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A 'Call' On The Price of Uranium?

Interviewer: Before we talk about the potential of uranium shortages and the steep price rise in that energy source, could you explain how you got started with this idea, and what is the philosophy behind Strathmore’s acquisition program of uranium properties? Dev Randhawa: Several years ago, Strathmore Minerals started with the idea of acquiring properties “out of the money” at very cheap prices in the belief that the uranium prices would recover so that our assets would be worth more. No one was paying attention to the commodity we chose: uranium. Strathmore Minerals is basically a call on the price of uranium. That’s how we started the company. This strategy is similar to what Lumina Copper (AMEX: LCC) used and what Silver Standard used. For example, the chairman of Silver Standard Resources (NASDAQ: SSRI) is on our board of directors.

Our first step was to buy every pound we could for as cheaply as possible. The second step is to buy property that we think we can put into production. We are actively looking for those. Interviewer: But uranium has a powerful environmental stigma. Why, then, are you enthusiastic about this type of energy source? Dev Randhawa: As with most people, when I began investigating uranium, I thought this was bad stuff.

I thought of Three Mile Island and everything else. The more homework I did on this, the more I realized that nuclear power is clean and safe. That is primarily what uranium is used for now. It should be known that no one ever died at Three Mile Island. No one actually died at Chernobyl. Yes, people got sick. Compare that to coal or the oil spills in the fossil fuel sector, and the damage it has done to the environment. The problem is no one is championing nuclear energy. Frankly, the “greenies” have done a great job of burying the story. As I did homework, I found out France relies on nuclear power for about 78 to 80 percent of its electricity needs.

I realized that somebody did a great job lobbying and built a very unhealthy picture toward uranium, when really it’s needed. We don’t talk about the cost of coal. We don’t talk about global warming. But, look at what coal has done. Global warming is a function of fossil fuels. That is why you are seeing a growing positive response to nuclear power. For example, one company has applied to put a new nuclear reactor into the US. Interviewer: To what do you attribute the recent, steep price rise in uranium? Dev Randhawa: Since last year, the price of uranium (U3O8) has climbed back steeply back up. At one point, the price was moving up about $1/pound per month. Uranium’s price is more in line with the price of oil as opposed to other commodities.

For a long time, we’ve only produced on the average about 90 million pounds, when we needed 140 (million pounds). There’s been an imbalance for a number of years. This extra came from foreign sources, or from internal US inventories. Since the 1980s, we’ve been using more uranium than we have been producing in the western world. As a result, the extra that we’ve needed has come from Russia, the US government or inventory that utilities had. Interviewer: But most investors, let alone the consumer, don’t know that uranium’s spot price has nearly tripled, since bottoming three years ago. Why is that? Dev Randhawa: Uranium only makes up one percent of the cost of running a nuclear reactor. The biggest factor in why uranium prices can go up, even more rapidly than gold, is that uranium is insensitive to its use. Uranium prices can go much higher. In casual conversations with a few Toronto analysts, some believe it can go up to $80 or $100/pound.

For example, if the price of gold tomorrow went to $800/ounce, it will affect someone’s purchasing decision. The guy might say, “I was going to buy this ring and now it’s up 70 percent because the price of gold is up. Maybe I will buy a silver ring instead.” The same occurs with other commodities. People may change their purchasing decision based on a commodity price doubling. If the price of uranium went to $44/pound, the average consumer’s electricity bill might go up a few dollars. It is not going to force someone to turn off their power. However, if the price of oil doubled tomorrow, many of us would be driving smaller vehicles. It would make a fundamental difference in how we behave.


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