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25 Apr 2007

Hedge Funds & The Uranium "Arms Race"

Corrected on the 26th of April

Several hedge funds have been buying largely into the processed uranium market, causing most of the new demand for uranium and helping drive up the price more than fourfold within the past year.

Some hedge funds that have been reported as buyers are Adit Capital, who according to reports, bought up millions of pounds for as little as $20 per pound. Citadel Investment Group assumed control of 2.3 millions pounds through its stake in an IPO, and GLG Partners and Fortress Investment Group have set up teams to begin trading uranium.

There is no futures market for uranium and a declining supply of the product, coupled with an increase of outside investors, such as hedge funds, has led the Nuclear Energy Institute to suggest allowing only end users of uranium to purchase it. It is mined by only by a few companies such as Canada's Cameco Corp.

Uranium Participation Corporation is a closed end mutual fund that buys and holds uranium, making it one of the only ways for an average investor to buy directly into uranium. Its documents can be found on SEDAR and regarding transparency, the fund publishes its NAV every month on its website, disclosing what it has paid for uranium. It is exchange traded on the Toronto Stock Exchange by the symbol is U. There are also warrents on U for those who are inclined to more aggressive positioning.

A newly created uranium futures contract will begin trading on the Nymex electronic system on May 7, according to their VP of marketing Randy Warsager. Most of the Nymex products are traded on the Chicago Mercantile Exchange Globex system under a joint agreement between the two markets.

The Wall Street Journal has called hedge funds' involvement in the market “a new type of nuclear-arms race.” Hedge fund and other investors hold around 20 mm lbs of uranium equivalent, according to David Hard of, that's about 20% of one year's mine production.