February 28, 2008 / 7:49 PM / 10 years ago

Canada uranium fund plans big purchase

TORONTO (Reuters) - Canada’s Uranium Participation Corp (U.TO) sees the uranium price cycle “at or near the bottom,” and moved on Thursday to take advantage with a C$65 million ($69 million) stock sale to fund the purchase of 900,000 pounds of the commodity.

The fund, which currently holds about 4.5 million pounds of uranium, said it would issue 6,375,000 common shares at C$10.20 each on the Toronto Stock Exchange.

The purchase would boost its holdings by about 20 percent, and represents about 5 percent of the whole 2007 spot market activity in uranium, the key fuel for the nuclear power industry, which provides about 16 percent of the world’s electricity.

“We looked at the availability of the material and the price of the material ... and it would be our view that we are at or near the bottom of the price cycle,” said James Anderson, who serves as chief financial officer of both Uranium Participation and its managing firm, Denison Mines Corp

(DML.TO).

The Toronto-based fund aims to buy the commodity by the end of March, Anderson said in an interview.

Banks and hedge funds have recently followed the lead of the fund, which for nearly six years has bought the commodity to hold in anticipation of a surge in spot prices.

Spot uranium UX-U3O8-SPT was around $73 per pound this week, down from a high of $136 last June.

“There is a shortfall in uranium, and there is projected to be a shortfall between supply and demand until 2010 at the earliest,” said Raymond Goldie, senior mining analyst at Salman Partners.

“This purchase — no matter what form it takes — will tighten that market.”

He added that uranium, which typically reacts slowly to news on supply and demand, has been relatively cheap the last couple weeks so now may be a good time to buy.

Because Uranium Participation does not have a license to purchase and hold uranium directly, the fund buys and holds the commodity through Denison Mines.

Uranium Participation shares, which historically have traded at a premium, were up 52 Canadian cents, or 5 percent, at C$10.94 on Thursday.

The stock’s premium to the fund’s underlying holdings is likely due to the fact that there aren’t many other ways for ordinary investors to participate directly in uranium ownership, said Goldie.

Indeed, additional demand for uranium combined with recent uncertainty over supply — including a lower production forecast from Uranium One UUU.TO last week — “paints a bullish picture” for uranium spot prices, said Max Layton, of Macquarie Bank in London.

“My view is that uranium spot prices will rise to $80 per pound in the near term,” he said.

Partly in response to the news, shares of Cameco Corp (CCO.TO), the world’s No. 1 uranium producer, climbed C$1.28, or 3.4 percent, to C$39.03 on the Toronto market.

($1=$0.97 Canadian)

With additional reporting by Anna Stablum in London

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