Uranium Resources: A Perfect Play on Nuclear Energy

A quick look through my holdings shows that I am heavily invested in technology stocks, with names like Akamai (AKAM), Atheros (ATHR), Apple (AAPL) and Take Two Interactive (TTWO). While thinking of a long term play, which will diversify my portfolio and which has the potential to generate multifold returns, I stumbled upon Uranium Resources (URRE).

To give a little background on the company, Uranium Resources Inc. explores for, develops and mines uranium. It deals in the acquisition, exploration, development, and mining of uranium properties, using the in situ recovery or solution mining process. Its primary customers include utilities who utilize nuclear power to generate electricity.

It is becoming more and more accepted that nuclear power will be omnipresent in a few years, and here's what makes URRE special - the company has reserves of tons of uranium which it acquired at a spot price of about 40 dollars a pound, and the spot price is currently $120/pound. Thats a threefold profit on existing Uranium reserves, while demand for uranium is estimated to get stronger. The huge spread between the price of U308 which they have and the current market price will be a big source of revenue in the future.

According to the company's most recent earnings release on the 9th of August, production more than doubled from the prior year quarter to 136,000 pounds of U308. Added to that, the average cost of production falls below $30 per pound.

The stock has not been doing well in the past month, and has fallen from a high of $10/share on August 9th to $7/share last week. I believe that is a big pullback and I doubled my position at $7. It is currently trading at $8.18 and I believe this is a great long term investment. Also keep in mind that if the dollar goes down, the price of U308 will only rise and will fuel the company's profits and the stock higher.

China disclosed that it plans to build around 50 nuclear reactors in the next 10-20 years, and India has plans to build 10-20 more. Considering the rising costs of energy produced by conventional means, Uranium could very well be the answer to alternative energy proponents, and URRE could be the solution to your search for a long term winner.

However, if you think the stock is too volatile for your investing style, do check out the Nuclear Power Investment Fund launched last month, NLR. This fund trades on the AMEX and could be a diversified play on all nuclear power companies.

Disclosure: Author has a long position in URRE

Comments

[jimarb]

what is the writing date of this article???????? (a perfect play on U3O8) I just looked up the 9/10/07 price $90.00 - the article quotes the price @ $120.00 - let's strive for accuracy.

[PrashanthCherukuri]

hi jimarb
I apologize for the inaccuracy. I should have mentioned that the contract prices for delivery in december/January are $120, since I wanted to indicate an upward surge in price again.
I shall request SA to modify the artciel.
Thanks for the correction.

[rolymac]

Uranium spot is $85/lb not $120. Article obviously out of date.

[WinstonKotzan]

Why would this company be better than SXR Uranium One, which is building a nuclear powerhouse with mines in North America, South Africa, and Kazahkstan? Better yet, why not play uranium with the best of breed, Cameco (CCJ)?

How does URRE value based on Net Asset Value? What should the stock price be at a range of uranium prices?

[PrashanthCherukuri]

Well, best of breed is always not necessarily the best investment. Think about it, if commoners like you and me know its best of breed, the upside is long gone.
I think this company is better than SXR because of the reserves it has. SXR pales in comparison, and then URRE keeps acquiring new lands rich in Uranium, like the ones in New MExico a few weeks back.

This price level is very attractive. On November 1st, when they report and reveal their reserves, you'll get a true idea of what they're worth. I would say, unless Uranium falls to 70s, this has a strong upward trend. And once Uranium crosses the 100s again like its expected to( Look at headlines on Oct 18), this stock goes to high teens.
Good luck, and keep the faith. Since I wrote about this stock, its up more than 25%

[PrashanthCherukuri]

Sorry I meant it reports in the first week of Nov, not Nov 1st

[WinstonKotzan]

Why would this company be better than SXR Uranium One, which is building a nuclear powerhouse with mines in North America, South Africa, and Kazahkstan? Better yet, why not play uranium with the best of breed, Cameco (CCJ)?

How does URRE value based on Net Asset Value? What should the stock price be at a range of uranium prices?

[Silver-Bullet]

Prashanth - URRE is selling at $4.62 today (05/20/2008)

Nuclear energy seems to have good fundamentals going forward, however I'm just not sure about URRE (granted it is 2nd behind CJJ in US with p/e about 38 today), it seems cheap at today's price, but is it, given the unrealistically high P/E?

Any thoughts?

[Pokerface]

hi there
Yes this company has fallen short of expectations in a large way. The plummeting price of U308 has not helped either.
But seasonally U308 prices go up in fall. So I am going to buy more and wait.

[Ya-Mon]

Any new insights into URRE? I heard lots of disruptions in (sxr)Uranium One. I can see almost all uranium juniors are way way off their highs. Anyone who believes in uranium should be loading up the truck, as I'm about to do. Just not sure who is at or near production and not Cameco. Any insights on Strathmore (STM.V)? Seems like both Strathmore and Uranium Resources are about the best two plays as I can see.