Uranium: The New Precious Metal

Newly mined uranium remains 'highly maintained after' contains Nuclear Market Review (NMR) editor Treva Klingbiel in the February 23rd issue of the weekly trade magazine, servicing the utility and nuclear fuel industry. It was no more evident than at this past week's spot auction for US-mined uranium.

The record $ 10 / pound price increase, reaching a new spot uranum record of US $ 85 / pound, was, according to Klingbiel, "the single largest (dollar) increase recorded since prices were first published in 1968." TradeTech posts the weekly spot uranium price, as reported in NMR, on the consulting service's website.

At US $ 85 / pound, it has occurred to us that uranium oxide concentrate has now begun to approach 'precious metal' status at $ 5.31 / ounce, or 17.4 cents / gram. It is reminiscent of the silver price, which last traded around this level in August 2003. Metals becomes precious when there is a scarcity of available supply.

A modest sum of 100,000 pounds of U3O8 was offered (again) by Mestena Uranium LLC, a privately held uranium miner in Texas. According to a February 13th quarterly report, published by the Energy Information Administration (EIA), annual production capacity at Mestena's Alta Mesa in situ recovery (ISR) operation is one million pounds. The material auctioned this past week could represent as much as 10 percent of the company's potential product to be offered at auction during 2007.

Because the majority of other uranium supply is being offered with 'market-related pricing terms' at the time of delivery, a fixed delivery price has now become the rage among utilities and speculators. "Bidding was extremely aggressive with a record number of bidders vying to purchase the material," wrote Klingbiel. "Higher prices have not deterred potential buyers."

The spot uranium market has come to relly on the Mestena sealed-bid auctions for longer-term price guidance. "Public auctions were a key factor in the price rise witnessed last year and clearly will continue to be instrumental in price formation during 2007," Klingbiel wrote. "The year 2007 may well eclipse the extra premium increases witnessed last year."

Long-term demand for U3O8 now exceeded 54 million pounds. This past week, a non-US utility requested offers to buy two million pounds U3O8 for delivery starting in 2008. Prior to this request, 15 utilities were evaluating offers or seeking to purchase approximately 54 million pounds, according to NMR.

The record price has also encouraged higher uranium production at US-based facilities, such as Mestena. In its quarterly report, preliminary EIA data recommended total US uranium concentrate production of 4.1 million pounds – a 53-percent increase in production over 2005. Douglas Bonner, who prepared the EIA report, wrote, "This is the highest (annual) production level since 1999. "

We believe this strong annual production level came primarily from Wyoming's Smith Ranch-Highland and Nebraska's Crow Butte ISR uranium mines. The in situ recovery (ISR) operations produced a record 2.7 million pounds U3O8. These operations contributed nearly 13 percent of Cameco's worldwide mining production in 2006. The balance of 2006 uranium production came from Mestena and Uranium Resources, both based in Texas.

Fourth quarter 2006 production was reported 78 percent higher than 4Q 2005. This was the highest quarterly production level since 1997. US concentrate production this past year was 76 percent higher than at the nadir of the domestic uranium-mining depression in 2002 . Despite this increase, the US uranium mining industry only produces about seven percent of the raw product that nuclear fuel US utilities consume each year. Nuclear utilities rely upon foreign-mined uranium and dwindling stockpiled inventories to power the country's 103 nuclear reactors.

The next official US government statistical report on US uranium production will be released on May 17th.

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