Rushing Forward

Last week the Uranium Spot Price closed at an all-time high reaching US$113/lb (not inflation adjusted). The long-term price stayed put at US$85/lb., which indicates to us that there are some consumers out there getting squeezed already due to their lack of faith in the ability of this uranium bull market (or their faith that uranium prices will come down in the near future). We can see that to take delivery immediately has a high premium attached to it, but this trend shall continue as more and more utilities are caught off guard. Do not think that this is not the case because as we have stated before, we know of a few utility companies betting they can buy yellowcake cheaper down the road...and these are many of the same companies with plans to build America's next generation of nuclear plants! It is sad that they seem to only see about half of the picture, but they will eventually adapt to the market and drive prices much higher on the long-term side of the equation thus closing the premium of taking delivery ASAP (but this is at least a couple of years down the road).

As we write this, both of our Uranium Indexes stand at all-time highs as well. theinvestar's Canadian Uranium Average finished the past week at 313.18, up 22.1 points for the week or 7.59%. theinvestar's Australian Uranium Average finished the week at 74.16, up .825 points for the week or 1.12%. It must be noted that ERA weighted heavily on the index this past week with negative news out, however a near majority of the stocks within the index were up strongly to offset those losses. For the year TICUA (Canada) is up 24.79% and TIAUA (Australia) is up 24.76%. Keep in mind that we started our Australian Index on February 2, 2007, so results are from that date forward.

With U3O8 jumping nearly 19 percent this past week, there seems to be room to run, however the recent trend of producers and near-term/soon-to-be producers leading the way shall continue with the explorers tagging along. The miners in Labrador's Central Mineral Belt should continue to advance as there is more undiscovered uranium within the area, and hopefully this will be indicated in the next batch of drilling results. Also pay attention to the Otish Mountains area in the upcoming months as exploration begins to heat up there as well.

Australia is an area we are looking at to provide many new mines in the coming years, and this should be a positive development for the entire industry. First it will provide hope to the utilities and foreign countries that more supply is coming just in time to satisfy their fuel needs, which should allow for the further development of nuclear power plants. Also, it will allow more companies to become producers, which will have to fill their pipeline with more projects thus pushing up the stock price for all companies in the industry. Our point we are trying to stress regarding Australia is that it should be viewed as an opportunity (for the industry and for investors alike) and not a signal that the bull market is ending.

Paladin, Laramide, SXR, and even Denison allow investors to gain exposure to Australian uranium. These are the 'safer' plays as they are large, diversified companies but one could go further down the food chain and purchase the PepinNini's and Nova's of the industry.

In other news:

Lundin Petroleum has announced that they will split the company into two entities, one with the producing North Sea assets (to be called Viking) and the other to own one share less than 50% of those assets as well as the exploration assets around the world (most notably Sudan).

Oilsands Quest shares seem to be bottoming out here, but we expect them to stay flat throughout the rest of the summer. In late summer they will have news out regarding grades and intercepts from this drill season as well as a new resource estimate. There is also the possibility that they will have a JV partner by then, as the company has indicated that they have been talking to potential partners lately.

The Month Ahead

We are now entering what will be the most crucial month of the year 2007. April will be pivotal in that it could alter the landscape of the uranium industry by the end of the month creating a new monster on the supply side. Australia will vote by the end of the month whether to do away with their "Three Mines Policy" which could open some of the world's best deposits, and exploration districts, to uranium mining. Australia has some of the most economical deposits found anywhere in the world right now, but due to the restrictions on mining, they have had to remain undeveloped until now (hopefully).

On the surface, one would think that Australia beginning to allow all of this potential supply would be detrimental to the supply/demand ratio for uranium going forward as well as the prices of Canadian uranium companies. Yes, it may slow the rapid rise in the uranium spot price some as utilities attempt to delay purchases in hopes of cheaper uranium, but it also allows for the continued build out of the nuclear renaissance that is upon us! One of the major problems we saw early on was the potential for nuclear power generators to quit adding capacity due to a shortage (or worries of a conceived prolonged shortage) and thus hurting this bull market's longevity. It will also take at least two years for a new mine to come online (not including SXR's Honeymoon Project) and my guess is that it shall take many more years to bring all of the projects currently ready for production to production due to a lack of construction supply. This could all be a mute point if some of the Provincial Governments do not pass resolutions along with the National Government...or the National Government itself!

Going back to the supply of this extra yellowcake, it is crucial for the industry to prove to the utilities that they can bring on extra supply in the coming years in order to entice them to add capacity worldwide, thus increasing demand for the future production getting brought online. It is so crucial, that China is in negotiations with Australian miners to buy into their deposits in order to secure supply for their nuclear plants. It would be very prudent for the Australian lawmakers to approve the legislation overturning the "Three Mines Policy" as it would add a very large customer (one whose nuclear output would grow faster than the economy behind it-referring to China here) and polluter to the world's nuclear producing countries, in a big way. My bet is that China would be enticed to possibly double planned capacity expansion if Australia were to open a large majority of their lands to uranium mining.

It is never good for a bull market depending upon a supply demand ratio to have a pendulum stay too far to one side for too long. In those circumstances, one party usually takes advantage of the other, just as happened when uranium prices were depressed for so long. Bull markets climb a wall of worry is the saying, but I am betting that this bull market will climb a wall of hope first, and then climb a wall of worry (there are some indications that this is already happening as we speak, but only time will tell which wall was scaled first).

Looking at our indices, we see one theme being blatantly apparent: Junior miners are trailing the producers and near-term producers at this time however this should change as we move forward in the coming months. The leadership role in the indices shall always rest with the leading companies as they have larger (not percentage-wise but in dollar denominated terms) price swings, however the juniors' time to shine is quickly approaching. The logic behind this thought is that any positive drill results will lift all surrounding plays in the area and create excitement in the overall uranium arena. Also, our friends in Australia seem to be taking a stand and exclaiming to the larger companies that "you will have to pay up for my shares!" These are some of the safest deposits in the world, so a high premium should be paid...but the market seems to be telling us that only 30% of investors in Australia believe that there is a chance that the National Government does not pass the new legislation. So, roughly 70% of investors believe that brighter times are ahead for Aussie uranium plays. This stand-off in Australia should also push up any premium paid here in North America as well. The final point on why juniors are going to take a leading role in the near-term is that when the Aussies pass the new legislation, they will push down the share prices of the producers/near-term producers and the exploration companies will be where the news and potential profits will come from in the months ahead.

We currently see CanAlaska coming to life, as well it should be. The stock has been relatively flat for the year, especially when you consider what the rest of the juniors have done over that time. They JVed what is their top project for $11 million and should be doing some major exploration work in the months ahead. Also, Pitchstone has acted 'weird' but appears to be coming back to life as well. This stock could more than double should any drill results come back with large intersections of U3O8 as there are less than 30 million shares outstanding, and 40% of those are held by the management team. Not only is a double possible, but potentially a triple. Also keep an eye on Strathmore Minerals and Oilsands Quest in the months ahead.