Recent Performance Review For 5 Uranium Producers

Includes: CCJ, DNN, LEU, URRE, URZ
by: Zvi Bar

Uranium miners and the radioactive commodity performed exceedingly well at the start off 2012, after coming out of one of the worst years ever for uranium investing. The initial cause of the 2011 weakness was the Japanese nuclear catastrophe that followed the Fukushima Daiichi nuclear power plant being hit first an earthquake and then by a tsunami, rendering the plant a radioactive danger zone.

The aftermath led to renewed fears on nuclear power, and severely damaged the uranium mining industry's future projections. Germany added to nuclear demand weakness, shortly after the Japanese nuclear issue developed, by stating that it would reduce use of nuclear power and slowly phase out the use of the power source. This reduced demand was coupled with rapidly falling natural gas prices as an increasingly competitive power source, rendering nuclear power a less-loved source of energy.

Below are listed several companies with business substantially relating to uranium mining and/or production: Cameco (CCJ), Denison Mines (DNN), Uranerz Energy (URZ), Uranium Resources (URRE) and USEC (USU). I have included their 1-month, 2012-to-date and 6-month equity performance rates.

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Several of the uranium miners and producer started 2012 in an uptrend, dramatically outperforming the strength seen in the broader market, but most have since peaked and have again begun to trend back down. While the above-listed stocks are now up an average of 7.09 percent so far in 2012, they are down 17.16 percent within the last month, while the S&P 500 is essentially flat over the last month. Only USU is down so far in 2012, with each of the other four outperforming the S&P 500 so far this year.

Below is a 2012-to-date Google-sourced performance comparison chart for the group:

Both China and India have initiated ambitious multi-year nuclear development plans, with China planning to increase its nuclear capacity eight-fold by the end of the decade, and India planning to increase its production thirteen-fold. Other nations within Asia and Southeast Asia could follow their lead, and it is wholly possible that emerging market demand will eventually replace and even significantly overshadow the presently demand for uranium.

It is possible that uranium demand from new and sizable locations such as China and India, will soon outpace uranium supply, possibly creating dramatic shortages and price spikes to both uranium and the shares of uranium producers. Of course, it is also possible that thorium could replace uranium, or that some new power source might make uranium-based reactors obsolete. It should be expected that uranium miners will continue to exhibit high risk/reward characteristics, and that investment allocations should be limited accordingly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.