Go Overweight Uranium and Fertilizer, Underweight Commodities and Base Metals - RBC

Mining analysts at RBC Capital Markets continue to recommend an overweight position in uranium and fertilizer stocks, a market weight position in precious metal stocks, and an underweight of bulk commodities and base metals stocks.

The global team updated its 20 Best Ideas portfolio with seven new names but left the recommended weightings for the third quarter unchanged, saying we remain in the early part of a global economic recovery.

The analysts are taking profits in Thompson Creek Metals Co. Inc. (TC), Peabody Energy Corp. (BTU) and UR Energy Inc. (UREGF.PK), while reducing exposure to South Africa and the stronger rand by removing DRDGOLD Ltd. (DROOY) and Eastern Platinum Ltd. (ELRFF.PK) They also switched out of IAMGOLD Corp. (IAG) and Uranium One Inc. (SXRZF.PK) in favour of lower risk names.

RBC is adding BHP Billiton Ltd. (BHP), Energy Resources of Australia Ltd., Uranium Participation Corp. (URPTF.PK), Kinross Gold Corp. (KGC) and Intrepid Potash Inc. (IPI) as lower risk investments given their trading liquidity and financial strength. Sherritt International Corp. (SHERF.PK) gets the call for its nickel and energy exposure, while Neo Material Technologies Inc. (NEMFF.PK) is a play on rare earth elements in China.

The analysts expect the uranium spot price will continue to rebound as production cuts from 2008 impact supply and Asian power utilities look for long-term contracts. They also expect the recent indications for Indian potash price settlements to have positive implications for both ongoing negotiations in southeast Asia and the equities.

As for precious metals stocks, RBC anticipates that the gold price will rise as Indian demand rebounds in August through September. They would buy shares on near-term weakness as a result.

While base metals performed well in the second quarter, partly as a result of strategic buying from China, the analysts feel equities are reflecting mid-cycle valuations and remain risky given the weak global economy. They also see no near-term positive catalysts for bulk commodity prices.

Comments

[Mad Hedge F...:]

I'll go with uranium. If we are just on the verge of entering a long term bull market for nuclear energy, as I mentioned in my earlier piece (www.madhedgefundtrader...), then you would have to expect the same for nuclear fuel producers. Last year, the US consumed 55 million pounds of “yellow cake” or uranium oxide, but produced only 4 million pounds. The rest came out of stockpiles or from imports, much if it from the reprocessed Russian nuclear warheads. The new Dept. of Energy under Dr. Stephen Chu has made a big priority of making loan guarantees available to expand nuclear capacity from a lowly 20% of our total grid. The price of uranium is also rising, dragged up by crude, and has bounced 25% from a low this year of $40/pound, to $50. You can take a look at Austin, TX based Uranium Energy Corporation (UEC), which could start production at its Golead mine next year.

Jul 06 11:24 AM

[Mayascribe:]

I'd hold up on buying any uranium until we find out exactly what Obama is doing over there in Russia. Yes, Pepsi and Caterpillar are in the forefront of the news. But, if nuke dissarming comes out of this, then there will be plenty of uranium, which, if GE has it's way, uranium won't be needed at all in about eight years, as they and a couple other giants have new fourth generation "prism" technology that will run on exsisting spent fuel rods--that, according to GE, there are already enough spent fuel rods to last a millenia!

Love what you do, Mad Hedge, but on this one you have it dead wrong. Stay away from uranium.

Jul 06 07:58 PM

[rick12345:]

At the moment gold is oversold, indicating an eventual price correction, while up until a week ago oil was overbought. Hence the drop in oil prices, reflecting a situation where demand catches up with reality (speculation).
Commodities are heavily influenced by seasonality; I can't see why people don't understand this simple premise.

Can I also direct you to the following website. It may help explain part of Obama's visit to russia.
www.world-nuclear.org/...

Jul 07 06:28 AM

[fran:]

your position on the future[GE et al w/4th generation devices] may be true some time.
in the interim there are 430+[growing 10+ each year] in today's technology requiring fuel. demand exceeds supply, including the Russian recycled fuel. i believe today's investment may have legs.


On Jul 06 07:58 PM Mayascribe wrote:

> I'd hold up on buying any uranium until we find out exactly what
> Obama is doing over there in Russia. Yes, Pepsi and Caterpillar are
> in the forefront of the news. But, if nuke dissarming comes out of
> this, then there will be plenty of uranium, which, if GE has it's
> way, uranium won't be needed at all in about eight years, as they
> and a couple other giants have new fourth generation "prism" technology
> that will run on exsisting spent fuel rods--that, according to GE,
> there are already enough spent fuel rods to last a millenia!
>
> Love what you do, Mad Hedge, but on this one you have it dead wrong.
> Stay away from uranium.

Jul 07 11:39 AM

[MikeyLV:]

I can't remember if it was Italy or another country, but one of them has put a four-year hold on ending nuclear power.

Jul 07 01:43 PM

[starboard:]

Obama's nuke disarming is a major concern. He could single handedly kill Uranium mining investments--and maybe already has--through additional downblending of Russian weapons grade material ( Megatons to Megawatts Part 2).

Regarding GE's announced interest in recycling spent fuel (US had the lead until Jimmy Carter cancelled the program in late 70's), this is basically a replication of what AREVA is currently doing in France. The technology is definitely proven --- but don't count on GE. In the 70's GE designed and built ~40 % of the world's operating nuclear reactors-- they were pioneers. While I prefer PWR technology (Westinghouse in particular), GE was a major force in the industry with highly regarded engineering and technical expertise. Post TMI they pretty much abandoned nuclear power and let the French and Japanese take over. GE was more content to "diversify" into financial deals, credit cards, movies, television stations, etc. GE technology became a step child. The current nuclear "renaissance" is being led by AREVA (France), Toshiba (Japan) and Russia. These people are signing new nuclear deals nearly every week. GE is in last place. Do they have a single verified order that hasn't been cancelled? If you want finance, derivatives, CDO's, CDS's, credit cards, movies, television producers, theme parks and who knows what---be sure to buy GE. If you are looking for the nuclear renaissance--short GE. Their committment to nuclear is so tiny relative to the other components that there is no investment opportunity.

Jul 07 10:06 PM