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It lacked the body slams of a WWF wrestling championship, but the World Nuclear Fuel Market conference, held this past week in Athens (Greece), emphasized the bitter divisions between uranium buyers and sellers. Underlying the gentility often found in a typical major mining executive and his utility counterpart, spectators witnessed verbal fencing, if not articulated pugilism, during some of the less self-centered presentations.

Contrary to recent eulogies coming from the likes of Paladin’s John Borshoff and Uranium One’s Neal Froneman, Rio Tinto’s (RTP) Keith Welham argued there is no uranium bubble. During his presentation at the World Nuclear Fuel Market conference, Welham concluded the uranium market is based upon supply and demand fundamentals.

Welham rounded up the usual ‘bubble’ suspects: Holland’s Tulipomania, the South Sea Bubble and 1999’s dot com/Y2K flash-in-the-pan. In his conclusion, Welham pointed out, “… it (the uranium price rally) should not be compared to previous markets with rapid price growths.” Ho-hum. As James Dines reminds us, investors struggle to identify a bubble, especially when they are trapped inside one.

But we did enjoy Welham’s well-researched history lesson. For example, did you know Sir Isaac Newton sold his shares in the South Sea Company in 1718 for a profit of £ 7,000 because he believed a crash was imminent? After the collapse failed to arrive on his timetable, Newton heavily bought back into the market. When the bubble burst, Sir Newton’s finances were lighter by £20,000.

Although the U3O8 spot price recently registered a high of US$138/pound, it can not yet compete with Holland’s tulips circa 1630. During the peak of the tulip craze, one tulip could buy the sum of two casks of wine, a suit of clothes, four tons of beer, eight tons of rye, four oxen, eight pigs, twelve sheep, two tons of butter, one thousand pounds of cheese, one bed, AND one silver drinking cup.

At US$9.46 per ounce for spot yellowcake, the spread between uranium and silver prices now stands at less than four dollars. Hardly enough silver for a drinking cup, let alone the livestock, food and clothing which one tulip could purchase.

Cameco Corp’s marketing vice president Scott Melbye dressed his PowerPoint in Grecian scenes and added eremitic platitudes from Plato instead of Sir Isaac’s wistful musings. He played down the spectacular price rise, by referring to the uranium industry’s renaissance as “Digging Out from a Hole.” At first we thought he was talking about Cigar Lake, but instead his theme leaned more toward “Jerry McGuire” (Show me the money!).

Befitting the world’s largest uranium producer, Melbye’s presentation was ‘best of show,’ at least in the color and texture of his slide presentation. He brought up several strong points, worth mentioning.

According to Melbye, the uranium industry indeed has a future shortage, looming on the horizon – beyond the imminent shortfall through 2009, and again around 2013. This one could occur in 2025.  This came about, he explained, because uranium miners suffered through years of baggage, the excess brought about opposite effects, and also because the industry is complacent about the future. His recommendation: Patience is required.

Melbye pointed to the US$70 million in exploration expenses collectively incurred in 2006 by Cameco, Areva, ERA and Denison to discover the next Cigar Lake – umm, the next MacArthur mine. By comparison, he estimated junior exploration companies spent more than C$120 million in Canada, of which about C$100 million was expended in Canada’s Saskatchewan province.

He also pointed out that while the spot price jumped 92 percent in 2006, global uranium production dropped by five percent.  As a friendly reminder, Melbye showed photos of the world’s new uranium mining operations. Three of the five were opened in Kazakhstan; one in Texas (Kingsville Dome); and Paladin’s Langer Heinrich.

Clearly, the industry continues to dig out of its hole. Melbye advised that utilities should realize it takes time for the recovery to take hold, there should be a measured and strategic use of government stockpiles, and producers need to adopt a ‘growth industry’ mindset.

NYMEX research department vice president Bradford G. Leach continued his worldwide road show tour with Ux Consulting president Jeff Combs in the hopes of drumming up interest for the U3O8 swap futures contracts. Leach boasted of the 55,000 pounds of ‘uranium’ which traded during 18 days in May. We were surprised an industry expert did not coach Mr. Leach that this is an insignificant amount of uranium – amounting to about the quantity it might take to fuel one nuclear reactor for less than one month. This amazing amount of fictitious ‘uranium’ trading also adds up to an infinitesmal part of either uranium production or consumption during 2006.

Failing to impress his already educated audience about the wonders of uranium and nuclear energy, Leach went for the money shot slide in his presentation – comparing the NYMEX uranium swaps to the highly liquid crude oil futures market. No one gripped his or her seat. No one gasped at this analogy. But a few did quietly giggle.

During Leach’s Q & A, his enthusiasm for uranium swaps waned somewhat. Nufcor’s Charles Scorer broke up the monotony by inquiring as to the commercial arrangements made by Ux Consulting and NYMEX. Brad tap danced around the question without answering. This interrogation relentlessly continued with variations, until someone let Mr. Leach off the hook by cutting the microphone.

We conclude that more than a few market participants would like a bit of transparency about the NYMEX-UxC team which keeps promising the uranium market ‘more transparency.’ Sometimes, a lack of succinctness isn't satisfactory, especially when a good deal of your audience holds post-graduate degrees.

Referee Joe McCourt made a dramatic comparison in his presentation. Having recently interviewed Mr. McCourt about the secrecy about price transparency, we were unsurprised by his PowerPoint.

McCourt compared the secondary market – also known as the spot market – to an emergency room setting. He announced the secondary market is ‘comatose.’ The patient suffered from a ‘disease’ called liquidity-and-transparency-deficiency. McCourt declared that the disease had already spread and threatened the nuclear renaissance.

But he announced a cure was possible.

McCourt prescribed the following treatment plan. Utilities should:

Along the way, this would, of course, build up the business of New York Nuclear, of which McCourt is a part owner. But he can’t be instantly dismissed for suggesting this concept. McCourt has been an active fuel broker in this industry for decades. His Uranium Online service has probably provided a far more accurate uranium pricing mechanism than the NYMEX futures. Both pricing services rely, to some degree, upon McCourt’s Wednesday morning screen trading sessions for price guidance in their respective Friday and Monday night price changes.

Indeed, the conference revolved around the notions of transparency and liquidity. The sameness in these contemplations grew tiring.

Everyone took a turn at such brooding. Well after all, the conference was entitled, ‘Managing Change in a Revitalized Fuel Market.’ Keynote speaker Phillip Shirvington, formerly with Energy Resources of Australia (pre-flooding) and presently a director of Uranium One (TSX: SXR), addressed the conference audience with a keynote speech, entitled ‘The Perfect Nuclear Fuel Market.’

While urging both utilities and uranium producers to move toward a market with greater liquidity and more transparency, Shirvington failed to provide a formula to achieve this. He suggested that contracts be designed to reflect this transparency, but again did not clarify how this would be accomplished.

Well Phil, here’s a solution for you and the rest of the industry: Publish the terms of your escalating floor prices. When someone like Paladin (TSX: PDN), Uranium One, Energy Metals (NYSE ARCA: EMU) or Uranium Resources (URRE) cuts a forward deal with an ‘unnamed utility,’ please announce who bought it and what they plan on eventually paying for it. By announcing your floor pricing, investors, utilities and other producers won’t have to guesstimate what the ‘true’ uranium price would, or should, be.

We have often pondered whether the industry’s ‘transparency tantrum’ is simply muddied by its own secrecy.

Another bewildering issue is the incessant debate about ‘lack of liquidity.’ TradeTech’s Gene Clark made the astute observation about this matter in his slide show: There is already liquidity.

To stress his point about liquidity, Clark asked his audience to raise a hand if anyone attending couldn’t buy or sell uranium when they needed to make the transaction. He observed, “No one raised a hand for either case.” Hence, he announced to the audience, “I rest my case. We have liquidity.”

In one comment, Clark demonstrated the problem with transparency is inherently in how ‘transparency’ is actually defined. He cited two dealers in New York’s diamond district who might be negotiating a transaction for a diamond. Both would know a realistic market value for the diamond. However, if a tourist from Iowa entered the storefront, hoping to purchase the same diamond, he or she would be at a disadvantage.

Transparency boils down to knowing the current market value of the commodity. Liquidity remains as long as transactions take place. In conclusion, Clark commented the real difficulty, taking place in the uranium market, comes down to one party not being able to purchase (or sell) the commodity for the price he or she wants. Again, it’s not really about transparency or liquidity. It’s about the price of uranium.

Several speakers took turns at referring to mythology during their presentations. After all, the conference took place in Greece, the founding home of Western European mythology. Clark aptly entitled his thesis: The Lack of Liquidity is a Myth.

Speaking of mythology, Dr. Haksoo Kim, Acting Director of Fuel Supply for Exelon Corp, decided to explode a few of the myths circulating around the uranium industry.

On Page 12 of his presentation, he announced ‘Some Happy Myths.” We’ve all heard them and digested them as truth. These same myths have been posted on the websites of the more promotional ‘uranium’ companies hoping to lure the unwitting investors to buy their uranium exploration story.

Dr. Kim opened our eyes.

He told his audience that fuel is four to five times the ‘hyped’ cost of nuclear power – between 20 and 25 percent instead of the mere five percent.

He announced, “At $1000/pound for uranium, a nuclear utility’s fuel cost would rise to $70/MWH compared to $5/MWH at legacy contract prices of about $20/pound.

Dr. Kim shot down the premature conclusion that utilities would rather pay the high prices instead of going through a costly decommissioning process. He said, “There is no compulsion to immediately decommission – stations can be held in standby or cold shutdown.”

Finally, he took up the matter of ‘utilities not caring about fuel costs.’ He pointed out, “Take $900 million from your company’s annual net profits. See how happy your management is.”

Because of what we've previously been led to believe, we questioned his numbers and conclusions. So we asked TradeTech’s Gene Clark for a second opinion. Clark emailed back and confirmed Dr. Kim’s calculations were accurate, writing, “At $1000/lb U3O8, I get $86.6/MWh total, but $16.6 is the carrying cost. Without the carrying cost, it’s exactly $70.”

Finally, the grand-père of the uranium sector made comments favorable to both sides. Synatom’s Gérard Paulius explained the background of the front-end of the nuclear fuel cycle. Synatom is the nuclear fuel supplier for Electrabel, the Benelux utility, and a subsidiary of this publicly traded Belgian-based company.           

While peppering his lecture with flowery phrases, such as ‘reaping what we sowed’ and ‘the 25 years when the princess was sleeping,’ he made several vital points he learned from his experience in the 1970s.

Paulius warned utilities:

Out loud, he reminisced about the 1970s and offered wisdom to both sides, “When I joined, we had to manage the long term – inflexible, high price – obligations far above our needs…” Yes, at one time, the shoe was on the other foot. Utilities overpaid for uranium and were overstocked.

Paulius also admitted, “I was surprised by the timing of this run-up in prices. I had thought that localized shortages would happen around 2008-2009, four or five years before the end of the HEU contract.” He is not alone in this conclusion, as hardly any utilities believed prices would run this high and this fast.

But what does Paulius envision about the future uranium price? “Whatever the reason or combination of reasons, my opinion is that the upward tendency will remain until new production really comes in, but new production from producers unhedged in forward markets.”

Paulius also warned about NYMEX uranium swaps, “Will Sarbanes Oxley now force us to report our exposure marked to market price, now that there is such an instrument?”

As with others at the conference, no one really knows how high, or in which direction, the near-term uranium price will head. But it was an enlightening experience to study their presentations.

Does it really matter how high the uranium price runs at this time? Our concern is where and when it will land.

For a different sort of opinion, we emailed Strathmore Minerals (TSX: STM) president David Miller. We asked him how high the uranium price has to run before his company’s projects could become profitably productive. He responded, “We flew past the price we need for production 30 months ago.” Although Miller did not attend the recent conference in Greece, he has frequently presented at these events and will again make a presentation in September at the Platts Nuclear Fuel Cycle conference in Washington, D.C.

Miller also wrote in his email, “We hope to sign uranium contracts in the near future for the future output from our operations. If the utilities work with us, we will give them some reasonable prices on US-based uranium production. We are in discussions with several right now.”

We confirmed with other near-term producers that they have also begun discussions with utilities, U.S-based and otherwise. Indeed, utilities are very eager to lock up long-term uranium contracts. Aside from one of the companies we contacted, production costs are all well below the long-term uranium contract price. Some are below the long-term contract price of 2006.

For uranium exploration companies – constantly required to drum up new exploration funds, a rising uranium price entices institutions and investors to bet on their next round of drilling.

Others use the value of their rising share price to make acquisitions. Uranium One has built up an impressive uranium portfolio in five countries with this strategy.

In each of his three acquisitions over the past twelve months, Neal Froneman has bid for a tangible asset. In Kazakhstan, he bought current and near-term production. In the United States, he acquired one company’s uranium mining assets, but we have been led to believe it was the Shootaring uranium mill which made this acquisition happen. In his recent bid for US-based Energy Metals, the Hobson processing facility was the centerpiece.

After one Canadian newspaper asked whether or not Uranium One paid ‘too much’ for Energy Metals, we began receiving emails. During one email exchange, a subscriber pointed out an interesting observation about the value of this transaction, “They didn’t pay too much. It was just one inflated currency buying another inflated currency.”

In turn, the impressive multi-national uranium portfolio Froneman has assembled – now rivaling Cameco Corp – could become an acquisition target for a larger miner. We can not rule out that BHP Billiton, Rio Tinto or Xstrata might not make a play for Uranium One. Or someone else who wants to enter uranium to capitalize upon this relentless bull market.

At some point, the inflated price – the spot versus long-term spread now stands at $43/pound – will settle down, decline or possibly consolidate at a higher level. No one knows for certain when or how this will all end. (We expect far more consolidations in this sector as long as the spot price remains above $100/pound.)

Not even some of the key players really know for sure. During our interviews with Ed Rutkowski of the U.S. Department of Energy or with Exelon Corp’s James Malone, both hinted that a second uranium auction ‘could possibly’ take place in 2007.

During this time of uncertainty, there really isn’t an ‘inflated’ uranium price. And legitimate producers who can sell unhedged uranium are in the driver’s seat. All bets are off during this commodity price run up. And so it could continue until both uranium producers and utilities both sincerely believe the uranium price is fair to both sides.