Apr 7, 2007

Casey Research: Uranium at $500?!

Uranium at $500?!

"...Okay, here’s the latest on the uranium front. Word on the street is that, due to the Ranger Mine flood, that company has now fallen back on force majeure for its outstanding contracts. Specifically, its deliveries will fall short by 5 million pounds next year. That shortfall is, to use the correct word, impossible to make up through increased production from other suppliers.

This has triggered a mad scramble, because due to technical considerations, a nuclear power plant simply cannot run out of fuel. But the problem is massively compounded by the fact that the utilities are now competing with the investment-oriented uranium participation funds for yellowcake. Simply, the funds are experiencing a wave of new investment demand… but they cannot take in new investors unless and until they are able to buy more uranium.

It is, you could say, a tug of war between fear (the utilities running out of fuel) and greed (the profit incentive of the fund managers).

Sitting in the driver’s seats we have the mines, at least those that still have not already signed long-term contracts for all of their production. And word is they are actively playing the utilities off against the funds in order to lock in higher prices.

While the news hasn’t been announced to the markets yet, our well-placed sources tell us that at the latest auction, uranium may have traded as high as $115 a pound. But more interestingly, industry pros are now saying that this is just the beginning of a whole new run-up in uranium prices. It is now pretty much a given that U3O8 is headed for $150 a pound, but there is an increasing level of chatter that uranium might go to $250, or even $500 a pound, as the supply choke worsens.

Of course, this is all wonderful news for the uranium juniors, and investors in their shares, but not all of these companies are cut from the same cloth. Most, and by that I mean the vast majority, are paper tigers propped up by nothing but a promoter’s well-told tales.

And almost all the juniors are well ahead of themselves on any even remotely rational pricing model.

So, if you are invested in this atomic-powered sector, be happy, but be cautious. As always, we’ll keep you informed on the latest in the Casey Energy Speculator."

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