BALTIMORE, MD — There's no denying that uranium is the flavor of the month. And that's simply because spot prices of the energy metal continue to march relentlessly higher, increasing over 50% since the beginning of this year.

Last week, Uxc.com reported a spot price of $113 per pound, fulfilling expectations that the scarce radioactive metal would break through the $100 mark this year.

The latest increase significantly boosted share prices of most producers, developers, and explorers. But while the retail market clamors to buy uranium stocks, the management and directors of mid-sized and large yellowcake companies don't seem share the same zeal.

Sure, they may be marching around with their chest puffed out as their commodity of operational focus skyrockets. But what they're not doing is buying their stock with the rest of us. In fact, in many cases their dumping it.

Let's take for instance Cameco Corp. (TSX: CCO), the world's largest, low-cost uranium producer accounting for 20% of the world's uranium production.

While company insiders have no problem exercising their warrants and options - which are well below current market value - they continue to dump their stock on the open market. In fact, in the past twelve months, not a single member of management or director has purchased CCO at market. Take a look:

Cameco Corp. (TSX: CCO) Insider Activity

As a result, company insiders have let go of over $36 million worth of CCO at market prices and only purchased roughly $9.3 million in warrants and options at what appears to be an average price of under $10 per share.

Now before we start casting stones, you'll have to admit that many of us would be doing the same thing. Heck, I would. Buy under $10 and sell over $40 with almost zero risk is a pretty darn good deal. But to me, it's kinda hard to get excited about buying this stock at when company insiders apparently won't touch it at current levels.

Now I'm not just picking on Cameco, they have enough problems as it is with the cigar lake fiasco. The fact of the matter is that I could not find a single current or near-term uranium producer with significant insider buying at market prices.

Across the board there are lots of guys exercising their warrants and options below market value, but won't pay retail.

Here are a few more examples...

sxr Uranium One Inc. (TSX: SXR), Khan Resources Inc. (TSX: KRI), and Denison Mines Corp. (TSX: DML). Management and directors will exercise cheap paper - sometimes getting the stock virtually for free - but refuse to buy at market prices.

In the case of sxr, this has resulted in the net selling of about $16 million over the course of a year. Take a look:

sxr Uranium One Inc. (TSX: SXR) Insider Activity

And with Khan Resources, Denison Mines, ESO Uranium, and Ur-Energy Inc, it's a similar story.....

Khan Resources Inc. (TSX: KRI) Insider Activity

Denison Mines Corp. (TSX: DML) Insider Activity

ESO Uranium Corp. (TSX-V: ESO) Insider Activity

Ur-Energy Inc. (TSX: URE) Insider Activity

All four companies have a negative net balance of insider activity.

Again, we shouldn't hold their feet to the fire because as insiders we'd probably be doing the same exact thing. But I think that it's significant to point out this bias.

Even when company insiders do buy their stock on the open market, such as in the case with Energy Metals Corp. (TSX: EMC), they end up selling more stock than they buy. Take a look:

Energy Metals Corp. (TSX: EMC) Insider Activity

Insiders at EMC have bought a lot of stock...but they've sold even more.

Now, in all fairness, insiders at every company I recently looked at aren't selling their stock. However, I found that they certainly aren't buying it either. Here are some examples of companies with little or no insider activity:

Paladin Resources Ltd. (TSX: PDN) Insider Activity

First Uranium Corp. (TSX: FIU) Insider Activity

UrAsia Energy Ltd. (TSX-V: UUU) Insider Activity

So what does all this tell us?

Well, first I have to mention that company insiders sell their stock for all types of different reasons. It's not always because they think their stock is going down. Truth is, they're in this business for the same reason as all of us...to make money.

But what I'm afraid of is that uranium's spot price, as report by Uxc.com and others, is pushing shares of production and near-term production companies beyond their true value. And company insiders know it.

You see, uranium producers sell their product based on long-term contracted prices, not on spot price. But every time spot prices go up, uranium stocks follow.

I hate to pick on Cameco again, but in 2006 when uranium spot prices averaged USD$49.60, the company only sold their product at an average of USD$20.62, less than half of the average spot price, because of contracts they had previously made. The following is from the Cameco's 4Q 2006 financial results (page 8):

Now, new long-term contracts are always being negotiated and reflect current spot price averages. So when Cameco releases their 1Q 2007, which I imagine should be in a few days from now, their average realized uranium price will be higher. But the bottom line is that it won't be $113/lb.

So what I'm getting at is that when considering any uranium stock investment, you should not evaluate the company and its resource based spot price. Rather, use a much lower figure to reflect long-term contracts...say about $50 or $60 a pound. If you don't like the company at those prices, then you might want to reconsider.

Now, all this mainly applies to the bigger uranium firms. The smaller, more speculative exploration companies hold a lot of leverage as they could discover a motherlode of U3O8 at anytime which could send their stock soaring. So let's not confuse the two.

But the bottom line here is don't get swept up in the whirlwind of uranium spot prices. To producers and near-term producers, the long-term contracts hold the key to revenue.

Until next time,

Luke Burgess
Gold World