Thursday, March 29, 2007

Uranium prices closing in on $ 100


Uranium prices are now officially ten times higher than they were just five years ago, in 2002, when they were around $ 9.50 per pound of U3O8. According to UxC, a leading publisher of uranium prices, the commodity reached $ 95 per pound this week, an increase of $ 4 in relation to last week’s $ 91 per pound. Already closing in on $ 100, the price of the mineral has been skyrocketing in last couple of years. Uranium prices increased 99% in 2006 alone, from $36.25 in the beginning of the year to $72 per pound of U308 in December, and analysts believe the commodity should do just as well this year.


Sean Brodrick, investment director at Sovereign Society, one of the world’s leading publishers of global investment opportunities, outlined reasons for the boom in prices of the radioactive mineral in an article for Moneyweek magazine. According to him, one of the main causes of the rapidly increasing value of uranium is a demand that greatly outstrips supplies of the commodity.

His article points out that current production from uranium mines accounts for only 62% of what is actually needed by existing nuclear power plants. To make things even more interesting for investors, the popularity of nuclear energy is on the rise due to the depletion of oil and gas reserves and an increased resistance towards coal-fired plants, one of the main sources of the greenhouse gasses responsible for global warming. This has led many countries to plan the construction of even more uranium fueled plants. China alone should increase its nuclear capacity five times by 2020, informs a report by the World Nuclear Association.

Another study released in the end of last year by Resource Capital Research and published in the British newspaper The Guardian says that a reactor building program across the world should add 250 nuclear power plants to the 440 already in operation. Also according to The Guardian, the European Commission’s plan for a common energy policy in the bloc should favour nuclear power as a means of reducing carbon emissions and combating volatility of gas and oil prices.

While the popularity and demand for nuclear energy is on the rise, the production of uranium isn’t keeping up, making the mineral more and more valuable. The vulnerability of uranium supplies was highlighted in October of last year when the Cigar Lake mine, in Saskatchewan’s Athabasca basin, flooded. The mine, partly owned by Cameco, was supposed to come into production in 2008 and should have accounted for 40% of the new output of uranium forecast for the next three years and 12% of world demand. With the flood, projects at the mine have been delayed and production is not expected until 2010.

Uranium’s scarcity and, consequently its value, is now guaranteed also by private investors, who are rushing to buy fuel grade uranium in the hopes of profiting from the world’s need for nuclear energy. According to an article published in The Wall Street Journal, investors have started to compete with energy companies in the market for uranium, pushing prices further up. Many have been successful in gaining ownership rights to amounts of the commodity, stored in licensed repositories, thus reducing even more the limited supply of the radioactive mineral.

Sources: The Wall Street Journal, Reuters, The Guardian, Moneyweek and CanAm Uranium
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