Seeking Alpha
Long only, value, special situations, long-term horizon
Profile| Send Message|
( followers)  

After a surge to start off the year, Uranium miners have spent the last few weeks mired in red arrows and caution flags. Uranium miners and the radioactive commodity performed exceedingly well at the start off 2012, coming off one of the worst years ever for uranium investments.

Last year, weakness throughout the uranium industry was initiated by fears stemming from the Japanese nuclear catastrophe that followed the Fukushima Daiichi nuclear power plant, which was hit both an earthquake and then by a tsunami, rendering the plant a radioactive danger zone. The aftermath led to renewed fears of nuclear power, severely damaging future demand projections for uranium.

Soon after the Japanese catastrophe, Germany piled on the bad news and further contributed to uranium demand weakness when the nation stated it would reduce and slowly phase out the use of the use of nuclear power. Moreover, these significant reductions to uranium demand were coupled with consistently falling natural gas prices.

Uranium miners again began to decline during the end of March, along with the broader market. Despite some significant corrections downward that many uranium producers have sustained over the last several weeks, many are still strongly positive for the year. Several have also resumed and furthered their prior declines.

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

(click to enlarge)

The above-listed stocks are now up an average of 1.53 percent so far in 2012, with strong divergence in performance between the individual equities. Over the last month, these equities are down an average of 12.39 percent, while the S&P 500 is down about 2.4 percent, and they are down an average of 23.8 percent over the last three months, versus nearly a one percent increase for the benchmark.

Below is a 3-month Google-sourced performance comparison chart for the group:

(click to enlarge)

Last year, both China and India 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.

Last month, Denison reported that it was entering an agreement with Energy Fuels regarding its uranium mining assets within the United States. Under the agreement, Energy Fuels will acquire all of Denison's U.S. mining assets and operations to Energy Fuels in exchange for about a two-thirds stake in Energy Fuels.

Denison shareholders are to receive shares in Energy Fuels, making them owners of both a United States uranium miner and an international but primarily Canadian one. The deal helped DNN shares spike up in mid April, but they have since declined about 16 percent from their subsequent topping after the deal announcement.

Some believe that uranium demand from new and sizable locations such as China and India, will soon outpace uranium supply, potentially creating dramatic shortages and price spikes to both uranium and the shares of uranium producers. It is also possible that thorium could replace uranium, that some new power source might make uranium-based reactors obsolete, or that natural gas will simply be chosen as a cheap, safe and clean enough option. It should be expected that uranium miners will continue to exhibit high risk/reward characteristics, and that investment allocations should be limited accordingly.

Source: Updated Performance Review For 5 Uranium Producers