Developing Trends
Friday, January 18, 2008

Although uranium equities have continued to be battered by investors over the past few weeks, the news flow has been quite positive. ;One could argue that all of this news has been wasted on the current market, however even if one is not invested in uranium equities to the extent they once were this news should be kept up on so moves can be quickly made once the market begins to move upwards again. At this point a trend we had been following for the past month seems to be quite obvious now so we shall make the statement that uranium equities will fully recover and be able to power forward only after the financial crisis begins to come to an end. So long as billions are written off quarter after quarter by the various financial institutions of the world, markets will remain skittish, volatile and most importantly in a down-spin.

To the left we have included the charts of the Financial Sector ETFs, with the ordinary long ETF on top and the leveraged Financial ETF below it. Over the past three months the trend is apparent, and as the ETFs have gone, so too have the uranium equities. Our uranium index tracks the Financial ETFs much better than CCJ and DML.TO, but our charting program has a bug at this time so you will have to take our word for it at this time. No matter how you look at it, unless you are shorting at this moment it can be said that the trend is certainly not your friend.

With the bad news now told to you, this morning we awake to some very pleasant bullish news which put a smile upon our face. General Electric is now interested in supplying nuclear fuel to those utilities who purchase their nuclear reactors, much in the way that Areva and Toshiba have decided to do. GE made it very clear however that they are not interested in actually mining uranium, but rather procuring supplies so that they can sell reactors with the required fuel. I imagine that this would work in a way very similar to how Toshiba has set up their Westinghouse subsidiary's business with Kazakhstan's state run exploration and mining concern Kazatomprom. Although it is highly likely that GE will focus on companies such as Cameco, Denison Mines, and soon-to-be producers Uranerz Energy and Ur-Energy to supply it with its material it is also likely to look down the road and lock up production from the likes of Strathmore Minerals and Uranium Resources who will be producing uranium no earlier than 2009. GE could use someone outside of the West to supply it with uranium as well and the leading candidates would be Paladin Resources, Forsys Metals, and the most likely out of these Uranium One who has diverse sources of production.

Many have been waiting for Big Oil to move back into uranium mining, however it has not happened at this point, and GE not wanting to enter the business is much more bullish in my opinion than them moving into the industry. The logic behind this is due to the fact that they are in the reactor building business, and if they seriously plan on supplying the required fuel they will have to accumulate a stockpile in the next few years so that they can feed the utilities the required uranium and have a cushion for emergencies caused by supply chain hick-ups. This takes supply off the table for current utilities and for each reactor GE adds per year, it will increase their purchases of uranium exponentially. In order to fire up a new reactor, we are told that it requires 3x more uranium to start up than it will to run it in the following years. My bet is that GE will use their financial ability to aid them in securing supply and could purchase from certain companies the first right to refusal of certain amounts of their deposit upfront, thus providing the companies with “free” cash to develop the deposits into mines.

Much of the financing for deals has dried up in the past few months with the financial sector meltdown, however this opens up an entirely new pool of money for the uranium miners to tap into sometime in the future. This is very encouraging news for the industry and the end users and should help to further propel the current 'Nuclear Renaissance' we find ourselves in.

News also leaked this morning that Nova Scotia could see its mining ban lifted thus enabling the uranium companies exploring there to someday harness any mineralization from the province. This is not a sure policy change, but the source indicated that it was from the Premier of Nova Scotia who indicated that a policy change could be in the works.

Looking ahead we could have a bit further to go down in the general markets, but if financials continue to be the markets' 'problem children' then uraniums could very well follow. It has been a trend which has held up over the months as we have followed it, and our experience indicates that trends are usually not broken until a fundamental change takes place in the market place. Either the banks will have to reverse course and get the poor news out of their systems, or hedge funds will return to the uranium equities and spot market in a big way. Hedge funds will not be returning anytime soon, so we will look for the banks to make their turnaround before knowing the coast is clear and we have a green light to go forward with once again plowing our hard earned capital into the uranium equities.