Saturday, May 17, 2008
The new [acting] CEO of Uranium One, Jean Nortier expects the price to remain flat to soft over the next 12 to 18 months.
Cameco believes the price will be strong going forward.
Grandey suggested that utilities are willing to pay a premium for long-term uranium supplies for several reasons:I've read this before a while back. The utilities believe there's no reason for the price to be high at all other than speculation.
1) Concern uranium prices will rise over the long term
2) Some customers prefer price predictability for a portion of their long-term needs
3) Some customers are willing to pay a premium for long-term security of supply
Nevertheless, Grandey cautioned analysts that utility companies are well covered for the next few years by their contracts with uranium suppliers, and also currently possess a modest amount of inventory, leaving little demand by utilities in today's spot market. In fact, he suggested that utilities are avoiding discretionary purchases of uranium in the hope that the spot price will decline even further.
In hindsight, my own view is that the jump to $138 per pound was bad for investors. All it did was draw in more capital to the industry. It would have been better if the price had stayed low and uranium had remained "under the radar" for a few more years. However, I don't think much harm was done (except for people who bought into all the various poor quality uranium mining stocks).
This is a great example of applying a Peter Lynch principle. You buy a stock based on a certain explanation of why that stock is worth a lot more. I think Lynch called this a "story" but I don't like the idea of investing in stories. If the explanation of why the stock is worth a lot more is still valid, then you continue owning it. If that explanation is gone/wrong/invalid then sell it. If the explanation has changed significantly, then it's important to re-evaluate. [That last sentence is my own, not sure if Lynch would agree or not, probably yes].
Looking back at my original explanation of why Strathmore Minerals is worth a lot more, nothing has changed. The major forces at work are still there. The things that should have played out by now already have done so. Everything is going according to plan.
MY GUESS (and this is really just a speculative guess) is that the hedge funds drove the uranium price up but then loaned their uranium back out to utilities, causing the price to come back down. In a sense, the utilities would be shorting uranium: burning up uranium that they don't own, having borrowed it. If this is true, the uranium would still need to be purchased in the future and paid back to the hedge funds. Also if true, the hedge funds would have sent a price signal to the market of an impending shortage. If they're wrong, they lose. If they're right, they make money.
I continue to own Strathmore Minerals and Fission Energy.
UPDATE Tues May 20, 2008:
This article is interesting.
One person's comments that made me smile (since I own some shares in STM):
"There is a very limited supply of easily accessable fissable material on earth. The more plants we build the more the cost of *THAT* will go up. "