Tuesday, December 12, 2006

Dec 12: Merrill Lynch Uranium Forecast, International Uranium Update

Merrill Lynch Research Analyst Anita Soni increased her 2007 spot forecast for uranium 42% from $53/lb to $75/lb. Amongst modest increases in Merrill Lynch's forecast for gold and silver, this 78% upwards increase in the uranium forecast definitely stands out. Because of Cigar Lake's aftermath, Soni said that "utilities are now scrambling to cover their commitments and thus demand is expected to remain tight for some time to come."

Soni cite various factors for her drastic revision, including a lack of new mega-projects moving to development, a future decrease in Russian uranium material exports, and growth in Far East nuclear reactor development. She did remark that potential supply could come from government-owned KazAtomprom in Kazakhstan and I have detailed before Kazakhstan's very ambitious plans to be one of the leaders in uranium production.

Australia continued its march towards uranium export. Several weeks ago, the Switkowski report on the future of nuclear energy in that country came out and was decidedly positive for nuclear power, paving the way for export to China, and possibly India and Japan.

Finally, the spot price of uranium hit $65/lb this week.


Monday, December 11, 2006

Dec 11 Uranium Stocks Update: Denison Mines (TSE:DML)

Ron Hochstein, now president and COO of Denison Mines (TSE:DML) after the official merger of International Uranium Corporation (IUC) and Denison was on RoBTV several days ago commenting on the company's recent attempted acquisition of Australia's OmegaCorp. (OMC.AX). The main impetus for acquiring seems to be OmegaCorp's Kariba asset in Zambia. This is what Hochstein had to say:

"we were targeting products and companies who could bring production in very near-term..2010-2011..Lundin family very comfortable with, our board very comfortable with..right now we are looking at producing 5 million pounds by 2010..this will add additional 1.5 million pounds, plus exploration potential"

On the subject of soaring uranium stock prices and uranium spot price, Hochstein had this to say:

"we are still seeing tremendous shortage..with Cigar Lake flood, accentuated industry overall..tight supply..we will need higher prices..capital costs have increased, operating costs have increased..I think uranium price will increase..many analysts coming out with $100/lb..we will definitely see continued increase..essentially, Cameco will be coming out shortly with prognosis..we are looking at anywhere from 2-5 years, more likely to be 5 years..we have seen number of utilities jumping into the market to shore up supplies..Denison Corp will be well-positioned to take advantage."

Sunday, December 10, 2006

Dec 10: State of the Uranium World

Firstly, a note of apology for not updating for a month. I have been busy with work (not related to investing) and must give it precedence over this uranium blog.

In the last weeks, uranium stocks have continued to climb, moving smartly along with the broader market. In fact, it seems that uranium stocks outpace the general market during bull runs and double-digit gains are the norm. Conversely, however, uranium stocks have a tendency to precipitously drop just as quickly during sell-offs in the broader market. So, in an analogous way to gold stocks having the tendency to trade more like stocks than the metal, I make myself take a look at the general trend in the broader market, as uranium stocks will be under heavy pressure if investors decide to bail out of the market highs that we have been experiencing lately.

News out from uranium bellweather Cameco Corporation (NYSE:CCJ TSE:CCO) several days ago were significant for two things:

(1) Cameco’s CEO Jerry Grandey announced that the company "may acquire smaller rivals after years of insufficient investment by the industry leaves tight supplies and high prices," with a strategy "to watch very carefully how they succeed. And at some point in time, if they need expertise or money or joint ventures or acquisitions, it would certainly be possible."

(2) Cameco is expecting to drill about 20 holes and plug the Cigar Lake mine leak with cement. Previously it had announced that revised cost estimates and timelines for Cigar Lake would be available in February. Cigar Lake is 50 percent owned by Cameco, with the remainder held by AREVA Resources Canada Inc., Idemitsu Uranium Exploration Canada Ltd. and TEPCO Resources Inc.

With Cigar Lake flooded, Cameco seems to be more willing to go into acquisition mode to compensate for the delay. While the company is already involved in numerous joint ventures, it has not really made a big splash in the acquisition of other larger uranium companies to date. One might presume that the answer seemingly lies in how long it would take Cameco to de-flood Cigar Lake; the longer it takes, the more interested Cameco naturally becomes to acquiring a fairly advanced-stage uranium junior.