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

In 2011, the uranium industry sustained considerable declines, initiated by fears stemming from the Japanese nuclear catastrophe that followed the Fukushima Daiichi nuclear power plant, which was hit by both an earthquake and 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 further contributed to uranium demand weakness when the nation commented that it plans to reduce and slowly phase out the use of nuclear power. Moreover, the significant reductions to uranium demand were coupled with consistently falling natural gas prices and, as a consequence, several uranium miners lost more than half their value during 2011.

So far within 2012, like the broader equity market and many commodity-linked investments, uranium miners have been volatile. After a surge to start off the year, with some uranium miners increasing more than 60% within January, uranium miners spent the next few months in a state of gradual decline that accelerated as the broader equity commodity markets also began to decline.

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 one-week, one-month, three-month and 2012-to-date equity performance rates.

Last month, Denison reported that it would enter an agreement with Energy Fuels regarding its uranium mining assets within the United States. On Thursday, May 24, the companies announced that they executed a definitive agreement.

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 U.S> uranium miner and an international but primarily Canadian one.

Denison shares are up 26.39% so far this year, which is the best performance among these five uranium producers, but shares have still declined by 13.18% over the last month. The worst performer is USU, which is down 36.24% since the start of 2012, and down 81.07% over the last 12 months. Short positions in USU have also grown, and now at least one out of every five shares that make up USU's float are sold short.

Over the last week, though, all of these uranium producers are positive, with four of the five appreciating by over 10% in the last week, with most of the gains coming on Thursday and Friday. See the 5-day chart, below.

(Click to enlarge)

Last year, China and India both initiated large, 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.

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: Recent Performance Review Of 5 Uranium Producers: 4 Surge To End The Week