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Radioactive Opportunity?

By: UraniumSeek.com

-- Posted Friday, May 29 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

Uranium One’s woes in Kazakhstan are a sure sign the uranium price will go higher faster than what most people believe.  For investors, it could mean a premium will go to deposits and mines in the geopolitically safer countries of the western world.


The uranium market is already dealing with an annual supply deficit of some 50-70 million pounds.  And Kazakhstan, a former Soviet republic, is home to a fifth of global uranium reserves. Analysts expected Central Asia's biggest economy to become the world's top global producer this year., but now that growth curve is being thrown into doubt.


As a quick recap, a former head of the Kazatomprom, state uranium agency in Kazakhstan, and three of his senior executives, have been arrested by the KNB, the Kazakh successor service to the KGB.  Allegations are that they illegally sold some state uranium assets to murky offshore companies.


One of the most intriguing possibilities to come out of this news is that this is a Russian-Chinese power play to prevent a Japanese from completing their purchase of a part of these assets from Uranium One, which is due to close on June 15.


Despite the annual production shortfall, there is clearly a lot of secondary source uranium around still from the de-commissioning of warheads – or else the current price – and the futures price – would be a lot higher.


But if the power play described above is true, the point is that governments are seeing a future shortage, and are moving aggressively now to secure supply.  If they are essentially nationalizing uranium deposits by buying them, what does that mean for the free market?  Less supply and higher prices.


Even if that scenario doesn’t play out, just the threat of it should keep a firm bid under uranium for a long time.


And that should be good news for the stock prices of uranium producers and developers (hopefully explorers too!) with assets in North America.


Analyst comments from several brokerage firms are already echoing this theme.  From Toll Cross Securities in Toronto, Canada:


“Over the past week several stories have unfolded, underlining the important role that geopolitical risk can play when securing a supply of uranium…


“It also serves as a reminder of how important political stability is when sourcing a reliable supply of nuclear fuel. Although it is unclear whether the changes at Kazatomprom will affect production in the short term, the validity of existing sales contracts may be affected, potentially bringing these buyers back to the market…


“..it may not matter, in the end, how foreign companies acquired their interests in Kazakhstan if the government decides to retract existing agreements and further nationalize its nuclear fuel program.


From GMP Securities in Toronto: “The second (scenario) is that the deal with the Japanese consortium does not close and there is significant influence exerted on the company to sell to the Russians or the Chinese.”


So where should investors look for gains in North American uranium stories? 


There are a few near term producers in North America, such as UR-Energy (URE-TSX), and Uranium Energy Corp (UEC-NYSE AMEX) that would surely benefit from a higher uranium price. 


Fronteer Development Group (FRG-TSX) with 134 million pounds in Labrador, and Uracan Resources (URC-TSXV) with 40.7 million pounds at their Double S deposits in Quebec have two of single largest resources currently of any one deposit in North America, giving them strong leverage to a rising uranium price.


Also, producers Denison Mines (DML-TSX) and Cameco (CCO-TSX; CCJ-NYSE) have raised significant money lately that could be earmarked for the acquisition of one of these fast developing companies.


No one knows how the situation with Uranium One will turn out, but the increased tension in the uranium market should be positive news for investors – particularly those investing in North American assets.

-- Posted Friday, May 29 2009 | Digg This ArticleDigg It! | Discuss This Article - Comments:

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