Uranium One's Improving Fundamentals Has It Moving in the Right Direction

Despite a cold start to the week, Uranium One Inc. (SXRZF.PK) is headed in the right direction, says UBS analyst Brian MacArthur, thanks to improving fundamentals for uranium and greater focus on its existing properties.

Mr. MacArthur said in a note to clients:

Given near inelastic demand for electricity from nuclear reactors and uranium's relatively small share in a nuclear reactor's cost structure, we believe uranium's long-term fundamentals are quite favourable. In addition many of the headwinds facing [Uranium One] are now behind them with key production milestones ahead.

The analyst noted that the company is focused entirely on Akdala, South Inkai and Kharasan, its three key Kazakh properties, now that the Dominion property has been shutdown. In particular, Uranium One recently received formal granting of industrial production at South Inkai, which will increase long-term production for the company, he said.

Mr. MacArthur increased his target from C$1.75 to C$2.25, using a 0.6x mulitple to his C$3.75 net asset value. He said the NAV discount remains high compared with peers Cameco Corp. (CCJ) and Paladin Energy Inc (PALAF.PK), because of the political risk associated with Kazakhstan. He left his "buy" rating unchanged.

Shares in Uranium One were down 7% or C$0.15 to C$1.81 on Monday as investors take profits after the stock's nice run up last week. On Friday, the stock reached a high of C$1.98 , the stock's highest level since October 2, when it reached C$2.15.