On October 17th, we reported the recently sleepy uranium market may be poised for a comeback.  The spot uranium market has indeed continued to show signs of strengthening throughout the rest of the month and into November.

Friday’s issue of Nuclear Market Review (NMR) posted no change to its spot price indicator, keeping the value at $93 per pound U3O8.  It appears equilibrium is being reached in the current market, as NMR Editor Treva Klingbiel reports, “The uncertainty that surfaced in the market over the past few weeks diminished slightly as the gap between willing buyers and willing sellers narrowed, with sellers showing the greater willingness to move.”

Though, this larger reaction on the part of sellers shouldn’t give way to alarm of a possible market downturn.  It’s nearly the end of the year, which can cause special circumstances.  Sellers may be more motivated to move material by the end of the year while buyers’ budgets and accounting issues may give them pause to wait.  

What about the speculators and hedge funds?  Nuclear Market Review Editor Gene Clark stated, “Speculators and hedge funds continue to show interest in acquiring material, but are, as yet, unwilling to bid prices up as they did earlier in the year.”  Hedge funds did make one of the reported two transactions of 100,000 lbs each this week in the spot uranium market.  The other purchase was by a utility.

It seems like the spot uranium market may have some year-end lethargy, as its participants have a bit of a wait-and-see attitude.

Uranium mining, as other types of mining, faces opposition and hurdles to overcome on the road to production.  One more twist has appeared on the horizon for some uranium companies.  Recently the United States House of Representatives passed a bill, which if a version is enacted into law could have a large impact.  The bill is an effort to revise the old 1872 Mining Law and make the “hard-rock” mining industry pay royalties on gross income revenues from mines on public lands. 

The bill, known as H.R. 2262, would require royalties to be paid on gross income at mines on public land, 4 percent at existing mines, and 8 percent on new mines. Industries such as the coal mining and oil and gas industries already pay royalties.

Proponents of the bill say other industries that benefit from minerals and assets belonging to the federal government pay royalties, and so should other miners.  They also point to the large clean-up costs of abandoned hard-rock mines in the U.S. and that those projects would benefit from proceeds of the House bill. 

Opposition to the bill makes it unlikely it will pass in its current form.  Senate Majority Leader Harry Reid, D-Nevada, whose father was a gold miner, is geared up to fight the bill as it goes to the Senate.  The President has also expressed opposition to the bill.

However, if a modified version of the bill were to be enacted into law, those uranium companies possessing leases on public lands may see a definite dent in their bottom line in the future. 

In practice, it is the job of the public relations department to add a positive and rosy tint to any news or somehow spin news to make it appear less unflattering and to shout positive news to the world. Investor relations can be thought of as public relations geared toward investors instead of to a consumer.  Of course, there are many regulations that govern investment statements and the majority of investor relations professional are just that, quite professional and very knowledgeable about the company they represent.

However, at StockInterview, we continue to research news that appears too optimistic and scrutinize information accompanied by a long list of risk factors.  Perhaps a company is just being too hopeful, and not trying to mislead potential investors. In any case, don’t forget that things may just not go as planned.

The pervasive and classic example of this in the uranium mining industry is with production estimates and timelines. Many potential obstacles may present themselves: permitting delays, engineering difficulties, logistical concerns, government interference, weather incidents and other various issues that may cause delays. It is rare for a company to start earlier than announced and/or produce more than expected.

Cameco’s Cigar Lake flood has, at least for now, eliminated a huge projected supply of uranium. Some may recall that this was actually the second water issue at Cigar Lake.  The first incident caused Cameco to announce a six month delay and production was estimated then to begin in late 2007. Next, disaster struck in October of 2006 with significant flooding.  Now, the latest news is production will start, at the earliest in 2011.  Officially, they state,

A target date does not spell certainty; indeed the entire statement has a ring of conditionality to it, and unknown obstacles that could still possibly present themselves. 

Weather can be unpredictable and cause disruptions in supply. Pictured above is the flood at Pit 3 of Energy Resources' Ranger Mine on March 2, 2007.

While the Cigar Lake flood was determined to be a result of engineering and planning oversights, weather can also be unpredictable and detrimental, as was the case with Energy Resources’ Ranger Mine flood. ERA anticipates pit three at the Ranger Mine to be dewatered this month.  Then mining will recommence and is expected to be at normal levels in 2008.

Unpredictability and logistical concerns can also play a role in pushing back timetables.  Uranium One recently announced shortages of sulphuric acid, which it utilizes in its uranium projects in Kazakhstan. The company lowered its production forecasts for 2007 and 2008. 

This is not to say that all companies are guilty of being overly optimistic.  Most have a reasonable estimate of production estimates and timeline to production. One particularly pragmatic executive comes to mind that may actually be a little too modest with his estimates.  However, it’s definitely an area to study and take with a grain of salt as you examine projections given by those in the uranium sector.