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Sellers appear resigned to wait for uranium price uplift

By Michael Knapik, David Stellfox

March 25, 2009 - Uranium sellers appear resigned to watch the spot market price continue to drift downward for at least the next several weeks.

"I don't see any reason that the slide won't continue. Right now I don't know what it will take for the price to go up," said one uranium seller.

The reason for the steady price decline since last fall is that the spot market continues "to be oversupplied" compared to demand, said one analyst. (See a related chart on Platts uranium indicators.)

A lot of buyers are "bargain hunting" and will only make a purchase if they see "a really good deal," another analyst said.

The price will start to go back up, this analyst said, only when current uranium supplies clear the market.

The spot market price of uranium is at $42.50 a pound U3O8, according to the price reports by TradeTech and Ux Consulting. TradeTech lowered its price by $0.50/lb March 13, while Ux Consulting lowered its price by $1/lb on March 16.

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Sellers have responded to the bargain hunting -- primarily by utilities -- by dropping their offer prices below published prices by only $0.25/lb to $0.50/lb, rather than by $1/lb or more, according to a number of market sources.

In Platts' opinion, based on discussions with market sources, spot uranium transactions over the next week are likely to occur within the range of $39.50-$44/lb U3O8.

Given that downward momentum, the spot price could drop below $40/lb, several analysts said.

But if that were to happen, actual buying by utilities and others would increase so the spot price would not stay below $40/lb very long, one analyst said. "Any material offered below $40/lb would disappear instantly," this analyst said.

Many utilities would use that opportunity to buy uranium at what would be considered a low price and reduce their overall uranium costs, the analyst said.

But another market analyst cautioned that not all utilities can take advantage of low prices and build up their inventories.

"In this credit crunch climate, not every utility has money for discretionary purchases," he said.

In the past, large producers such as Cameco have purchased material in the spot market and, in doing so, have often helped bump up the price.

But Cameco is apparently not interested in using any of its cash now to make a spot market purchase, several sources said, and appears to be preparing to use that money to make a major acquisition.

Canadian uranium investment company Uranium Participation Corp., which currently holds more than 9 million lb U3O8 equivalent in inventory, has been mentioned by some analysts as a possible takeover target, along with uranium producer Paladin Resources.

But this analyst added that utilities are also concerned that a spot price that stayed in the $30/lb-$40/lb range for very long could hurt future uranium supply.

The long-term price for U3O8 did not change over the past week. TradeTech kept its long-term price at $69/lb, and Ux Consulting kept its price at $70/lb.

But some analysts said that while the spot and long-term markets are separate markets, the weakness in the spot price is creating downward pressure on the long-term price. "There is a little softness" in the long-term price right now, one analyst said.

One result, a number of these analysts said, is a medium-term price somewhere between current spot and long-term prices that has been emerging for some months for deliveries in 2010 and 2011.

That medium-term price is reflected by the price in several recent deals, several sources said, and in the offer prices -- below $60/lb -- reported by brokers Tullett Prebon, MF Global, and Evolution Markets for deliveries in 2010. But for 2012 and beyond, the long-term price seems to be holding around $70/lb and may even be a bit higher, one producer said.

But the softness in the spot price is "making it more difficult to get realistic floor prices," this producer added. Many uranium contracts have hybrid pricing formulas that contain both fixed and market-related pricing formulas.

In the bull uranium market of 2007, floor prices were often at $45/lb or even much higher, but today buyers would likely want a floor, or minimum, price below $40/lb, several analysts said.

Ceiling, or maximum, prices buyers have to pay for deliveries are also being affected in a number of contracts, several market sources said.

In this market, a ceiling price could be around $80-$85/lb and not over $100/lb, which was a common ceiling price several years ago, market sources said.

In the market, the Tennessee Valley Authority is quietly looking for about 100,000 lb U3O8. Bids are due this week.

Omaha Public Power District is said to have recently purchased a relatively small amount of uranium as UF6.

Entergy, which was looking to buy about 250,000 lb U3O8 equivalent a year over the period 2010-2014, received bids March 16. A number of market analysts said they expected Entergy to buy substantially more uranium equivalent than 250,000 lb/year if it sees attractive prices.

ERA seeks go-ahead for heap leach project

Rio Tinto-owned Energy Resources of Australia, or ERA, has filed for regulatory approvals for a heap leach project at its Ranger mine, the company said in a statement March 16.

If approved, operations are expected to being in 2012. The facility would treat about 10 million metric tons/year of low-grade mineralized material that is currently stockpiled or yet to be mined to produce 15,000 mt to 20,000 mt of uranium oxide.

ERA's pre-feasibility study of the heap leach facility is expected to be completed within the first half of 2009. The proposed heap leach would operate concurrently with the existing Ranger mill facility and is not expected to extend the mine's operational life.

The Ranger mine produced roughly 12 million lb of U3O8 in 2007.

The facility is one of three projects that will affect the mine's future, ERA said March 16. The existing laterite project and the underground project also are factors.

The laterite plant improves uranium recovery from lateritic ore, a material containing a high proportion of clay minerals.

It is expected to contribute approximately 400 mt/yr of uranium oxide to ERA's production during the seven years from 2008 through 2014.

In late 2008 ERA announced that it believes the underground resource may be 15 to 20 million mt containing 66 to 88 million lb of uranium.

"We think that the large resource and exploration potential should provide a long life mine with low cash operating costs," ERA said.

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