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Monday, December 11, 2006

Merrill Lynch Raises Uranium Forecast

From our "Better Late Than Never" department, and hot on the heels of Merrill Lynch's decision to up its target on gold to a laughably-low $650 in 2008, the big broker is now raising its target on uranium.

Merrill Lynch & Co. raised its 2008 uranium price forecast by 78 percent, citing delays in new mine output and increased demand for the fuel from nuclear reactors being built in China and India.

Oh really? Yep, that's why they get paid the big bucks at Merrill Lynch. Anyway, some more interesting tidbits from the story...

"We don't see a major trigger on the horizon that will force spot prices down,'' Merrill analysts Vicky Binns and Daniel Hynes said in the report. "The delay of Cigar Lake and the imminent arrival of India into the commercial fuel market have created a notable increase in demand.''

About 440 reactors contribute 16 percent of the world's electricity currently, according to the World Nuclear Association. At the end of November, 28 plants were under construction with a further 62 ordered or planned. India, which runs 16 reactors, is building another seven, and targeting nuclear capacity of 40,000 megawatts by 2020.

Merrill is forecasting global supplies, estimated at 164.8 million pounds this year, to rise 4 million pounds during the next two years. Increased demand in Russia will limit exports while rising costs and planning delays are likely to slow output from smaller projects worldwide.

Still, Kazakhstan has the potential to ``flood the market'' if it meets its 2010 output goal of 39 million pounds, Merrill said. The nation produced about 10 million pounds in 2005, and Merrill's forecasts assume that will climb to 26 million by 2010.

XX My thoughts: Kazakhstan has ambitious plans, but anyone who thinks those mines will come online without trouble or delays has another thing coming. In the meantime, demand is only going to ramp up. I expect uranium, currently trading around $63 per pound, to see $110 before it sees $50.

By the way, I'm going to stop selling my uranium report, "The Golden Age of Uranium," at the end of the year. It's time for the first update. I sure hope you already own a copy.

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