Texas uranium auction expected to break the US$100 barrier

Vancouver The eyes of the uranium market are trained on a Texas auction this week.

That’s because bidders are expected to pay a record price for 100,000 pounds of uranium put up for sale by a private U.S. company, Mestena Uranium.

Senior executives at Mestena were unavailable for comment when the Northern Miner called the companys Corpus Christi head office, just before the April 3 auction deadline.

As the auction is sealed [meaning that offers are sent by e-mail or in an envelope], it could take another few days before the results trickle into the market.

But it is widely expected that the successful bidder will break a new record by paying over US$100 a pound for a commodity which has seen its value soar in recent months.

As Mestena prepared to auction off uranium from its Alta Mesa in-situ leach operation, prices had reached US$95 a pound on the spot market up from US$75 in February.

Mestena is being closely watched because every auction it has held in the last few months has resulted in strong price increases in the spot uranium market

When I talked to [Mestena ceo George Tanner] last time, they did an auction in December and he said he was surprised at the range of [bidders], said Gene Clark, chief executive officer of TradeTech, a Denver, Colorado news service, which tracks the uranium market.

It went all the way from hedge funds to utilities, said Mr. Clark. Almost everyone was interested in buying, put it that way, he said.

Uranium prices have soared almost tenfold in the past five years and have almost doubled in the past six months from about US$50 per pound to US$95 this week.

The main reason for the strength is the expected global growth in energy consumption, which is likely to be met increasingly by nuclear power stations.

According to a recent World Nuclear Association report, there were 442 nuclear power stations around the world in September last year, with another 28 under construction and 62 proposed.

Also contributing to the price rise, is secondary demand from utilities who are buying more than they can consume under long term contracts where uranium can be bought at a discount to the spot price.

In several cases, they are actually taking more than they actually burn in the reactor just because prices are so low that to buy and hold is better for them than waiting for a higher market, said Clark

Hedge funds are also fueling the rise in prices, he said, by buying now in anticipation that the uranium can be sold for a premium in the future in the future.

Spot uranium prices rose again last month following the announcement by Energy Resources of Australia (ERA-A) that it had declared a force majeure on its sales contracts, because of flooding at its Ranger operation in the Northern Territory.

TradeTech said spot uranium supplies remained tight as market participants looked ahead to the April 3 auction in Texas where Mestena was making available 100 thousand pounds of uranium oxide for April 2007 delivery.

The move towards more nuclear power stations signals a change in attitude towards nuclear energy. Even Australia, which houses 40% of the worlds uranium reserves, but has a freeze on building new uranium mines, is expected to change its stance after a ruling party conference this year.

But global supply of uranium is expected to fall short of demand because of a lack of investment in exploration and production in the past 20 years, the time taken to bring new mines into production, and severe flooding at one of the worlds biggest developing uranium mines, Camecos (CCO-T, CCJ-N) Cigar Lake, in Saskatchewan.

Cameco recently said Cigar Lake will come into production in 2010 two years later than originally planned.