So, what will the uranium price be on Monday…? Any guesses…?
The price is released every Monday by the US-based Ux Consulting Company. Last week the uranium spot price saw its largest ever weekly gain since pricing records began in the 1950s. It jumped from $95 per pound the previous week to $113. Are we heading higher again? I think we may be – but I don’t expect another strong leap. A few dollars more, maybe.
But how exactly is this spot price ascertained? You can’t buy uranium on an exchange like oil or copper (thankfully), so there is no ready-made market for fixing prices.
The spot price is therefore worked out by private organisations such as Ux Consulting based on its own methodology. This is the widely reported figure for the spot uranium price and it used in contracts and by media outlets such as the Wall Street Journal. This is the one you should use.
We could make some guess at what the price will be on Monday, but it would be a bit of a sweepstake. I do however, expect it to gain. My target for the uranium price this year is $150 dollars a pound – and it looks like a consensus may be building around this figure.
On Tuesday, SXR Uranium One president and chief executive Neal Froneman said that he expected global demand for uranium to increase by 2.5% a year over the next decade. He predicts prices will rise to $150 per pound by the end of 2007 – bang in line with my expectation. Some US commentators have said even that they expect the price to hit $500 within the next five years, but I am not going to give my support to that view just yet.
At the risk of being boring, all this is good news for uranium PRODUCERS. The world’s top five producers are as follows: Cameco (20%); Rio Tinto (20%); AREVA (12%); BHP Billiton (9%); and Kazatomprom (9%).
AREVA is a French group that mostly owned by the public sector, so I don’t believe it is a good investment. Kazatomprom is also state-owned by the glorious nation of Kazakhstan, but all the other companies are easy to buy into.
A volte face - well not exactly
I have also been saying for some time that I believe that there are a lot of assetless propositions on Aim that I do not believe are good investments. There share prices have been boosted by the soaring uranium price – but many of them are just looking for uranium oxide – or yellowcake. They don’t actually have any of the stuff as of yet. However, there could be some Aim companies to watch out for over the next year or so.
I predict a situation similar to that which we have seen in other commodities over the last few years. Mines that were closed in the past as uneconomic will suddenly present themselves as solid business propositions and they will be reopened. These mines will be able to be got to the production stage very quickly and, should an operation be combined with a more prospective element that would be very interesting indeed.
It is such a combination that will be a winner on Aim, in my view. Companies with a pure exploration focus are too risks, but a combination of production and exploration is exciting. It’s quite similar to how things are done by some of the better Aim junior diamond miners… Keep your eye on that IPO pipeline…
I shall keep looking out for such companies over the coming year or so - and so should you…
