2006 seen as important year for fuel market

London (Platts)--3Jan2006

For the nuclear fuel market, 2006 is shaping up as a particularly important
year. Developments market analysts are watching include:

LES is still on track to receive an NRC license to build and operate a
centrifuge enrichment plant in New Mexico.

USEC Inc.'s American Centrifuge development strategy will either be validated
or not.

Companies currently investigating Silex Systems Ltd.'s laser enrichment
process will probably decide one way or the other on whether to invest in a
pilot 250,000 SWU/year plant.

The winning bidder to take over Westinghouse likely will be known, as will the
company that will buy RWE Solutions and its key RWE Nukem uranium trading
unit.

There should be much more clarity as to the impact of the court decision
declaring SWU to be a service on the commercial SWU market, as well as on the
Russian antidumping suspension agreement, which is currently undergoing a
sunset review. 

The spot price of uranium is likely to climb over $40 a pound U3O8, but the
rapid rise of the spot price, an increase of 75% in the past year and 150% over
the past two years, won't continue, most analysts say.

Consolidation of the more than 200 junior uranium companies will probably
accelerate.

Regarding the spot price, most analysts now see it climbing above $40/lb
sometime during the first half of the year. But there is no consensus as to
how much higher it will climb. A big unknown is whether buying by hedge
fund/investment companies will continue in 2006 at its 2005 pace. As the year
ended, analysts said that almost 10-million lb were in the control of these
entities, which have so far been content to hold their inventories. Also it is
unclear how much supply will be available to meet continuing demand of
utilities, many of which are taking steps to build inventory. For example, in
a Dec. 21 filing with the U.S. Securities & Exchange Commission, the owners of
the South Texas Project said the owners committee had approved the acquisition
of "a strategic refueling reload of uranium."

Although analysts believe that the spot price will not continue to rise
indefinitely, they also suggest that until supply catches up with demand there
is not going be much sustained downward pressure on the price. Consultant
International Nuclear Inc. (INI) estimates 2006 worldwide uranium production
at 110-million lb, with consumption around 170-milllion lb.

But how soon that gap will be closed is unclear. Bullish estimates of
production out of Kazakhstan by 2010?as much as 39,000,000 lb U3O8?may be off
by as much as a third, say some analysts. INI estimates 2006 production in
Kazakhstan at close to12-million lb U3O8 and projects that production in 2010
could be as much as 22.5-million lb.

But there are hurdles that could hinder a smooth production increase. Wallace
Mays, one of the key figures in UrAsia Energy Ltd.'s foray into production in
Kazakhstan, said in a paper delivered at the World Nuclear Association's
annual meeting in September, that a key bottleneck to production by in situ
leach mining is the availability of drill rigs in Kazakhstan. "Many of the
manufacturers of drill rigs have gone out of business," Mays said. And in
Kazakhstan, "the lack of competition from government-licensed drilling
companies (only two are licensed) has limited the development of competitively
effective drilling equipment and methods," he added.

There are also indications that the expansion of BHP Billiton's Olympic Dam
copper-uranium operation may proceed more slowly, driven in large part by BHP
Billiton's strategy in the copper marketplace.

Among the junior uranium companies, Paladin Resources is expected to begin
production at its Langer Heinrich mining operation in Namibia late this year.
In a recent coup, Paladin announced that it had hired Wyatt Buck, Cameco's
general manager of the McArthur River mine and Key Lake mill, as the general
manager of the Langer Heinrich mining operations. Buck will start work for
Paladin Feb. 1.

And Mestena Uranium has started up its Alta Mesa ISL project in Texas.

And Uranium Resources Inc. is hoping for increased production in 2006.

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