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Friday
Feb232007

Utility Companies: Where are your brave captains of industry?

Following on from the sealed bids auction for 100,000 pounds of uranium we turn our attention to those who didn’t win.

Now that the spot price for uranium stands at $85.00 per pound where do the Utilities go from here? Those whose bid came close to clinching the deal but were beaten by a higher bidder, what lies ahead of them? They gave it their best shot and came home empty handed.

Again we will take another walk down Imagination Lane to the boardroom of the fictional Gigantum Power Incorporated, whose means of generating electricity is largely dependent upon nuclear power and thus a constant supply of uranium is paramount to their very existence.

After days of long meetings and sleepless nights their bid of $82.50 failed to clinch the deal so now they must reconvene and form a strategy for success. Smoke filled Meeting Rooms, endless pots of coffee; do not disturb notices pinned to the most important of doors. Even the weather takes on heaviness as every little niggle seems to grow in stature.


The board assembles and the usual pleasantries are exchanged but with a little less enthusiasm than normal. A recap, akin to a post mortem begins. The young buck with the uranium chart still clenched in his fist from the previous meetings wants to say I told you so! But manages to subdue his rage.

uraniumchart1

The accountant, who knows the cost of everything and the value of nothing casts aspersions on the auction winners for being too cavalier in their business dealings. The spineless ones shuffle in their seats as the Chairman’s face reddens as ‘pass the parcel’ is played with the ‘who’s responsible’ tag.

When Cigar Lake comes back into production all this upward price nonsense will cease someone murmurs, but that will take time and the demand for uranium grows as every new nuclear plant is announced.

In our humble opinion getting the bid high enough to win the next sealed bid auction is a near term problem that needs to be solved. However these utilities need to address the long-term problem right now. A band-aid is not a cure and unless they get a handle on the big picture the pain is sure to continue. May we suggest that the answer is staring them in the face? These captains of industry have to roll up their sleeves and get involved with their supply, namely the miners and go out there and purchase the appropriate uranium stocks for their needs. This involves research, analysis, finance and the courage to secure their companies’ destiny.

The alternative is grim, how do you explain to your shareholders and customers why you are about to introduce rotational blackouts in their area! After all you are in the energy business so it is reasonable to expect that you were aware of the supply/demand situation regarding uranium.

Having experienced a 3-day week in London during the first oil crises I do not want to go through that again, it cost billions in lost production and created a lot of hardship for many families.

So, this is the challenge to the captains of the Utility companies:

Are you bold and daring enough to secure your companies future and be forever known as a visionary or will you plead ignorance when a successful operator takes over your ailing company and asks you why you were not pro-active when it really mattered.

23 February 07


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Reader Comments (2)

Wow! You are boldly predicting the future. I did like the estimated bid price of $82.50, as you were the only writer(s) that I had seen who were willing to stick their neck out a bit. I just read that when Cameco releases their update (soon, I hope, without anymore delays) the price is going to go to $100 immediately. That scenario fits in nicely with your drama in the boardroom above. The truth is that Cameco is hurting, and anyone dependent on them is full of wishful thinking. That Cigar Lake mine may never make it to production. What boggles my mind is that 3 analysts have recommended Cameco as a "buy". Although I have only been following uranium for the past 15 months, I am beginning to understand how many "pundits" lack the knowledge to make reasonable statements. Do not trust these guys, they are "wild-eyed fairies on Wall Street". October 23 was the second flood at Cigar Lake and there have been questions raised as to whether Cameco knew back in April after the first flood that the mine was not feasable. It may take the insurance company to figure it out, because if they can prove Cameco knew about the unstability of the mine, then the "unforeseen" event may not be insurable. This would be a rather nasty blow to Cameco. And not to mention how they are getting hurt by having to provide uranium at $20/lb to those utilities that signed contracts years ago. BHP Billiton also is facing a severe situation, where they are locked into old contracts at $20 and cannot even supply the amounts from their own mines, so they are having to BUY the metal from other miners. I expect they are paying more to purchase it than they are selling it for. This can only lead to BHP and maybe even Cameco, buying up some of the more promising miners to augment their supply. This will drive up share value in a hurry. Stage two - prepare for liftoff!

February 24, 2007 | Unregistered CommenterBob G.

Bob G,

Thanks a bundle, another great comment.
Remember that Cameco has 75% of its contracts without a fixed delivery date so there are no penalties for failure, in fact the they will get more money when they do deliver. But as you point out, can they actually deliver? As a former engineer with Canadian experience I am looking forward to what their report will say.

Secondly, We are glad that you like our little role play idea, it can be illuminating to see just what each individual member of the team really thinks when it is they who are on the spot. Try it in the bar with a few buddies, give them a role to play, appoint the accountant etc, and let it rip.

We have been a bit hard on accountants for which we apologise but we wanted to convey a few different types of character in the mix.

This brings us back to that word 'BRAVE' ask yourself who signed those contracts with Cameco without a penalty clause, or an incentive for delivery to ensure that they are served first. The role play will continue and we regret to say this, but heads will role!

February 24, 2007 | Unregistered CommenterUranium Stocks

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