re: speculators flock to uraniums glow
Speculators flock to uranium's glow Metal's soaring price proves irresistible JOHN PARTRIDGE
INVESTMENT REPORTER
A small but growing number of hedge funds and other bold investors are getting hungrier for one of the world's most potent metals: uranium.
Purchases of the nuclear fuel -- in solid or gaseous form -- by these decidedly non-traditional buyers are on pace to equal or exceed levels reached in 2005, according to figures provided to The Globe and Mail this week by Ux Consulting Co. LLC, a uranium industry research company in Roswell, Ga.
So far this year, the handful of funds that have caught the bug have purchased about eight million pounds of uranium on the spot market, according to Ux. This compares with about 8.75 million pounds for all of 2005, and perhaps an eighth of that in 2004, when investors started to buy the metal instead of just its producers' shares.
Adjusting for some sales, fund executives and industry analysts estimate that investors now have a total of about 16 million pounds sitting in licensed storage facilities.
The investors have been attracted into the field by the metal's soaring price, which is being driven higher by what is shaping up to be a revival of nuclear power and a large gap between demand and inadequate supply.
Uranium concentrate, or U308, is now fetching about $53 (U.S.) a pound, up from $36 in January and a 2001 low of just $7.
New production capacity for the metal is set to come on stream over the next few years, which is expected to bring prices down.
But some analysts have recently raised their forecasts of long-term uranium prices. Greg Barnes at TD Securities Inc., for instance, has hiked his forecast to $35 a pound from $30, and expects the metal to hit this level in 2015.
One reason is that Russia has said it does not plan to renew a 1993 pact with the United States under which about 20 million pounds of uranium a year has been extracted from decommissioned nuclear warheads and sold into the market when it expires in 2013.
Rising prices are good news for uranium miners, including Cameco Corp. of Saskatoon, the world's largest producer, and for the new mid-sized producer that will be created through the planned $511-million (Canadian) takeover of Denison Mines Inc. of Toronto by International Uranium Corp. of Vancouver, which was announced Monday.
Uranium prices did not join in the general commodity and equity plunge that took place in May and June.
In fact, the metal's price has not suffered a week-to-week drop since July, 2003, according to fund manager Robert Mitchell, who heads Adit Capital of Portland, Ore., and was one of the first investors to start buying physical uranium in 2004. "I'm not aware of any other commodity on the face of the Earth that has gone 168 consecutive weeks without a downtick," he said yesterday.
Mr. Mitchell said Adit now has three funds, with a total of about $200-million in assets under management among them, and he is contemplating a fourth. The first invests solely in uranium (mostly the metal but equities as well) while the other two invest in uranium and other energy-related metals that are not traded on any exchange.
As it is, with 16 million pounds of the metal currently salted away, investors control less than 10 per cent of the approximately 170 million pounds consumed each year by the nuclear power industry.
Among the new players in the game is Lido Park LLC, a secretive Delaware-registered firm, that last month paid more than $42-million to buy 300 tonnes of uranium hexafluoride gas (UF6) from the U.S. Department of Energy.
A DOE spokeswoman said she was not authorized to provide any information about Lido Park's identity. However, two sources familiar with the matter said the firm is a uranium investment vehicle set up by QVT Financial LP, a New York hedge fund. QVT did not respond to a request for comment.
Other existing players also are continuing to buy more.
Uranium Participation Corp. of Toronto, launched last year and managed by Denison Mines, plans to use the $100-million (Canadian) proceeds of a share offering that closed last week to help finance the $93.4-million (U.S.) purchase of 650,000 kilograms of UF6 by the end of this year. The fund already owns 4.2 million pounds of U308 and 300,000 kilos of UF6.
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