Regarding the most recent earnings loss ($91.3 million in third quarter) the Denison CEO said the following:

On the uranium side, it’s not that we couldn’t sell, but we used our discretion and chose not to sell into the spot market during the traditionally slow summer period.

Spot prices current hover around $45 and $47.

Currently Denison share prices sit at $1.40. The somewhat recent Denison downgrade by RBC (from $1.70 to $1.25) on October 1st is starting to look rather prophetic

Spot Price Swings

Last week spot prices took a big hit, losing over 10% of its value, dropping $5 to a U3O8 price of $47 per pound.

Yet this did not seem to affect share prices, as the majority of Uranium stocks stayed within 3% of their previous weeks prices.

This week the spot price gained back a portion of its previous losses, gaining a $1.50 to close at $48.50.

Until we witness tangible shifts in share prices that correlate with movements in the spot price we will shift our focus away from spot price fluctuations.

USEC Bounceback

The so-called media frenzy on the ‘hammering’ of Uranium shares following the USEC denied loan news appears to be over-blown.

From July 29th Tickerspy

Uranium stocks got hammered on Wednesday after the Department of Energy denied USEC’s request for $2 billion in loan guarantees.

Share Prices on July 28th and August 4th

Paladin: $3.99, $3.95
Denison: $1.72, $1.69
Cameco: $27.35, $28.56

Hardly the sector-wide destruction that some of the bears were anticipated.

Let’s take a quick peak at this week in uranium news and stock price movement.

On the price movement front uranium stocks followed the rest of the market. Of course for once this could be seen as a good thing (for longs at least), as many uranium stocks tacked on 5%+ this past week.

Big news came from Cameco CEO Jerry Grandey this past week. Grandey said that the company is interested in acquiring companies in this battled sector and is willing to spend up to $2 billion in the upcoming months.

Uranium’s spot price is currently trading at $43.75.

A favorite of many stock market analysts, Paladin Energy (PALAF.PK) hit a one month high on friday at a price of $2.15. Canaccord Adams has a $4 price target on shares.

The current supply of uranium from mines is 115 million pounds per year against a demand of around 180 million pounds per year. (hat tip Seeking Alpha)

In Spot Price Examination Part 1 we looked at the overall sales of uranium u308 on the NYMEX futures market. This market is where the industry spot price is set.

But as we brushed over in part 1, questions arise to whether the spot price is actually meaningful when entering into private contracts.

In the article we learned only 540,250 pounds of Uranium were sold on the NYMEX futures market in our random example month of April 2007.

Inside of Cameco’s 2007 year end report comes this graphic;

Cameco is certainly a huge player. There 20 million estimated pounds of u308 production in 2008 is more than three times the estimated amount of u308 sold in futures contracts per year.

According to Cameco they close to half of their long-term fixed contracts included provisions for prices to be set near the spot price, with the remaining locked in at prices that are only increased by inflation adjustments.

Conclusion

While the overall spot market’s volume is a fraction of the overall uranium market, the spot price can affect a companies earnings based upon the style of fixed contract that is entered upon by consumers.

Extra Info:

Ticker Symbol: UX

Contract Size: 250 pounds

Minimum Price Fluctuation: $0.05

Read: Press Release FAQ on Uranium U308

One look at the lack of activity in the image above or at past volume (for April 2007) as shown in the chart below (notice how many months are under even 50 contracts).

In the following example for April 2007 contracts only 540250 pounds were purchased (contract lot sizes of 250). Using a current day pricing model of $75 (spot price rounded up estimate) this only represents $40 million worth of uranium contracts changing hands on the open market. Of course the spot price was higher at this point but we just want to get a quick gauge at the overall dollar volume trading hands in the futures market.

In part two we will take a look at the sales volume of uranium u308 through private contracts.

The continued pressure in the current bear market is accelerating losses amongst uranium shares.

The spot price for uranium has fallen off a cliff over the past four trading sessions, dropping from a steady rate of $65 to the current level of $46.

While some will argue about the actual validity between spot price and contract price, one thing is for certain. Uranium stocks have taken a beating off late.

While some were hoping that things couldn’t possible get any worse, we now see Cameco and Dennison testing current and multi-year lows.

3 Month CCJ Chart

CCJ Price as of Oct 16th: $12.14
52 Week Trading Range: $12.00 – 52.33

5 Day DNN Chart

DNN Price as of Oct 16th: $1.32
52 Week Trading Range: $1.32 – $8.72

At this point uranium stocks have fallen to the wayside amongst commodity investors. It’s becoming more and more difficult to stay “rosy” about the sector at this point.

The spot price of uranium continues to remain in a downward cycle, reaching $57. About a month ago we discussed the uranium spot price hovering right around a short-term resistance level. It now appears that the price has busted right through this level.

Uranium spot price (1 month) via infomine

With the short-term level broken, where will the price ultimately go? I’m not sure but it does appear that we can expect to see more weakness in the price in the coming weekly spot market updates. $50 will be a symbolic and emotional price level and one to keep an eye on in the coming three or four price updates. If we break through that level we should see media updates and BNN pundits highlighting uranium’s swift decline.

Is the uranium spot price beginning to establish a short term support level at the $60 level? We check out some of the recent short term data to see if we can spot a trend forming.

Via Infomine.com is a one year uranium spot price chart. As we all know, this is far from pretty if you’re a bull of the commodity.

One Year Uraniumn Spot Price Chart

Focusing in on the latter portion of the chart we can begin to see a smoothing out of the spot price around the $60 level.

Here’s a three month chart.

Three Month Uraniumn Spot Price Chart

Now of course we’ve seen this smoothing effect before in the past year, most recently at the $90 level in from mid december to mid january.

For at least the short term the next two spot price updates will be important. Are we beginning to establish a short term support level around $60? Or is this just a slight stop of the continuing downward trend of the global uranium spot price market?