end of the uranium bull run

A MINI BLOODBATH
The current spot price decrease is the largest single-week drop in the history of weekly reported prices.

Author: Barry Sergeant
Posted: Thursday , 26 Jul 2007

JOHANNESBURG -

Long-term sellers of uranium stocks, active in markets for the past few months, are intensifying profit taking amid the biggest single-week drop in the history of weekly reported uranium prices. On Thursday, heavy broad selling in resources stocks only deepened the losses.

Notoriously illiquid spot uranium prices are currently retracing for the fourth consecutive week, possibly ending a medium-term period of enormous activity in trading uranium stocks. The exponential increase in spot uranium prices over the past few years has increasingly attracted hot money, and inspired a number of highly speculative corporate deals.

For the meantime, the down bend could leave many stock promoters with lots of work to do delivering on big promises. The story was driven by the general bull market in commodity prices, but also by the search for alternative energy sources as crude oil prices remained stubbornly high. Spot uranium prices increased more than tenfold, to well above $100 a pound. The past week's $10 correction has set the known spot price at around $120 a pound.

Forward projections for spot uranium prices hold few clues of relief for either producers or investors. Ux Consulting LLC, a commonly used reference point for industry participants and investors, said that the spot uranium price faced the possibility of further weakness ahead. The global analytical community broadly shares the sentiment.

The spot uranium price is notoriously illiquid after decades of price domination by the contract market, a mechanism preferred by producers as offering some limited protection during many years of depressed prices. If spot prices may have stretched the truth, however, current fundamentals for uranium provide little cheer for the pricing outlook.

TradeTech LLC, an industry consulting company, says supply is currently at least three times the demand for immediate delivery. This now stands at more than 3m pounds of uranium oxide concentrate, or yellow cake, the primary product supplied for later enrichment into fuel for nuclear power plants. UxC also noted that the US Department of Energy recently offered some 200 tons of uranium hexafluoride to markets.

Stocks have taken a beating, with the biggest losers, such as Forsys (FSY.T, C$5.01 a share), down by 51% from 12-month highs. Cameco (CCO.T, C$42.91), the world's biggest listed producer of uranium, has just over a quarter of its value. The group is due to report earnings before the Toronto Stock Exchange opens on Monday; its statements will be carefully studied for comments on both the outlook for prices, and also for guidance on the outlook for the continuing significant gap between spot and contract prices.

Noting that "the decline in the spot uranium price has tempered investor enthusiasm for uranium investments", RBC Capital Markets (RBCCM) recently told its clients that Cameco remained its "top pick" among listed uranium stocks. Despite some recent setbacks for the stock, RBCCM continues to believe the key driver of the stock's share performance "will be the rapidly rising realized uranium prices".

RBCCM also favours First Uranium (FIU.T, C$8.91), as a preferred emerging developer, "given its valuation, very capable and conservative management team, and its exposure to gold". First Uranium is carrying out the development of both its Ezulwini mine and the Buffelsfontein tailings project, both in South Africa. RBCCM also favours Aurora Energy (AXU.T, C$13.80), and Paladin Resources (PDN.AX, A$7.50).

Uranium One (SXR.T, C$11.53) is seen as a "sector perform", with "significant" development risks as its production profile is built out. RBCCM agrees with Uranium One's strategy of building the next senior uranium producer, but even after two significant acquisitions, assuming the Energy Metals (EMC.T, C$13.08) deal is completed, Uranium One will have two active mines (Akdala and Dominion) and seven development projects.

Energy Resources of Australia (ERA.AX, A$19.61) is seen as underperforming following a series of setbacks. The stock's current challenge of contending with a declining production rate while trying to fill volume to meet prior legacy contracts is seen as only further delaying any potential capture of the new uranium pricing regime.

Selected listed uranium stocks



Market value
From


bn
12-month high

Producers



Cameco
C$16.38
-28.36%

Uranium One
C$4.47
-38.18%

Paladin Resources
A$4.65
-30.56%

ERA
A$3.75
-31.39%

Denison Mines
C$2.22
-34.76%





Developers



Energy Metals
C$1.26
-30.57%

First Uranium
C$1.12
-32.60%

Mega Uranium
C$0.95
-39.76%

Aurora
C$0.97
-31.31%

Laramide
C$0.59
-39.66%

Tournigan Gold
C$0.46
-20.22%

Forsys
C$0.44
-50.88%

Ur-Energy
C$0.34
-35.78%

Strathmore Minerals
C$0.24
-43.64%

Western Prospector
C$0.25
-19.61%

Khan Resources
C$0.21
-32.49%

Berkeley Resources
£0.10
-7.61%

Simple average

-32.20%