Uranium Markets

Utilities secure a substantial percentage of their uranium requirements by entering into long-term contracts with uranium suppliers. These contracts usually provide for deliveries to begin two to four years after contracts are finalized. In awarding contracts, utilities consider the commercial terms offered, including price, and the producer's record of performance and uranium mineral reserves.

There are a number of pricing formulas, including fixed prices adjusted by inflation indices and market referenced prices (spot and/or long-term indicators). Many contracts also contain floor prices, ceiling prices and other negotiated provisions that affect the amount ultimately paid.

Utilities acquire the remainder of their uranium requirements through spot purchases from producers and traders. Spot market purchases are those that call for delivery within one year. Traders and investors or investment funds are active in the market and generally source their uranium from organizations holding excess inventory, including utilities, producers and governments.

Uranium Spot Market

The industry average spot price (TradeTech and Ux Consulting (UxC)) on December 31, 2008, was $52.50 (US) per pound U₃O₈, a 41% decrease from the December 31, 2007, price of $89.50 (US). Spot market volume in 2008 more than doubled to about 43 million pounds U₃O₈ from 20 million pounds U₃O₈ in 2007. The 2008 volume exceeded the previous high of 42 million pounds recorded in 1995. Historically, the volumes traded in the spot market have ranged from about 10% to 15% of annual consumption.

The main spot sellers in 2008 were traders and financial players. The financial players liquidated volumes late in the year as a result of the world financial turmoil. As a result of the lower spot price in 2008 relative to 2007, utilities returned to the spot market and represented slightly less than half of all spot purchases. Since the utilities' average inventory levels have increased over the last several years and financial restraint is likely, we expect more price volatility in 2009.

Long-Term Uranium Market

The industry average long-term price (TradeTech and UxC) on December 31, 2008, was $70.00 (US) per pound U₃O₈, down 26% from $95.00 (US) at December 31, 2007.

We estimate long-term contracting in 2008 to have been about 130 million pounds U₃O₈, approximately half the volumes contracted in 2007, but still above the annual average levels prior to 2005.

The increased volatility in the spot market, the large differential between spot and term market prices, as well as the fact that most utilities are well covered for the next several years contributed to the lower contracting level when compared to 2007. We estimate the 2009 long-term contracting volume will be comparable or lower than the 2008 level, but this is highly dependent upon supply developments, market expectations and market prices.