The uranium price has been on a roll recently. In June of this year, the spot price was $40.75/lb and it seemed that there was no reason for it to move higher for many months, if not years (according to some industry observers). However, in late-July, a modest amount of spot buying sent the price flying to $46.00/lb and industry participants took notice. In the third week of October 2010, many participants at the Nuclear Energy Institute conference in Savannah believed the price rally was already wearing thin and expected a retracement back to the low-$40s. However, as we know now, the price instead continued to rally up to $53.50 as of this past Monday and looks set to post ~$55/lb this week.
For some time now, our uranium thesis has forecast a rally and bull market starting in late-2011. It looks like we were wrong, but perhaps only on the timing. While it is unclear whether this recent rally will march on unabated, our belief in our bull market thesis remains unchanged: the world needs more uranium production and we need prices in excess of $75-80/lb to incentivise new production.
To add fuel to the fire, this week it was reported that AREVA, the French uranium/nuclear company has entered into a long-term contract with China Guangdong Nuclear Power Company (CGNCP) to deliver 20,000 tonnes of uranium over a 10 year period at a reported price of $75/lb. This agreement is one of many that has been made over the past two years by countries and utilities looking to fuel their growing needs.
From our recent discussions with industry participants, it appears that the spot market is being starved from the supply side. The mid-term market (1-3 year delivery) has become more active, possibly driven by utilities scrambling to cover near-term requirements and there have been a number of new requests for offers in the market for deliveries in the 2012-2019 timeframe. We believe it is the impending shortfall in the long-term market that will ultimately drive the price beyond the $70/lb level in late-2011 to early-2012. Hold on to your hat, this one should be fun.