Record-breaking uranium price poised to go higher

Vancouver – Record-breaking uranium prices are poised to go higher as investor funds try to cash in on a rally that is already being fueled by supply disruptions and rising demand, analysts say.

The forecast comes after investor funds bought 260,000 pounds of uranium concentrate that was sold in Texas auction last week by Mestena Uranium Co., a small U.S. producer.

Denver-based market analyst Trade Tech said the auction helped to send the spot price of uranium surging to a record high of US$72 a pound on December 15. That increase, from US$65 the previous Friday, marked one of the biggest weekly rallies in history.

“We expect prices to keep going up,” said Gene Clark, chief executive officer with Trade Tech.

That view was echoed by Eric Webb, an analyst with Georgia-based Ux Consulting Co.

“The market is in a very tight position,” he said “Right now all indications point to prices being under upward pressure for the next couple of years.”

The price of uranium used to fuel nuclear power plants that generate about 16% of the world’s electricity, has increased significantly in the past year due to demand from nuclear utilities that rose faster then mine production and drove down stockpiles.Prices are up from US$41 a pound in February.

The rally has also been attributed to supply disruptions, including the recent flooding of Cameco’s (CCO-T, CCJ-N) Cigar Lake mine in Saskatchewan. Previously slated for starup in 2008, it is expected to account for 17% of the world’s mine supply.

But in a year when global production is forecast to come in below last year’s 108 million pound level, analysts say investor funds such as Uranium Participation Corp. and Nufcor International, are also contributing to the rise in demand.

“These are companies which set out with the intention of buying concentrates and holding for price appreciation,” said Mr. Clark.

Ux’s Mr. Webb said soaring prices and forecasts of a further rally, have made some companies reluctant to offer their production under fixed price contracts in case they miss out on any future price increases.

He said buyers are now having to accept contracts that require them the pay the spot price at the time of delivery. This in turn is playing into the hands of investor funds which are acquiring concentrates at a price they expect will be below what buyers will be required to pay down the road.