | | | lobbied as fiercely as they have. If you investigate |
| the uranium price cheerleaders could be Russia. | | | | more closely, the Russian companies tend to |
| If one looks for the "trigger on the horizon," as | | | | demand stock shares, as well as increased cash, |
| Merrill Lynch mentioned in a December research | | | | in the deals they've cut with the state-owned |
| report, the hiccup in uranium's price rise could | | | | energy companies of other countries. What is to |
| become the U.S. Commerce Department | | | | stop the Russians from asking for shares in U.S. |
| settlement with Russia's Tekhsnabexport. We | | | | utility companies? |
| discussed this in an article written before last | | | | How does this impact the uranium mining |
| July's G-8 Summit in St. Petersburg, when we | | | | exploration and development companies? For the |
| forecast uranium could run between $55 and $100 | | | | rational investor and institutions it should have only |
| during 2006 ("Even Higher Uranium Prices This | | | | a short-term negative influence. Professional |
| Summer"). | | | | speculators like to call such down cycles in the |
| On December 27th, RIA Novosti and others | | | | secular energy bull market 'buying opportunities.' |
| reported upon statements made by the head of | | | | For the smaller exploration companies, many will |
| Russian-owned Tekhsnabexport that a 'civilian | | | | move onto the next 'greener' pasture as they are |
| nuclear power deal' between Russia and the | | | | so fond of doing. The less-financed ones will jump |
| United States was imminent. Vladimir Smirnov, | | | | sooner. |
| announced, "I think that in the first quarter of | | | | Those uranium companies with stronger property |
| 2007, or by the summer of 2007 at the latest, | | | | portfolios, who are also well-financed, will afford |
| we will sign an agreement with the U.S." | | | | the bumps along this great uranium bull market. It |
| At this time, Russia can only sell into the United | | | | won't end in 2007 or 2008, or anytime soon. This |
| States through publicly traded United States | | | | year will just be a hiccup. But enough of one that |
| Enrichment Corporation unless it pays a | | | | many of the 400+ junior uranium companies may |
| 116-percent import duty. In mid July, the U.S. | | | | be considering a name change around this time a |
| International Trade Commission voted to keep | | | | year from now. |
| the import duty on Russian uranium products. The | | | | COPYRIGHT © 2007 by StockInterview, Inc. |
| commission claimed that lifting the anti-dumping | | | | ALL RIGHTS RESERVED. |