How to Profit from Uranium.

Source: Financial Post (5/12/05)

Did Eric Sprott, formerly of Sprott Securities, have anything to do with the founding of Uranium Participation Corp. (UPC/TSX), a company formed to buy and hold uranium? According to the Financial Post, we may never know if Sprott was the brains behind the company, or whether he just endorsed the idea. Either way, UPC has achieved its goal of jacking up the market price of uranium by creating a company to stockpile the commodity.

The sole purpose of UPC, managed by Denison Mines Inc., is to buy and hold uranium. It is using the proceeds of the $100-million initial public offering to acquire about three million pounds of this scarce commodity used to fuel nuclear power plants, though rogue dictators might employ it for other pet projects.

Given the tight supply of uranium -- consumption has outpaced production "by a substantial margin" since 1989, according to UPC's prospectus -- creating a company to hoard the commodity could jack up the market price, so the theory went.

It's working. The spot price of uranium jumped $2.25 to US$26.25 a pound during the week ended May 2, its biggest surge in months. It rose another US$2.75 last week to US$29, the largest one-week price increase in the history of commercial uranium, according to Ux Consulting. The spot price of uranium has surged more than 40% in 2005. In turn, most uranium stocks have recently posted nice gains.

Sprott is coy about his role in the birth of UPC, but his fingerprints are all over this one. He has about 4% of his portfolio in uranium companies, such as Strathmore Minerals Corp., International Uranium Corp. and UEX Corp. Strathmore's raison d'etre is buying discarded uranium mines and sitting on them until uranium prices increase.

"We believe the pending issuance of uranium participation units will help to further strengthen the price of uranium and uranium stocks," Sprott said in a newsletter to clients last month, before UPC's market debut.

"It's not even a debate anymore. The price has gone up because of uranium participation units," Sprott said this week. "You kind of knew that a new entrant coming into a market like that would move the price up."

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