hold the line, page-3

Dear W2

There is no such thing as a rational market. But individuals can (try to) act rationally.

I have heard others speak of the potential end of the nuclear industry and I feel they may be catastrophising. Certainly the uranium industry is in crisis and not all players will necessarily survive. Certainly a lot of investors have lost a lot of money. But to speak of the end of the nuclear industry, that's taking it a bit far.

What we are seeing are the basic market forces of demand and supply playing out in front of our eyes. After the shutdown of plants in Japan and Germany there was a sudden drop in demand and so that has led to a fall in the price of uranium. That price is continuing to fall as a result of excess supply.

Fortunately, there is evidence that demand is picking up and is closing the gap on the supply, which raises the prospects that the uranium price will stabilize in the near to medium term.

The restart of reactors in Japan is not that significant, as Japan has years of stockpiled uranium from contracts it signed before the Fukushima disaster.

Uranium's savior is China's aggressive construction schedule for new Nuclear power plants. At the same time, there are production cut-backs.

Its difficult to predict when the uranium price will stabilise, but many analysts expect the price will surge in a number of years. This is because the current glut in the uranium price is not encouraging the development of new mines, which will lead to supply constraints in a number of years.

There are dozens of nuclear power plants under construction at the moment and they will take advantage of the low uranium price for a while. But there will come a point at which the uranium price will inevitably rise, because when you have a fixed supply and an increase in demand then prices must rise. In reality, some mines have spare capacity and they will be able to absorb some of the additional demand over the next few years. But even so, there will come a point when the balance of supply and demand tips back in favor of the uranium industry.

Investors are cluing in on this fact and so we are seeing some interesting activity in several other uranium stocks. Its strange that SMM isn't following this trend. And to some extent I feel this is completely random and irrational.

So the point I am trying to make to those that hold SMM is that we need to hang in there, because uranium stocks will come back into fashion, and the indications are there that this will happen sooner rather than later.

The Japanese nuclear restarts are the catalysts, not for a recovery in the uranium price, but for a change in investor sentiment. And investor sentiment is what drives share prices up and down.

Rational or not, I feel that SMM has reached a floor around 36 cents.