During a recent National Bank Financial investor roundtable in San Francisco, industry experts identified four main issues for the uranium sector: tight markets due to slower supply; renewed buying by utilities; decline in spot price relevance; and the need for long-term prices to be higher than now forecast.

Industry participants included George Assie, Cameco Senior Vice President Marketing and Business Development, Peter Farmer, CEO of Denison Mines, Gordon Miller, President and CEO, First Uranium, and Fletcher Newton, Executive Vice President, Uranium One.

Uranium Outlook

When asked about price drivers during the next three to four years, Farmer replied that producer issues will continue to be a factor with lower than planner production resulting in force majeure or buying by the producers to meet contract commitments. He added that the short-term spot market had become less relevant to utilities. At present there is less utility buying in the spot market and there are more trading companies selling.

Miller noted that even with the high prices the supply response to date has been slow and in fact primary mine production has been falling because of production issues. Increasing costs for mines and exploration will force prices higher over time, and this will likely help set floor prices.

Newton suggested that ongoing permitting and regulatory delays could impact pricing. DOE inventories could have a short-term impact on pricing... However, this should not be a big deal.

Meanwhile, Uranium One advised that a minority of utility companies still believe that $60 per pound is still too high for uranium, while others believe that that figure is not high enough to stimulate new production.

Investor Confidence

The panelists were then asked what events or circumstances they thought would have to occur to restore investor confidence in uranium mining.

Cameco's Assie responded that the dewatering of the Cigar Lake project and the restart of Port Hope should help restore investor confidence in his company.

Denison blamed human error which caused most of the problems which the nuclear and uranium industry have faced and that one of the problems that there are just not enough good people. Farmer added that the uranium sector has taken a more conservative approach to forecasts because of past misses. He stressed Denison plans to deliver on its forecasts.

First Uranium blamed slower than expected ramp ups and higher capital costs as issues which troubled investors. Stability in the operations and prices are needed to get investor confidence back, Miller added.

Uranium One said that their company needed to get Dominion operating as it is supposed to be and get the production up.  Newton added that the company has to get production up at their Kazakhstan projects, and to get their U.S. assets operating.

Operational Challenges

Cameco's Assie said the company has reorganized our operation and strengthened the management team and increase the accountability. We have to change the safety culture and move to the levels of safety and monitoring applicable to nuclear reactors. We have had third party reviews of the new operations and plan to make further improvements in 2008.

Uranium One's Newton responded, the company basically grew too quickly and had too much on its plate. Going forward, the focus will be on the Kazakhstan and South African operations, followed by the U.S. operations.

They acquired a great group of people with the Energy Metals acquisitions and this should be helpful, Newton explained.  The company has announced that it plans to sell the Honeymoon project in Australia. That will simplify the operations and reduce the number of countries they operate in. Fortunately they are under-committed on contracts and have been cautious about selling forward.

First Uranium's Miller responded that some of his company's main issues involved restarts, the acceleration of capital costs, and access to contractors. Getting people overall has been a challenge.  Power availability has been an issue with the power problems in South Africa. Sulphuric acid availability and costs have been an issue.

Nonetheless, he added, the operating history of the mines is well documented and the underground mining should be as good as the ore is wide and often thick and carries both gold and uranium. The dilution has been less because of the thickness.

Cost Challenges

Cameco has encountered cost challenges in Northern Saskatchewan, where labor is about 35% of costs and competition for specialists has been intensive. Having high-grade ore bodies make cost increases manageable, Assie said.

Denison has been impacted by higher costs for ammonia and acid. To combat this, they are seeking long-term contracts and using multiple suppliers.

Sulphuric acid costs have increased significantly, prompting First Uranium to construct its own plant given the availability of pyrite. The acid plant will also generate electricity.

Uranium One noted that everything they use is costing more, and that everyone is wrestling with this. Their customers need to also understand this, they added.

Political Risk and Permitting Challenges

Ironically, two of the uranium companies participating in the roundtable noted more problems with the United States regulators than with Kazakhstan. South African power issues were also of concern to two of the producers.

Denison found getting drill permits to be a real challenge, largely because regulators in Colorado and Utah have not had experience at licensing drill programs. Arizona has proven to be politically difficult due to major concerns over contamination of drinking water by uranium mining.

Uranium One said they were surprised by the heavy handedness of U.S. regulators.

First Uranium said they realized that access to cheap power in South Africa is over. Meanwhile, they noted, safety improvement is a new issue, and is garnering heightened awareness. There is a need now to operate safely on a global basis.

Miller also noted that given the long history of uranium production at many of the country's [South Africa's] gold mines, regulators are very comfortable with the uranium business and such permitting is a relatively simply process in South Africa.

When asked about political risk, Cameco responded there were not many places they would rule out and tend to make case-by-case decisions.

Denison is impressed with Zambia despite negative press and dialogue from copper companies doing business in the country. They believe that it will be toughest in nations where uranium mining is a virgin activity.  The company is also cautious about places where uranium mining is not presently allowed.

First Uranium won't go to areas that prohibit uranium mining including British Columbia, Labrador, Denmark and several Australian states. Nevertheless, their focus countries include South Africa, Canada and the U.S.

Industry Challenges

Cameco has noted growing pains with nuclear renaissance, which has clearly taken hold in China, Russia and India, but has been slow in other nations.  Assie said the big challenge is to supply uranium to the market, and the lack of investment for over two decades will take time to overcome. Rapid decline in the spot price has already had an impact on junior uranium exploration companies.

Denison asserted, once again, that the biggest issue is people, both in industry and on the regulatory side.  This should improve over time.

First Uranium feels that perception problems still exist despite uranium as a great source of low cost base load energy. There is still a need to change perception about radioactive waste and the danger of accidents at nuclear power plants.

Uranium One said that there is no question that it costs significantly more to produce uranium now, and that the uranium industry has not been entirely honest about the true cost. This is something we all need to come to terms with. We are operating in a much more difficult environment now, they added.

Corporate Strategy

When asked to describe their Number One goal for the next 12 months and longer term, Cameco responded that its short-term goal is to get back to basics by focusing on dewatering Cigar Lake getting Port Hope back on line. The company is also looking for value added growth opportunities, Assie concluded.

Denison's short-term goals are to meet to the 2008 production targets safely and have a healthy balance sheet. Longer term, the company wants to have a diversified production platform of 6 million pounds by 2010-2011, Farmer said.

First Uranium's short-term and long-term goal is to ramp up low-cost production at its two operations. Longer term, the goal is to diversify political risk.

Uranium One's goal for this year is to produce uranium at Dominion, get commercial licenses in Kazakhstan, and move U.S. operations to production. Longer term, the goal is to become a preferred source of long-term uranium supply to utilities.

Analysts Brian Christie and Ian Howat, and associates Greg Chu, Will Jee and Brian Szeto authored National Bank Financial's report on the uranium roundtable.