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« Ur-Energy Incorporated: On the floor? | Main | Uranium Stocks: Driving You To Capitulation? »

Uranium To Be Auctioned Next Week

The US department of Energy is planning to auction 200 tons of uranium hexafluoride, a type of processed yellowcake next week. So what can we expect?

Well we are surprised that they would rather have the cash than the product given the supply shortages and the ever-growing demand, but that is by the by.

We start with TradeTech LLC who according to Bloomberg reported this week that the metal fell for immediate delivery falling to $105/lb. This was apparently based on one transaction only for 50,000 pounds, but as it is all we have to go on, there it is.

The second indicator we can look at is the NYMEX Futures Market where we can ascertain that prices are indeed lower than they were last week:

December 2007 $109/lb
January 2008 $99/lb
June 2008 $103/lb
July 2008 $111/lb

At a guess this auction, in the middle of the quiet season, could return a price of around a $100/lb. If it is sub $100/lb then we will have to endure the bears leading the headlines with "The Return of Vegetable Oil" etc.

However please bear in mind that we are talking about the spot price which for a long time has been running way above the average longer-term price of $95/lb. The spot price will be more volatile than the longer-term price as with any commodity or asset class.

Secondly we need to be aware of the mining costs of uranium which as we understand it are on average around $30 - $40/lb. So if we assume the higher figure of $40/lb for our costs and the lower figure of $95/lb for the value then we are looking at a profit of $55/lb.

We agree that this is not an in-depth financial analysis of the uranium market sector but it gives us some comfort that all is not lost.

Finally, we will see what transpires over the coming days, weeks and months regarding uranium stocks. Our humble opinion is that there will be some consolidation going forward but the downside is now limited. Its impossible to pin point the exact day of a top or a bottom but last Friday, 10th August 2007 could well be looked upon as the final day of capitulation for uranium stock holders.

For what it is worth we have not sold any of our uranium stocks and we will continue to look for bargain basement opportunities to accumulate before they disappear with the negativity that weighs heavy on many investors minds at the moment.

Have a good one.
Uranium Chart 13 August 2007

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Reader Comments (4)


I am located in Sydney, Australia and we are seeing the very same situation here with our local uranium stocks. Actually I think the sell down in our stocks is even greater.

Bargains abound but right now the market continues to ignore the opportunities.

I suspect the situation will change once the market digests the DOE auction.

Great website!

August 13, 2007 | Unregistered Commentercrazyjimsmith

The selloff is to raise cash for a governmental agency and is not part of any strategy (other than avoid major selling of stockpiles to avoid disrupting market forces).

Many of the mines will cost well above $40 per pound to mine. And for conventional mines (the ones that generate serious amounts of uranium), don't forget to add in the milling costs. For small players, this can be a huge expense. Typically it would be perhaps $30 per pound for the bigger players.

If the mill is located at any distance from the mine, then you need to add in transportation costs.

August 14, 2007 | Unregistered Commenteranonymous

The DOE sell-off looks more like dumping to me. Hmmm, maybe an anti-dumping tax on the DOE would be appropriate. They do it in other markets when a product is dumped like this.

August 15, 2007 | Unregistered Commenteranonymous

There was an interview with the guy in charge of the whole thing. He was adamant about wanting to avoid disrupting the natural market forces and gave details about why the uranium needed to be sold (to fund the government group's operations). The amount of uranium being sold is not that large in terms of equivalent pounds of U3O8. It won't have much impact on the overall supply/demand (as opposed to the short term spot price supply/demand).

August 15, 2007 | Unregistered Commenteranonymous

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