Most uranium providers performed poorly through the first three quarters of 2011, but several have undergone significant equity appreciations since the start of the fourth quarter. Of course, many started the quarter at their 2011 and/or multi-year lows. Nonetheless, while September was a positive month for the uranium producers, this appeciation has not continued into November.
Much of this recent appreciation appears tied to a bidding war between Cameco Corp (CCJ) and mining powerhouse Rio Tinto (RIO) over Hathor (HTHXF.PK), a Canadian uranium miner. The interest in Hathor may indicate these industry experts believe now is an appropriate time to accumulate uranium assets for the longer term, anticipating demand from around the globe, including the emerging power needs of China and India.
Hathor's board appeared to prefer Rio Tinto's deal, which is an all cash offer valued at about $572 million, or $4.15 per share. Rio Tinto’s offer was about 11% higher than Cameco's prior offer. On Monday, November 14, 2011, Cameco increased its bid for Hathor to $4.50 per share, or about 8.5% higher than Rio Tinto’s bid. Rio Tinto is yet to respond to this new Cameco offer.
Both sides may continue this bidding war in the coming weeks, as Cameco has more cash on hand and Rio Tinto is a considerably larger company that Hathor’s board appears to prefer, or appeared to. These larger miners may also start looking for other acquisitions once Hathor’s fate is determined. Many uranium miners are now between 50 and 80 percent below their price levels at the start of 2011, so their timing may be impeccable.
Below are several companies that mine and/or provide uranium for energy production, and their 1-month, 6-month, and 12-month performance rates:
Cameco Corp. (CCJ)
- 1-month: -7.20%
- 6-month: -26.08%
- 12-month: -51.24%
Denison Mines Corp. (DNN)
- 1-month: 16.94%
- 6-month: -28.21%
- 12-month: -57.60%
Uranerz Energy Corp. (URZ)
- 1-month: -2.50%
- 6-month: -29.85%
- 12-month: -51.13%
Uranium Resources, Inc. (URRE)
- 1-month: 1.03%
- 6-month: -43.81%
- 12-month: -73.23%
USEC Inc. (USU)
- 1-month: 32.84%
- 6-month: -67.60%
- 12-month: -77.23%
The three-month chart, below, shows how many of these uranium producers rose significantly at the start of the fourth quarter, but that they have also since returned to their descending ways - (click charts to expand):
Since the Japanese nuclear concerns emerged at the start of 2011, following the destruction caused by an earthquake and tsunami, uranium prices began to face significant downward pressure. Due to this Japanese nuclear crisis, Germany decided to discontinue nuclear plant development and announced plans to eventually eliminate nuclear power as an energy source. Japan and Germany were previously significant users of nuclear power, and this perceived vacuum to demand weakened the price of uranium and its producers.
Though many First World nations have become wary of nuclear power in the wake of the recent Japanese crisis, China and India continue to build additional nuclear power plants. In 2011, China announced plans to increase its nuclear capacity eight-fold before the end of the decade. Additionally, India has announced a 20-year plan to increase nuclear power production thirteen-fold. Other growing nations will likely follow, provided they have the capabilities to produce nuclear power.
It appears almost inevitable that uranium demand from these new and sizable locations will begin to outpace uranium supply, possibly creating dramatic shortages and price spikes to both uranium and the shares of uranium producers. Such a trend may take another decade to occur, but miners must consider that time-frame and it is only getting more difficult and expensive to locate accessible mining assets and ramp up production.
In addition to these individual companies, some ETFs also allow investors to gain exposure to uranium pricing and demand. For example, the Global X Uranium ETF (URA) tracks the Solactive Uranium Index, which tracks the performance of the large players in the uranium mining industry. See the 2011 chart for URA, below:
Another ETF option is the Market Vectors Nuclear Energy ETF (NLR), which also includes exposure to energy utilities with exposure to uranium pricing and nuclear power use. It should be expected that this industry will continue to exhibit high risk/reward characteristics, and that investment allocations should be limited accordingly.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.