Summer Correction?
Tuesday, May 01, 2007

It appears that our uranium stocks are now in a correctional phase. Many factors could be the result of this, such as the “buy on the rumor sell on the news” regarding Australia or quite possibly this is a sell in May and buy another day. Regardless, it seems that we shall have some very decent buying opportunities presented to us in the coming months. Our index of uranium stocks indicates that we are now in a down trend as we have broken through many of our support levels, most recently the 300 point level. We have not added any new positions to our portfolio nor added to any current positions. We shall continue to eye those companies which present us with the best value over the summer, and when an opportunity arises, we will pounce at the opportunity.

We shall continue to eye URE and STM as we believe that those two stocks will present the best value going forward, but for the time being it seems that prices will only get cheaper. STM is actually at the top of our list as they may be adding a JV partner in the coming weeks. Also, shareholders will have the opportunity to vote on a resolution approving the spin-off of the Canadian assets in the coming months which could potentially add $1 a share in price.

Regarding the spot price, it needs to take a rest as it has done after many of its past runs, maybe pausing for at least 3 or 4 weeks at this point. Also, for those who pay attention to the volume associated with the spot market, the volume is very low. At this time there are not many utilities interested in buying U3O8, as they feel that the price is going lower. Keep in mind that they sign long-term contracts at $85/lb. as opposed to the spot price, unless of course they need to take direct deliver of the material. Many of the utility companies we have sources at have indicated that they have not hedged themselves against the upward rise of uranium in the next few years except for their dwindling reserves purchased many years ago at very low prices. I suspect that this is why the utilities are so interested in the NYMEX uranium futures contracts that shall shortly begin trading in the next week. I am not sure that the volume will be there for the utilities to hedge all of their needs, or what premium that these contracts will trade at, but I am sure that the procurement officials at the utilities will use these contracts to further delay purchases of uranium. These guys have been looking horrible in their predictions over the past few years regarding where the price of uranium was going, but with these contracts they can be wrong and right at the same time. The only problem with hedging themselves is that even if they reduce their risk to the upward rise in U3O8 prices, what exactly are they planning on running their reactors with? All that money that will pile up is not going to power 20% of America's electric needs.

There seem to be many bears coming out of the cracks trying to call a top in uranium at this time, and I feel as though they may get burned and burned hard. First these utilities will need to start purchasing uranium in large amounts in the next year or two in order to have sufficient reserves and supply to power their nuclear stations. Even with the new supply coming on the market from mines being expanded and new mines as well, remember that new reactors burn more uranium than those already in production. The market may have a last run right when everyone expects it not to as this extra demand will hit the market at the same time (utilities adding to their reserves as well as new plants around the world procuring the necessary fuel to begin powering up their reactors.

Laramide, one of our recent additions to our portfolio has been pounded in the last couple days as they adopted a 'Shareholder Rights Plan' which indicates to many that management is not really all that interested in selling the company right now. We are in this for the long haul, so this really does not change our thinking on the company, except that we could possibly see some interesting buying opportunities ahead of us now.

Also, Oilsands Quest has been hammered recently although they have been successful in their drilling and added some highly prospective land across the border in Alberta. The company continues to pursue a JV partner, but is holding out for top dollar. Apparently many are interested, as indicated by the last conference call, but the sides cannot agree on the make-up of the partnership. My belief is that the longer the company continues to add barrels to their reserves for pennies-on-the-dollar, the more they will realize from any potential JV projects.

We will continue to search for value in the markets, and may pull the trigger on some trades if they present themselves. However, we shall continue to allow our capital to accumulate so as to “go all in” in a big way when we re-enter the marketplace. We will continue to monitor our uranium index over the next few weeks in order to see if the downward trend continues, or if we establish some support on the way down. When support is established and we can surely see that we are once again in an upward trend, we will make our announcement.