Why Uranium Energy's Acquisition Of Cue Resources Is A Great Move

| About: Uranium Energy (UEC)

As I've noted in my previous commentary on Seeking Alpha, I'm very bullish on the uranium sector as a whole and my favorite play in particular is Uranium Energy Corporation (NYSEMKT:UEC). My bullish views of the company are only exacerbated by Monday's news that the UEC acquired Cue Resources (OTC:CUEYF) a Canadian uranium mining firm with operations in Paraguay.

Here's why the acquisition is great for UEC:

1. Because there is still a lot of negative sentiment surrounding nuclear power, prices are still depressed across the board and young, struggling firms are finding it difficult to raise capital -- which is a great buying opportunity for firms with the resources to do so. As we are in a buyer's market for all areas of nuclear power, I think it is quite astute for UEC to acquire compatible firms. The time to buy is now.

2. Even better is that UEC did not pay any cash; rather, the acquisition was financed entirely via its own stock. UEC gave approximately 3.1% of its outstanding stock to make this deal happen. As UEC's market capitalization is at just under $290 million at the time of this writing, the value of that stock is about $9 million USD.

3. Cue Resources' main project in Paraguay, the Yuty ISR Project, has over 8.9 million pounds of U308 uranium, according to its NI 43-101 report. With uranium trading at around $50 per pound -- a price I think will go much, much higher -- the value of the uranium in this project could be said to be about $450 million. As this is an ISR project, rather than an open pit mine, I would expect Cue to be able to achieve a cost per pound of under $30. Using these numbers, which I think are pretty conservative, I think it becomes clear that UEC found itself a great bargain -- without having to spend a penny of its own cash.

4. UEC's focus on ISR mining continues, and this is something I am especially delighted to see. I view ISR as the enabling technology that will transform the entire value network of the uranium mining industry, and as UEC is at the forefront of this trend and aggressively expanding its portfolio of ISR projects, I believe the firm is well-positioned to become the dominant player in the uranium market -- a market I believe will grow dramatically.

UEC's stock is down slightly today, though it has gotten off to a fast start in 2012, as has the rest of the mining industry. I believe it is due for a pullback, although I'm a happy buyer at any point below $4.35 -- a key resistance level based on its price pattern over the past year. Of course ultimately I believe this stock is going much, much higher, though I would prefer to do my buying below $4.35 and then sit back and enjoy the ride.

Disclosure: I am long UEC.