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Tuesday, 05/29/2007 4:40:28 PM

Tuesday, May 29, 2007 4:40:28 PM

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Two uranium auctions this week: How the process works

If you think those uranium sales that are often cited as the basis for recently skyrocketing prices are secretive processes, you’re right. Everyone wants to know what price people are willing to pay for the nuclear fuel.

While they are often referred to as auctions, these uranium sales are done via a single round of private sealed bids, according to Eric Webb, senior vice president of information services at Ux Consulting Co LLC.

Market monitors UxC and TradeTech provide commentary and develop spot price indicators based on the most competitive offer price out there and other deals, but they never reveal actual bids.

Unlike gold or oil, there is no formal exchange for uranium. However, the recently-established NYMEX futures market could set the stage for a showdown between traditional uranium players and a new crop of participants.

The next such auction – for 100,000 pounds of U3O8, the naturally occuring form of uranium – has its bids due on Wednesday, May 30 and comes from Mestena Uranium LLC. A previous auction of the same size from the Texas-based company drove spot uranium prices to a new record of US$133 a pound in early April. Prices now stand at US$125, according to UxC.

Another unidentified seller, likely a hedge fund, reportedly has two lots up for sale with bids due by June 1. The firs lot is said to be 200,000 pounds of U3O8, while the other is for 100 kilograms of an enriched version of uranium (UF6), which is equivalent to 260,000 pounds of U308.

These two offerings constitute the largest amount of spot U3O8 and equivalent into the market in many months, so it wouldn’t be surprising to see uranium spot price indicators move again sometime soon.

When a seller is prepared to go ahead, a letter with all the bidding specifications goes out to potential buyers with accounts that can hold physical uranium. These are primarily industry participants like utilities, suppliers, and those in the broader category of fuel cycle companies, as well as traders and brokers. Canada’s Uranium Participation Corp. holds their uranium through management company Denison Mines Inc. for example.

However, very few in the financial community have direct accounts and suppliers have generally not been interested in their business, Mr. Webb said.

While he doesn’t see any acceleration in the number of lots put of for sale, the way transactions have taken place has changed somewhat in the last couple of years. Tradionally, buyers make requests and sellers respond with offers to sell. These days, Mr. Webb said sellers are increasingly put their material up for bid – something that is relatively new.

Meanwhile, another interesting development raised by some uranium experts is that speculators may be driving up the spot price of uranium in order to boost the value of their investments in mining stocks.

Jonathan Ratner
jratner@nationalpost.com

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Published Tuesday, May 29, 2007 1:10 PM by Jonathan Ratner
Filed under: Uranium

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