Post by Zoinkers on Jan 13, 2007 23:12:14 GMT -5
January 9, 2007
By James Finch
Price Capitulation or Racing to $100/Pound?
Part One of a Two-Part Series
The big question now being asked by investors, institutions, uranium
speculators, fuel brokers, uranium miners, industry consultants and
utilities is: 'How high will the price of uranium reach during
2007?' Growth in the uranium sector continues to depend upon ever
more convincing confirmatory evidence of global warming, caused by
excessive fossil fuel use, in order to accelerate broad public demand
for the expansion of nuclear energy as a replacement source for
electricity.
In that context, it was a fitting end to 2006 when Associated Press
reported the Ayles Ice Shelf had broken away from Ellesmere Island in
Canada's northernmost shore, where polar bears are reportedly
drowning from the lack of ice to rest upon. This 41-square mile block
was one of six remaining ice shelves in Canada's Arctic, some 800
miles from the North Pole. To put this into perspective, the ice chunk
was larger than New York City's Manhattan Island - about the size
of 11,000 football fields. By next summer, oil and gas drillers may
find the ice shelf interrupting their production and explorations;
shippers may need to re-route to avoid collisions.
While this news passed by generally unnoticed, a new record January
temperature in Manhattan's Central Park was widely reported. Global
warming closer to home, as opposed near the Arctic Circle, obviously
carries more weight. Juxtaposed against December's bizarre
near-hurricane-like winds in the Pacific Northwest and three winter
blizzards in Denver within three weeks, cynics still dismissing abrupt
climate change should wake up and smell the CO2. (Perhaps some should
visit downtown Beijing for a ruder awakening on this subject.)
According to a 2002 report in the Christian Science Monitor newspaper,
three key countries - China, India and the United States -
collectively plan to build more than 800 coal-fired plants by 2012.
These would emit an additional 2.7 billion tons of carbon dioxide into
the atmosphere. Ironically, the Kyoto Protocol countries had proposed
"reducing" CO2 emissions by a mere 450-plus million tons by 2012.
Climate change, global warming and political tomfoolery worldwide
should strengthen the case for stronger uranium prices at higher
sustainable prices.
Will 2006 be remembered as uranium's watershed year? If for no other
reason, the past year should be marked as the transformation period for
uranium mining projects. Those exploration and development uranium
companies, which had uneconomic sub-$40 and $50/pound projects, became
very economic when uranium began trading north of $60/pound. After spot
uranium broke through $70/pound in mid December, and long-term uranium
reached $69/pound, those once-questionable uranium miners took on
shades of becoming potential cash cows within this decade.
The Year of the Uranium 'Auction'
"The year 2006 was undeniably the most extraordinary in the history
of the uranium market," wrote TradeTech Chief Executive Gene Clark in
the December 31st issue of Nuclear Market Review. "Although there is
no open exchange for uranium (in contrast to most other commodities), a
new market mechanism evolved with the secondary benefit of providing
such transparency: the (so-called) uranium auction."
Clark explained, "During the year, at least 13 such auctions (really,
fixed bid price requests) were held - with nearly all resulting in
spot market price increases." He concluded, "It is clear that these
public auctions helped establish a level of market price transparency
throughout the year. In fact, the auction results became the definitive
word on the price level, especially in the period after the Cigar Lake
flooding, which created rampant speculation about the impact of the
event on the market."
During 2006, less than 26 million pounds of U3O8 equivalent changed
hands in the spot auctions. This is a relatively small quantity
compared to the annual uranium requirements of more than 175 million
pounds, or the quarter-billion pounds of uranium contracted by world
utilities in 2005. According to Ux Consulting's Jeff Combs, who
presented a paper to the World Nuclear Association Symposium, this past
September, mid-year 2006 production from some of the world's largest
uranium mines had fallen short of their targets.
His statistics pointed out that actual uranium production during the
first half of the past year was about 5.6 million pounds less than the
companies had anticipated they would mine. Subsequently, Combs
downwardly revised the estimated 2006 production to 109 million pounds
from the previously expected 113 million pounds. So a million pounds
auctioned by privately held Mestena Uranium LLC in 2006 doesn't even
make a dent in the production deficit from the major mines. Combs
reviewed production shortfalls at Ranger, McLean Lake, Olympic Dam,
McArthur River, Rabbit Lake and Rossing.
What will happen over the early weeks of 2007? According to
TradeTech's latest Nuclear Market Review, "Current spot demand now
stands at almost 6 million pounds U3O8 equivalent and is expected to
increase over the next few weeks as new demand emerges." NMR editor
Treva Klingbiel explained in the January 5th issue, "Several buyers
that were considering purchases are now faced with the harsh reality of
much higher prices and securing less material than they initially
budgeted for or planned." At this time, nineteen buyers are seeking
long-term contracts for 57 million pounds of U3O8.
In his "Year of the Auction" essay, Clark made a case for
subsequent price increases after each spot auction. Investors seem to
be trading in anticipation of the next uranium auction.
Lack of Major New Uranium Production Coming in 2007
Aside from the announcement by Paladin Resources and the
pre-announcement by SXR Uranium One of commencing uranium mining in
early 2007, new uranium mining production is unlikely until later in
the year when Energy Metals Corp commences its Texas in situ project.
None of these are major uranium mining projects. Although their mining
operations would very likely benefit their shareholders, the combined
production from these three new uranium miners during 2007 would
probably not make up the 2006 production deficit of six of the
world's largest uranium mines mentioned in the previous section.
It is no wonder the research analysts are bullish about the uranium
price. Vicky Binns and Daniel Hynes of Merrill Lynch forecast an
average price of $75/pound in 2007 and $80/pound in 2008. The analysts
stated, "We don't see a major trigger on the horizon that will
force spot prices down." Adam Schatzker of RBC Capital Markets
remarked, "There is not a lot of mine production. The inventories
being sold into the market are disappearing and we're actually in a
supply-demand deficit." He predicted the uranium price would average
$100/pound in 2007.
Canada's Scotiabank Vice President of Economics Patricia Mohr, who
told us at the Platts Energy Conference in September of a secular
change in the global energy markets, forecast $80/pound average through
2007 and a year ending price close to $90/pound. She commented,
"There has been little improvement in mine production."
In September, Mohr told us the uranium price would end above $60/pound,
but in light of the Cigar Lake episode, she has joined other analysts
in ratcheting up her estimates. The same is true of Raymond James
analyst Bart Jaworksi, whose latest estimates show an average uranium
price of $90/pound for 2007 and an average of $100/pound for 2008 and
2009. But, Jaworski did not budge from his price forecast of an average
uranium price of $60/pound for 2010.
Who can accurately and honestly forecast how much new mining production
can come online by 2010? We have been warned that Kazakhstan and
Olympic Dam should alleviate the tight supply situation. This was after
being lectured to, by a Florida Power and Light utility vice president,
about how quickly Cigar Lake would come online. In late October, nearly
all industry insiders discovered Cigar Lake wasn't the sure thing
they expected. Following Sprott Asset Management Market Strategist
Kevin Bambrough's guidance on the uranium price, anything is possible
during the 2007 to 2010 time frame. Last spring, Bambrough cautioned
the Cigar Lake delays might stretch out longer than expected.
There are other troublesome areas which could sustain a higher uranium
price. According to John Busby, who writes an energy column for
UK-based Sanders Research, utilities should not yet count upon BHP
Billiton's Olympic Dam project in Australia. He believes the
feasibility study would not be completed until 2009, and if the project
goes ahead (which he doubts will occur), it would mean four years of
digging to reach the first ores at 350 meters, after shifting three
cubic kilometers of rock.
Busby also told us, in a November email, "The project needs Aus $700
million desalination and pipeline, a 400 MW connection, a rail link,
and they will have to shift the airport and expand Roxby Downs."
Busby also explained BHP's current underground mine production is
down with falling grades. As others also believe, Olympic Dam is
dependent upon the strength or weakness of the U.S. economy and the
copper price. Busby believes there might not be new Australian uranium
until 2014 at the earliest.
As we have been advised through 2006, Kazakhstan remains the wild card
for uranium mining production. In an earlier article we reported upon
the important ingredient used to solution mine in Kazakhstan: sulphuric
acid. For example, at Cameco's ISL project in this Central Asian
country, uranium mining might annually consume about 2200 truckloads of
sulphuric acid. That amounts to six truckloads of sulphuric acid, daily
driven on what were once camel trails to extract the rich uranium
grades found down to 1500 feet. And this is one of many hurdles the
country's miners face.
While the potential for superlative uranium mining in this country
exists, how quickly can the government and its foreign joint venture
partners construct the infrastructure and mobilize the labor force for
such mining? In emails exchanged with those on the scene in this
country, we have been advised to remain cautious and skeptical.
Kazakhstan has euphorically predicted a goal of producing 39 million
pounds of uranium by 2010. Analysts are questioning this time table. In
September, Patricia Mohr called the timeline unrealistic. Merrill Lynch
forecasts the country's production might climb to 26 million pounds
by 2010. This doesn't discount a possible regime change between now
and 2010 or later. On Monday, Kazakh's Prime Minister abruptly
resigned, possibly because of disagreements and tense relations with
the country's strongman, Nursultan Nazarbayev.
Growing Interest in Uranium Mining Sector
Lawrence Roulston wrote in the December issue of his Resource
Opportunities newsletter, "Investors in general are becoming
increasingly comfortable with the idea that high metal prices are a
fixture of the long-term investment outlook. As a result, more money is
coming into the resource sector, propelling the uptrend." We agree
with Mr. Roulston who expects the extremely bullish ending of 2006 will
bridge over into the first quarter of 2007.
One unusual tracking statistic StockInterview has developed since
September is the monitoring of investor interest in the uranium sector
through book and CD orders for "Investing in the Great Uranium Bull
Market". Since the release of the uranium guide, we have been able to
not only determine the strength, but also the geographic interest, of
the uranium sector. Judging by the large and diverse number of
financial institutions across the world ordering this book, we believe
the state of the uranium sector remains intact and very healthy. We
have been overwhelmed by the large number of institutions and funds
asking for courier service to their worldwide destinations.
Since the Cigar Lake disaster, investors and institutions from more
than 60 countries have been ordering "Investing in the Great Uranium
Bull Market." Had we not added the Compact Disc version of the book,
the entire first edition would now be on the brink of being sold out.
The uranium guide is quickly becoming a collector's item, as
evidenced by at least one offer of a "used" copy of this book being
sold by Gildonbooks for nearly twice the price - at $44.95 plus
shipping on Amazon.com.
The strongest interest for this book is in areas where nuclear energy
plays an important role. Contrary to what some might have believed
there is also very strong interest in this book in nearly all parts of
the United States. For many this became an introduction to the uranium
sector - some of whom were unfamiliar with mining stocks and the
natural resource sector. The feedback about this book has also been
overpowering for us.
During the first quarter of this year, we expect the uranium guide to
begin finding its way in bookstores across the United States. In
December, StockInterview contracted with the largest U.S. book
wholesalers for distribution in the major bookstore chains. As books
begin selling in these chains, we might then more accurately gauge the
health of this uranium bull market.
Accelerated interest in uranium mining stocks and the uranium price is
encouraging. According to our research there could be more upside in
the uranium price during the first half of this year. But, can the
uranium price reach or surpass the century mark in 2007? There could be
bumps in the final leg of this journey.
TOMORROW
PART TWO: Will 2007 Become the Year of the Big Hiccup?
www.stockinterview.com/News/01092007/Uranium-Price-Forecast.html
By James Finch
Price Capitulation or Racing to $100/Pound?
Part One of a Two-Part Series
The big question now being asked by investors, institutions, uranium
speculators, fuel brokers, uranium miners, industry consultants and
utilities is: 'How high will the price of uranium reach during
2007?' Growth in the uranium sector continues to depend upon ever
more convincing confirmatory evidence of global warming, caused by
excessive fossil fuel use, in order to accelerate broad public demand
for the expansion of nuclear energy as a replacement source for
electricity.
In that context, it was a fitting end to 2006 when Associated Press
reported the Ayles Ice Shelf had broken away from Ellesmere Island in
Canada's northernmost shore, where polar bears are reportedly
drowning from the lack of ice to rest upon. This 41-square mile block
was one of six remaining ice shelves in Canada's Arctic, some 800
miles from the North Pole. To put this into perspective, the ice chunk
was larger than New York City's Manhattan Island - about the size
of 11,000 football fields. By next summer, oil and gas drillers may
find the ice shelf interrupting their production and explorations;
shippers may need to re-route to avoid collisions.
While this news passed by generally unnoticed, a new record January
temperature in Manhattan's Central Park was widely reported. Global
warming closer to home, as opposed near the Arctic Circle, obviously
carries more weight. Juxtaposed against December's bizarre
near-hurricane-like winds in the Pacific Northwest and three winter
blizzards in Denver within three weeks, cynics still dismissing abrupt
climate change should wake up and smell the CO2. (Perhaps some should
visit downtown Beijing for a ruder awakening on this subject.)
According to a 2002 report in the Christian Science Monitor newspaper,
three key countries - China, India and the United States -
collectively plan to build more than 800 coal-fired plants by 2012.
These would emit an additional 2.7 billion tons of carbon dioxide into
the atmosphere. Ironically, the Kyoto Protocol countries had proposed
"reducing" CO2 emissions by a mere 450-plus million tons by 2012.
Climate change, global warming and political tomfoolery worldwide
should strengthen the case for stronger uranium prices at higher
sustainable prices.
Will 2006 be remembered as uranium's watershed year? If for no other
reason, the past year should be marked as the transformation period for
uranium mining projects. Those exploration and development uranium
companies, which had uneconomic sub-$40 and $50/pound projects, became
very economic when uranium began trading north of $60/pound. After spot
uranium broke through $70/pound in mid December, and long-term uranium
reached $69/pound, those once-questionable uranium miners took on
shades of becoming potential cash cows within this decade.
The Year of the Uranium 'Auction'
"The year 2006 was undeniably the most extraordinary in the history
of the uranium market," wrote TradeTech Chief Executive Gene Clark in
the December 31st issue of Nuclear Market Review. "Although there is
no open exchange for uranium (in contrast to most other commodities), a
new market mechanism evolved with the secondary benefit of providing
such transparency: the (so-called) uranium auction."
Clark explained, "During the year, at least 13 such auctions (really,
fixed bid price requests) were held - with nearly all resulting in
spot market price increases." He concluded, "It is clear that these
public auctions helped establish a level of market price transparency
throughout the year. In fact, the auction results became the definitive
word on the price level, especially in the period after the Cigar Lake
flooding, which created rampant speculation about the impact of the
event on the market."
During 2006, less than 26 million pounds of U3O8 equivalent changed
hands in the spot auctions. This is a relatively small quantity
compared to the annual uranium requirements of more than 175 million
pounds, or the quarter-billion pounds of uranium contracted by world
utilities in 2005. According to Ux Consulting's Jeff Combs, who
presented a paper to the World Nuclear Association Symposium, this past
September, mid-year 2006 production from some of the world's largest
uranium mines had fallen short of their targets.
His statistics pointed out that actual uranium production during the
first half of the past year was about 5.6 million pounds less than the
companies had anticipated they would mine. Subsequently, Combs
downwardly revised the estimated 2006 production to 109 million pounds
from the previously expected 113 million pounds. So a million pounds
auctioned by privately held Mestena Uranium LLC in 2006 doesn't even
make a dent in the production deficit from the major mines. Combs
reviewed production shortfalls at Ranger, McLean Lake, Olympic Dam,
McArthur River, Rabbit Lake and Rossing.
What will happen over the early weeks of 2007? According to
TradeTech's latest Nuclear Market Review, "Current spot demand now
stands at almost 6 million pounds U3O8 equivalent and is expected to
increase over the next few weeks as new demand emerges." NMR editor
Treva Klingbiel explained in the January 5th issue, "Several buyers
that were considering purchases are now faced with the harsh reality of
much higher prices and securing less material than they initially
budgeted for or planned." At this time, nineteen buyers are seeking
long-term contracts for 57 million pounds of U3O8.
In his "Year of the Auction" essay, Clark made a case for
subsequent price increases after each spot auction. Investors seem to
be trading in anticipation of the next uranium auction.
Lack of Major New Uranium Production Coming in 2007
Aside from the announcement by Paladin Resources and the
pre-announcement by SXR Uranium One of commencing uranium mining in
early 2007, new uranium mining production is unlikely until later in
the year when Energy Metals Corp commences its Texas in situ project.
None of these are major uranium mining projects. Although their mining
operations would very likely benefit their shareholders, the combined
production from these three new uranium miners during 2007 would
probably not make up the 2006 production deficit of six of the
world's largest uranium mines mentioned in the previous section.
It is no wonder the research analysts are bullish about the uranium
price. Vicky Binns and Daniel Hynes of Merrill Lynch forecast an
average price of $75/pound in 2007 and $80/pound in 2008. The analysts
stated, "We don't see a major trigger on the horizon that will
force spot prices down." Adam Schatzker of RBC Capital Markets
remarked, "There is not a lot of mine production. The inventories
being sold into the market are disappearing and we're actually in a
supply-demand deficit." He predicted the uranium price would average
$100/pound in 2007.
Canada's Scotiabank Vice President of Economics Patricia Mohr, who
told us at the Platts Energy Conference in September of a secular
change in the global energy markets, forecast $80/pound average through
2007 and a year ending price close to $90/pound. She commented,
"There has been little improvement in mine production."
In September, Mohr told us the uranium price would end above $60/pound,
but in light of the Cigar Lake episode, she has joined other analysts
in ratcheting up her estimates. The same is true of Raymond James
analyst Bart Jaworksi, whose latest estimates show an average uranium
price of $90/pound for 2007 and an average of $100/pound for 2008 and
2009. But, Jaworski did not budge from his price forecast of an average
uranium price of $60/pound for 2010.
Who can accurately and honestly forecast how much new mining production
can come online by 2010? We have been warned that Kazakhstan and
Olympic Dam should alleviate the tight supply situation. This was after
being lectured to, by a Florida Power and Light utility vice president,
about how quickly Cigar Lake would come online. In late October, nearly
all industry insiders discovered Cigar Lake wasn't the sure thing
they expected. Following Sprott Asset Management Market Strategist
Kevin Bambrough's guidance on the uranium price, anything is possible
during the 2007 to 2010 time frame. Last spring, Bambrough cautioned
the Cigar Lake delays might stretch out longer than expected.
There are other troublesome areas which could sustain a higher uranium
price. According to John Busby, who writes an energy column for
UK-based Sanders Research, utilities should not yet count upon BHP
Billiton's Olympic Dam project in Australia. He believes the
feasibility study would not be completed until 2009, and if the project
goes ahead (which he doubts will occur), it would mean four years of
digging to reach the first ores at 350 meters, after shifting three
cubic kilometers of rock.
Busby also told us, in a November email, "The project needs Aus $700
million desalination and pipeline, a 400 MW connection, a rail link,
and they will have to shift the airport and expand Roxby Downs."
Busby also explained BHP's current underground mine production is
down with falling grades. As others also believe, Olympic Dam is
dependent upon the strength or weakness of the U.S. economy and the
copper price. Busby believes there might not be new Australian uranium
until 2014 at the earliest.
As we have been advised through 2006, Kazakhstan remains the wild card
for uranium mining production. In an earlier article we reported upon
the important ingredient used to solution mine in Kazakhstan: sulphuric
acid. For example, at Cameco's ISL project in this Central Asian
country, uranium mining might annually consume about 2200 truckloads of
sulphuric acid. That amounts to six truckloads of sulphuric acid, daily
driven on what were once camel trails to extract the rich uranium
grades found down to 1500 feet. And this is one of many hurdles the
country's miners face.
While the potential for superlative uranium mining in this country
exists, how quickly can the government and its foreign joint venture
partners construct the infrastructure and mobilize the labor force for
such mining? In emails exchanged with those on the scene in this
country, we have been advised to remain cautious and skeptical.
Kazakhstan has euphorically predicted a goal of producing 39 million
pounds of uranium by 2010. Analysts are questioning this time table. In
September, Patricia Mohr called the timeline unrealistic. Merrill Lynch
forecasts the country's production might climb to 26 million pounds
by 2010. This doesn't discount a possible regime change between now
and 2010 or later. On Monday, Kazakh's Prime Minister abruptly
resigned, possibly because of disagreements and tense relations with
the country's strongman, Nursultan Nazarbayev.
Growing Interest in Uranium Mining Sector
Lawrence Roulston wrote in the December issue of his Resource
Opportunities newsletter, "Investors in general are becoming
increasingly comfortable with the idea that high metal prices are a
fixture of the long-term investment outlook. As a result, more money is
coming into the resource sector, propelling the uptrend." We agree
with Mr. Roulston who expects the extremely bullish ending of 2006 will
bridge over into the first quarter of 2007.
One unusual tracking statistic StockInterview has developed since
September is the monitoring of investor interest in the uranium sector
through book and CD orders for "Investing in the Great Uranium Bull
Market". Since the release of the uranium guide, we have been able to
not only determine the strength, but also the geographic interest, of
the uranium sector. Judging by the large and diverse number of
financial institutions across the world ordering this book, we believe
the state of the uranium sector remains intact and very healthy. We
have been overwhelmed by the large number of institutions and funds
asking for courier service to their worldwide destinations.
Since the Cigar Lake disaster, investors and institutions from more
than 60 countries have been ordering "Investing in the Great Uranium
Bull Market." Had we not added the Compact Disc version of the book,
the entire first edition would now be on the brink of being sold out.
The uranium guide is quickly becoming a collector's item, as
evidenced by at least one offer of a "used" copy of this book being
sold by Gildonbooks for nearly twice the price - at $44.95 plus
shipping on Amazon.com.
The strongest interest for this book is in areas where nuclear energy
plays an important role. Contrary to what some might have believed
there is also very strong interest in this book in nearly all parts of
the United States. For many this became an introduction to the uranium
sector - some of whom were unfamiliar with mining stocks and the
natural resource sector. The feedback about this book has also been
overpowering for us.
During the first quarter of this year, we expect the uranium guide to
begin finding its way in bookstores across the United States. In
December, StockInterview contracted with the largest U.S. book
wholesalers for distribution in the major bookstore chains. As books
begin selling in these chains, we might then more accurately gauge the
health of this uranium bull market.
Accelerated interest in uranium mining stocks and the uranium price is
encouraging. According to our research there could be more upside in
the uranium price during the first half of this year. But, can the
uranium price reach or surpass the century mark in 2007? There could be
bumps in the final leg of this journey.
TOMORROW
PART TWO: Will 2007 Become the Year of the Big Hiccup?
www.stockinterview.com/News/01092007/Uranium-Price-Forecast.html