The Importance of Liquidity and Transparency in the Uranium Market

Antonio Anselmo Brokerage and Advisory Services for the Nuclear Fuel Industry

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Content I. Liquidity and Transparency II. Market Price Action III. Measuring Market Liquidity IV. Conclusions V. Appendix

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Prolog: A Difficult Task at Hand

The Uranium Spot Market Is: Illiquid Opaque Fragile Remote Should We Create Something Better?
When George Lowe and Chris Jones made the first ascent of the North Face of North Twin in 1974, they had no idea they were creating a monster. The psychological battleground of North American alpinists was no longer simply a matter of ascent. Barry Blanchard, Author and World Famous Alpinist
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I. Market Liquidity and Transparency

Liquidity
The probability of selling a specic quantity at a specic price in a specic amount of time.

Transparency
The ratio of public market information to all market information at a given time.

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Definitions of Market Efficiency

Efcient Market Hypothesis (EMH) Strong Form Market Efciency
Prices immediately reect all public and private information. Transparency is very high.

Semi Strong Form Market Efciency

Prices reect publicly available information over time. Transparency is high and fast

Weak Form Market Efciency

Prices in the future are not correlated to past prices. Transparency is moderate and even

Sources: Bachelier, Fama, Samuelson

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Market Microstructure Basics

Price

Depth Offers

Spread

Volume

Resilience Bids

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Housing Example: Inflation & Illiquidity

Data Point: Contours Represent Prices in 20 Markets

Upper Corner: Collapse of Southwest and Florida

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II. Uranium Spot Market Price Action

Inference: One Escalation and Two Contractions

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Correlation Between BFV and Legacy

Data Points: Correlation ~ 92%, Delay ~ 1-2 Weeks

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BFV Daily Returns and Volatility

Data Point: Volatility In The Uranium Market ~ 76%

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Uranium Spot Market Price Action

Prices Action Sudden and Strong (Volatile) Prices Disseminated Slowly (Days) Transactions Costs Undened and Opaque Fragile Supply Can Raise Prices Quickly Inventory Disgorgement Can Reduce Prices Buyers Can Boycott Market For Months Current Conditions: Uranium Spot Market Remains Illiquid, Opaque, Fragile and Remote
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III. Uranium Trading Volume and Liquidity

Data Point: Liquidity Lost Summer 07 and Fall 08

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Spot Physical Uranium Liquidity Measure

Daily Cumulative Probability: 50% Volume ~ 90,000 lbs

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Financial Uranium Liquidity Measure

Daily Cumulative Probability: 50% Volume ~ 90,000 lbs

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Critical Trade Volume for BFV Uranium

Conclusion: Volume > 200,000 lbs Creates Large Moves

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Uranium Spot Market Liquidity

Equity Markets Trade Synthetically ~90,000 lbs/day. Price Reporters Claim Spot Trades ~90,000 lbs/day. UOL U3O8 Offer and Bids 10,000 to 100,000 lbs. UOL UF6 Offer and Bids 10,000 to 30,000 kg.U. Offers More Common than Bids Trades Above 100,000 lbs. Can Move Market Signicantly Question: Given These Numbers, How Do We Improve?" What is the Right Institutional Strategy?
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IV. Creating The New Environment

One Limit Order Book
A single, trusted entity acting as a market specialist matching buyers and sellers equitably with market and limits orders.

Standardized Contract
A simple, concise and binding contract acceptable by at least 85% of participants.
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Creating The New Environment

Committed Participants
In particular, end users (5 or more) and traders (3 or more) willing to declare support for the spot market.

e-Commerce Network
Institutional infrastructure supporting pre-trade, trading and post trade activity.
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V. Conclusions (#1)
Conclusion #1: Frequent, Small Transactions Will Inject Liquidity Without Dislocating the Spot Market. Challenge: Transaction Cost Be Well Dened Must
Waiting Costs Bid-Ask Spreads Entry Costs Ticket Cost
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V. Conclusions (#2)
Conclusion #2: Price Makers and Price Takers Must Be Active at All Market Price Levels.
Challenge: Participants Must Be Openly Committed. Utilities Traders Financials Institutions Producers
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Coda: Choices and Desire Drive Success

The Most Advanced Energy Source Should Have the Best Functioning Fuel Market. It Can Be Done.
One Of the Planets Most Difficult Mountain Climbs Steve House and Marko Prezelj have made the coveted third ascent of the North Face of North Twin in the Canadian Rockiesthe third ascent in 30 years. The two overcame near-disaster after the plastic shell from House's right boot was dropped during their third bivouac, high on the vertical headwall of the face. They climbed the 4,500-foot wall over four days
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About Altametric
Altametric, LLC was started in 2005. The company serves customers in the nancial services and energy sector. The company provides world class analysis, nancial engineering and systems for middle market companies. Principal: Antonio Anselmo A. P. Anselmo worked for 12 years at J.P. Morgan Chase in the Financial Engineering and Electronic Commerce groups in the Investment Bank. Prior to this, he was a Scientist at Varian Associates for 4 years. He holds M.B.A. from the Amos Tuck School at Dartmouth College and a B.Sc., M. Eng. and Ph.D. from Cornell University. Dr. Anselmo was named and Edward Tuck Scholar at Dartmouth and was awarded a Teagle Fellowship for research while at Cornell.

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