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Wednesday, June 14, 2006

Huge jump in uranium spot price

The spot price of uranium increased by $1.00 again this week! It's now $44.00 (oops, I mean $45.00). Obviously this is good for Strathmore Minerals. I don't know why the price has been going up so fast these last two weeks, but it could be due to the fact that Russia now claims they want to stop supplying the US with cheap uranium under the longstanding deal to downblend HEU from old Soviet warheads into LEU for nuclear power plants. If I recall correctly, this was predicted by the guy who initially did the writeup for Strathmore on the ValueInvestorsClub.com website (find it in the reply #34 on 5/11/2005). Putin and others were frustrated that Russia had signed the agreement with the US, Russia will need uranium for their own nuclear power plants in the planning stage, there's not much mining in Russia going on, and at least some of the LEU was promised to China. Well, it seems to be playing out as expected.

Here's an article worth reading from UxC: The Myth of Excess SWU Capacity (I haven't written much about enrichment here and it's an important consideration).
What would happen if the HEU deal ended? First, there could be a small reduction in SWU supply of perhaps one million SWU per year, since this is the difference between the SWU contained in blended-down HEU and the SWU required to make blendstock. But the larger effect is from the loss of about 6,000 tonnes per year of uranium from HEU. Such a loss would lead to a dramatic increase in uranium prices, which, in turn, would cause utilities to further reduce tails assay and increase demand for SWU. It is likely that neither the uranium nor SWU markets would "clear" under such circumstances.

Of course, the HEU deal also is of crucial importance from a nonproliferation standpoint, and thus more than the nuclear fuel market would suffer if it ended.
That last point is important because we're not just investors, but also people who need to be concerned about the terrible danger of nuclear weapons. I don't think Russia is that stupid. Iran, maybe.

The prices of uranium stocks have been dropping.
Cameco (CCJ)
Dennison (DEN.TO)
USEC (USU) for good reason
SXR Uranium One (SXRFF) I looked at them here.
Uranium Participation (U.TO)
...it's not just a Strathmore thing.

Uranium spot price 15 year chart, very long term price in 2005 dollars vs nominal dollars.

In Other Nuke News

Ontario's Premier, Dalton McGuinty says they have no choice but to accept new nuclear reactors.
"Fifty per cent of our generating capacity at present comes from nuclear and we will not duck this issue. Governments have done that in the past, I refuse to do that," the premier told reporters after an event at the University of Toronto's Hart House.
However, the bad news is that building new reactors there will only replace reactors that will be going offline.

As mentioned above, Russia has balked at continuing to supply uranium at cheap prices to the US (this was in the news last week). This week, they're in talks with the US on terms. Anything outside sales to USEC has a 116% import duty. Anti-dumping (which I've always considered a joke).

TVA is continuing to advance their plans for reactors in Northern Alabama.

And here's a short article on the nuclear industry in general.

UPDATE 6/17/06: I go away for a few minutes to get some split pea soup cooking and come back to find a bazillion people from theStreet.com. James Altucher strikes again.

Gold vs Uranium: right now uranium wins hands down, in my opinion, thanks to the massive difference between supply and demand, not to mention the inelasticity of demand and the long delay for supply to respond to higher prices. Gold is driven by emotion. Uranium is driven by nuclear power plants.

And since I mentioned True Religion brand jeans in the comments, I suppose I should provide a link to where I looked at them (including the photo in question).

And here's more on that new Edgar search engine.

UPDATE June 18/2006:
I want to make one more point about uranium right now and investing in general: The longer your time frame, the less clever you need to be. Lots of other investors know the industry far better than I do. My investment is not based on what events might happen this year, for example. I'm much more concerned about what will happen in the next 5 to 10 years and beyond, where big trends outweigh short term details.

While the price of uranium won't track the price of uranium stocks in the short term (less than two years or so), if things turn out they way I expect them to, then the stock prices will inevitably go up.

Comments:
great blog now tell me a penny stock I can get serious about bruce
 
You'll find that this blog shows all my notes for all the companies I've looked at, the list of the companies where I've invested the vast majority of my assets, when those investments were bought/sold, and why. I don't go out of my way to advocate stocks because the information here is intended for people who spend a lot of time gathering information on companies or else people who already have a lot of knowledge about whatever company/industry I'm looking at. I guess you could call it more wholesale than retail.

Many of the people who view this blog are from brokerage houses, hedge funds, asset management groups, various shadowy figures from a number of U.S. Departments of Fill-in-the-Blank, hard-core retail investors with too much time on their hands (I fall into this group), and the occasional visitor from Peru or Panama or Nigeria looking for pictures of True Religion brand jeans for whatever reason.
 
bruce,

Thanks for another interesting post. Haha, I guess I'm one of the ones with too much time on their hands.

Pat B*
 
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