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 October 14, 2008
Expect uncertainty in market
    Publisher: U3O8.biz
    Author: Luke Brocki

 Tuesday was a day of mixed blessings for uranium investors. On the one hand, energy stocks soared across the board on the TSX, uranium being no exception. But the stock rally followed a dismal week of trading and more uncertainty is expected as investors feel out the state of the global economy. And that uncertainty continues to weigh down spot uranium prices, which dropped to a low unseen in nearly three years.

Canadian stocks shot out of the gate Tuesday, jumping some 1,600 points in an attempt to catch global markets that weren't closed for Thanksgiving the day before. The S&P/TSX composite index gave some ground in afternoon trading, but still closed up 890.5 points, or 9.8%, at 9,955.66.

The rally was fuelled by positive sentiment stemming from news European governments are recapitalizing their banks and from news the U.S. now plans to take equity stakes of up to $250 million in its own beleaguered banks. Oil and bank shares led the TSX rally, but many uranium companies also registered healthy gains.

East Asia Minerals Corp. gained 10 cents, or 50%, to 30 cents, after announcing strong near-surface oxide gold mineralization at its Binebase gold project in Indonesia; Forsys Metals Corp. was up $1.89, or 75.3%, to $4.40, after announcing it's in negotiations for a potential sale of the company and retaining CIBC World Markets Inc. as its financial adviser in connection with this process; Pinetree Capital Ltd. was up 21 cents, or 28.4%, to 95 cents, after acquiring a million shares of Vancouver-based explorer Prospector Consolidated Resources Inc. for investment purposes.

Scores of other miners made gains on the TSX without news from their pressrooms; those gains were attributable to the global market rally: Canada's Cameco Corp. gained $2.61, or 16.3%, to $18.61; Denison Mines Corp. was up 35 cents, or 21%, to $2.02; Globex Mining gained 23 cents, or 23.5%, to $1.21; Paladin Energy Ltd. was up 30 cents, or 17.4%, to $2.02; and Quaterra Resources Inc. gained 36 cents, or 40%, to $1.26.

Finally, stock of Uranium One was down two cents, or 2.2%, to 89 cents, despite the global stock rally. Uranium One's Dominion mine in South Africa has been closed for nearly a week. Bloomberg reported talks with striking workers came to a sudden halt late last week, when the company fired 900 employees taking part in an illegal strike.

And, while stock traders were celebrating, spot traders hung their heads in disappointment, as uranium prices dropped to lows unseen since January 2006. Price publisher Tradetech dropped its uranium price estimate US$4, or 7.8%, to $47 a pound U3O8. Bloomberg reported the drop came as utilities held off purchases, expecting further price drops.

Tradetech reported just two transactions worth some 500,000 pounds of uranium oxide equivalent last week, with supply more than doubling demand; the former has now risen to more than 4 million pounds, while the latter has dropped below 2 million pounds.

Rival price publisher Ux Consulting dropped its long-term uranium price US$5 to US$75. Reports from Toll Cross Securities Inc. suggest the large disparity (more than 50%) between the spot price and long-term price is not sustainable. Bullish analysts believe new demand will surface in coming months as India to ramps up its nuclear plans.

Those plans are moving smoothly forward, with the US-Indian civilian nuclear cooperation agreement having been signed by US secretary of state Condoleezza Rice and Indian external affairs minister Pranab Mukherjee in Washington DC on 10 October.

Bullish analysts feel the agreement will help India construct 28 new nuclear power reactors to add 40,000 MWe of nuclear generating capacity by 2020.

You can view the Previous Market Commentary item: Sun Oct 19, 2008, U3O8.biz Weekend Wrapup

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