We are going to cover 5 sectors with our predictions for 2012 and highlight 5 picks in each of those articles. This article is the first in the series.
As many of our readers know, the past few years have been downright depressing for the uranium sector. Yes, there have been a few bright spots however for many you would have had to go overseas to invest in order to experience some of the true homeruns. In our opinion 2012 is not going to be the year to actually own uranium, instead that will be 2013 as the Russians pull their HEU off of the market and force the world to scatter to find new mined uranium or pay higher prices for the commodity they have stockpiled. Either way, 2012 will be the time to actually initiate and build positions in anticipation.
We have covered this sector for some time, and have stated that we believed that the American producers would eventually rise to the top. We still believe this to be the case and find ourselves liking Uranium Energy Corporation (UEC), Uranerz Energy (URZ) and Ur-Energy (URG) – although we need to stress that we believe that URG will conduct another secondary to raise funds, so investors should wait to purchase until after this dilution takes place.
These three plays are the best that America has to offer in the space. UEC is currently in production and expanding as we speak. As the company adds capacity via their plans to feed a centralized processing plant from various production properties we see margins, cash flow and the bottom line improving. The company was first to production, is located in mining friendly Texas and due to this could possibly become a consolidator in the industry.
Uranerz Energy is a stock with a low float, what appears to be enough cash to get to production and a few months ahead of their competitors to production in Wyoming, from what we are told. URZ was a stock which could really fly a few years ago as day traders loved it due to its low float, marginability, listing in the US and liquidity. The company plans to use the same blueprint for production as UEC, utilizing ISR mining at various locations to feed a centralized location. Margins are lower than if you had a large project with all of your infrastructure located there, however this does allow you to actually mine those lower margin plays as you do not have to build an entire facility at each site.
Ur-Energy was our favorite play in the sector as they have the larger deposits and had the cash to take them to production. The company has once before raised money which they thought would bridge the gap to get them to production and we fear that in 2012 they will need to do another secondary in order to bridge this new gap to production. It is either a secondary or some type of debt financing, but in today’s markets we think it would be difficult at best to get a loan or float a bond for an asset not yet in production.
Those are the three American ‘pure plays’ if you will, as we know URG has other non-core properties they have put on hold, but our fourth pick is a large cap which anyone who follows the industry should know, Cameco Corp. CCJ, although locked into some long-term contracts and a supplier of the Russian stockpiled uranium still has some upside should prices rise. The company has traditionally been quite conservative and shied away from splashy acquisitions, even of producing assets in the uranium bull market of a few years ago. With their recent attempt to takeover Hathor Exploration and actually entering a bidding war against a far larger adversary indicates that CCJ recognizes that now is the time to act.
Our last pick is actually not one stock but a basket. We think for those investors who can, they should scatter some funds among a basket of junior uranium explorers and producers, preferably those with decent sized deposits as these are the companies most likely to be taken out. At the top of the list we would have Fission Energy (FSSIF.pk) which is right next to Hathor’s (HTHXF.PK) Roughrider play and would be a buyout candidate should that project ever be developed (remember that Hathor is the subject of the buyout by the big boys). We also find Strathmore Minerals (STHJF.PK) appealing at these levels with their depressed stock price, large US exploration and development portfolio with established JV partner on their top property and a healthy treasury. Uranium One (SXRZF.PK), as the third play here, would be wise with their Russian ownership component and sizeable production from Asia all should be beneficial in the coming years for investors. Their low cost portfolio offers tremendous leverage as U3O8 prices increase. Lastly we would look to Africa as that has attracted much attention from the Europeans and Chinese over the past 5 years. There are many plays available, and you must pick one that fits the risk profile you desire, but investors should remember to pay attention to permits, the deposit size and water and power availability.
The uranium miners and explorers were coming back prior to the Fukushima disaster in Japan, however that accident stopped the rally in its tracks – and rightfully so. We now know that Europe thinks that they will somehow rid themselves of nuclear power, but we think otherwise. This is more dream than reality. Reality is what is happening in Asia, not what is being talked about in Europe.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.