Similar to recent quarters, near-to-medium-term uncertainty...

Similar to recent quarters, near-to-medium-term uncertainty continues to lead to weakness in the uranium market. As a result, contracted volumes have remained low with little impetus on buyers or sellers to enter into new transactions. According to price data from The Ux Consulting Company, LLC ("Ux"), the spot price of uranium dropped $4.65 per lb., from $39.65 per pound at the end of the prior quarter to $35.00 per pound on September 30, 2013. The Ux long-term price indicator dropped $7.00 per pound from $57.00 per pound to $50.00 per pound during the same period.

The current Ux spot and long-term prices are $35.35 and $50.00, respectively. The continued shutdown of Japanese reactors, operational issues and scheduled shutdowns in Asia and the U.S., and the resulting buildup in inventories are largely responsible for the continued market weakness. The anticipated restart of the Japanese reactors will be an important catalyst to the market. To date, five utilities have applied to the Japanese Regulatory Authority for the restart of fourteen reactors. However until these (or other) catalysts occur, uranium markets will remain uncertain.

In spite of the current uncertainty, long-term demand fundamentals in the uranium sector remain strong. In fact, the fundamentals may be slightly stronger than in the previous quarter. The World Nuclear Association now reports that there are 70 nuclear reactors under construction in 13 countries, led by China with 30 units under construction. The 70 reactors under construction represent an increase of two units from the prior quarter. In addition, there are 487 nuclear reactors planned or proposed around the World. This represents an increase of nine units from the prior quarter. The 70 reactors under construction are expected to require over 100 million pounds of U3O8 for initial cores and an additional 35 million pounds of U3O8 annually once they are in operation.

Although long-term fundamentals remain strong, near-to-medium-term uncertainty could lead to continued sluggishness in the uranium market. Yet, recently announced production decreases and project deferrals may provide further impetus for improvements in the price of uranium. Energy Fuels Inc recently announced the deferral of development at the Canyon Mine in Arizona, USA in addition to the planned deferral of production at the Pinenut mine beginning in the latter half of FY-2014. Uranium Energy Corp. recently announced its intent to reduce mining operations at its Palangana ISR uranium project in Texas.

Kazatomprom has announced that it will halt plans to expand uranium production in Kazakhstan, and is projecting that annual output from its Kazakh operations may experience uranium output reductions in 2014, the first such reduction since expansion began earlier in the decade. Russia's Atomredmetzoloto, including its wholly-owned Uranium One division, recently announced that the Honeymoon project in Australia will be placed on care and maintenance. In addition, they recently announced that they have ceased well-field development at their Willow Creek project in Wyoming, and it has been reported that they are ceasing all investment in new projects in Russia and abroad and are placing a number of projects on standby.

Many analysts believe a number of other projects around the World are likely operating at a loss in the current market environment. Additional project cancellations and deferrals may be announced in the coming months. However, as Japan begins to restart their reactor fleet and new nuclear units come online worldwide, the supply of uranium for new and existing nuclear units may become less certain, providing additional stimulus to potential increases in the price of uranium.