Pink Sheets

This is getting insane. The spot price of U3O8 (yellowcake) is up another $1.75 to $55.75. Here's the 2 year chart. Here's a chart from Cameco. While the price is higher than it's ever been in nominal dollars, when adjusting for inflation, it was well over $100 back in the late 1970s. The US got the jitters after that and stopped building new nuclear power plants. Then in the 1990s, the Cold War ended and a lot of nukes were downblended to produce reactor food.

The technology has slowly improved in safety and there are a lot of benefits that weren't recognized in the past (the lack of greenhouse gases), not to mention that places like China and India have a huge need for more power and are suffering from horrible pollution which the emerging middle classes won't tolerate much longer.

In the news, possible new nuclear power plant in Texas. Russia building nuclear plants in China, "Russian specialists will be able to meet the previously agreed date for the handover of the first power unit of the Tianwan NPP by November 2006." The US DoE is awarding $8 million in grants for engineering studies on nuclear plants.

In the rough valuation estimate for Strathmore Minerals that I did on June 24, 2006, I estimated that at a uranium price of $45 per pound, Strathmore would be worth something along the lines of US$4.20 (which would need to be discounted for time, offset somewhat by various wildcard extras) and that every dollar increase in the price would add about 21 cents to that number. At $55.75, that adds about $2.25 to the number, bringing it to US$6.45 (note that the main Strathmore stock, STM.V, is in Canadian dollars as opposed to the Pink Sheets STHJF which is in US dollars). And that's assuming they give up half of the operating profits in some sort of joint venture operation. I haven't accounted for taxes, but the number is very rough with a lot of pessimism [appropriately] baked into it.

The spot price is not the same as the contract price (which is how most uranium is sold), but last I heard, the spot price was typically below the various contract prices lately.

All of this would be speculation if not for the large supply/demand imbalance (which I posted about here and here and more stuff in the combined links area) and the difficulty in correcting that imbalance over any reasonable period of time. My guess (and it's a guess: even the great Warren Buffett was wrong about at least how long it would take for the silver market supply/demand imbalance to play out), my guess is that when the dust settles, all the noise about gold and oil will end up being overblown while uranium quietly becomes an increasingly important comodity.