Short-Term Downward Pressure on Uranium; Fundamentals Remain Strong

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"Industry fundamentals remain strong, underpinning support for the contract uranium price. . ."

Resource Capital Research (RCR) said the uranium spot price was currently trading at $US52/lb, up 22% from three months ago. This compares with the Fund Implied Price (FIP), which was around $US40/lb at year end, is currently US$48/lb and has been a good leading indicator of near-term spot price performance.

The May price strengthening was seen as a response to the $C100 million ($US88.46 M) capital raising by Uranium Participation Corporation (TSX: U) and to "initial uncertainty" surrounding the Kazakh Government's investigation of KazAtomProm, though the company subsequently assured foreign partners it will fulfill production obligations and honor arrangements.

"The FIP at $US48/lb indicates market concerns of modest downside price risk. Since the beginning of May, the FIP has traded reasonably consistently, moving up from around $US45/lb to $US48-$50/lb recently. This is up from $US35/lb at the end of March," RCR said.

The long-term contract uranium price is $US65/lb down from $US70/lb last December, and relatively stable since peaking at $US95/lb from May 2007 to March 2008.

The gap between spot and contract prices has closed to $US13/lb, down from $US27/lb three months ago. Industry fundamentals remain strong, underpinning support for the contract uranium price, with anticipated growth in nuclear reactors and risk of supply shortage midterm (4 - 8 years).

Currently there are 436 nuclear power reactors in operation and 45 under construction. There are 413 new nuclear reactors planned or proposed globally as of June, up from 318 in August 2008. A total of 71 new reactors are expected to be commissioned by 2015.

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