Uranium: Red Hot Yellow Cake

Over the past few weeks, we here at theinvestar.com had speculated that uranium equities could be poised to rise higher if only they could hold recent gains and stay above support levels established in April and subsequently rise above previously established resistance levels. Our reasoning was due to the sideways trading seen in April, as depicted by TICUA our uranium equities index, the numerous charts flowing from the upper left hand corner to the lower right with very low volume near the end and the fact that when we had our first upwards movement it appeared the market "moved on a dime" accompanied by very high volume.

We also watch the financing markets very closely and had noted the recent financing news was regarding cancelled offerings and those which came in lower than expected or on unfavorable terms. When we saw companies willing to go shopping for competitors we knew something was up, and it seems to be a rising tide. Currently we have Frontier Pacific (FRPMF.PK) as the target of a buyout and Khan Resources (KHRIF.PK) attempting a takeover of Western Prospector (WEPGF.PK). In Australia, where there are numerous uranium explorers with market caps under A$20 million, many companies have been selling stakes at or above 10% of the shares outstanding to outside investors.

Theinvestar's Canadian Uranium Average is up strongly since early May with strength from all segments, but the largest gains coming from the near-term producers and beaten down juniors. The index has held support recently and just broke out of overhead resistance with yesterday's stellar returns.

The uranium equities did indeed turn on a dime in early May led by near-term producers such as Continental Precious Minerals (CTPMF.PK), Laramide (LMRXF.PK), Mawson Resources (MWSNF.PK), Powertech Uranium (PWURF.PK), UEX Corp. (UEXCF.PK), Ur-Energy (UREGF.PK) and explorers which were badly beaten down including JNR Resources (JNRRF.PK), Santoy Resources (SANRF.PK), and Universal Uranium (UULFF.PK). Denison Mines Ltd. (DNN) has performed quite well among the current producers with Cameco (CCJ) and Paladin (PALAF.PK) rising as well. True the sector was brutally beaten following the sub-prime mess as hedge funds sold physical stocks of uranium on the spot market pushing the price down and then fund after fund (hedge funds as well as mutual and other investment vehicles) dumped shares as the market trend took us lower and lower. The selling by these funds was illogical as the spot price was roughly 50% above where they began accumulating their investment positions in the equities and the funds which did not have margin requirements needing to be met (think mutual funds, etc.) sold because their positions were down. With the lack of volume it was easy to note where funds were liquidating positions in some of these thinly traded securities and according to our notes, some of these sales actually marked the lows for the securities being traded.

With money trickling back into the market now that the sub-prime crisis fears have largely been averted and investor confidence up, it seems that many of the speculative niche investment strategies of years past are heating up again. Solar stocks have seen a renewed interest after getting clobbered earlier this year and even the hated ethanol players are seeing some buying now. Oil is at all-time highs and the likes of Goldman Sachs and T. Boone Pickens have indicated that it should go higher this year with $141 and $200 being their price targets respectively.

We saw the number of reactors on order/planned rise by nearly 25% this year already with growth coming from across the world. We have the 'old money' of the world (the Western Nations- Canada, France and the U.S.) and the 'new money' (Asia, the Middle East and South America) both striving to add nuclear generating capacity with both anticipating plans for further reactor build-out.

The news is great for long-term investors, and by picking the stocks of companies with resources providing good opportunity for extraction investors could profit handsomely. We would caution those interested to always remember that stocks rise on what we call the 'hopes and dreams' factor and tend to fall on 'realization' factor. Even for those companies achieving their goals, sometimes it does not translate into amazing gains after the speculators dramatically exit. With that said, if the world does move away from fossil fuels powering the vehicle fleet, then one would have to imagine that uranium has a bright future based on its ability to generate large quantities of electricity output and its lack of CO2 emissions.

Disclosure: The author holds positions in Santoy Resources, Universal Uranium and Mawson Resources.

Comments

[resourceman]

Yes, we are witnessing a nice turn-around in the U3O8 mining/exploring sector . My portfolio of > 30 issues has risen ~ 15% off the bottom. Big joy now is HAT.V with it,s mega-discovery. You need to be in that stock. They,re doing everything right--ie., after the first core showed >5% U3O8 they leased all available. contiguous acreage. Then they beat-off an encroachment claim by their neighbor FIS.V, who BTW, has benifitted nicely from the discovery. Now they,re continuing to core and reporting values even above 40% U3O8. This will make HAT.V into a large company someday down the line. Their 10% partner, TAS.V is also another way to play this Bonanza! Best of luck to all you U3O8 longs--our day will come !!

[GH]

Apart from - potentially, if a whole lot of laws change - ships, how do you see nuclear power replacing "fossil fuels powering the vehicle fleet" ?

The only ways I can see are indirect:
(1) use nuclear-generated electricity to produce hydrogen or cellulosic-based ethanol. Both those would require replacing most vehicles' engines.
(2) use nuclear-generated electricity to charge the batteries of electric vehicles. This would again require replacing the vehicles. If we're going to do this, we might as well use sustainable power sources with no toxic side products: wind, wave, and solar.

[AMC]

There isn't a power source available in terms of energy yield and constant power generation that can sit in company with nuclear energy aside from fossil fuels. However, burning fossil fuels is the cause of our environmental concerns and as we all know, they are in diminishing supply. In fact, the IEA is conducting a study of the worlds 400 largest oil fields and are expected to find that the supply is FAR LESS than previously expected. I for one am nervous to find out the result (but happy for my nuclear energy portfolio!).

While vehicles and general transport is slowly replaced by more environmentally friendly means (hydrogen, cellulosic ethanol, electric, ceramic engines), we need a power source that can power large city grids. There might be enough coal out there to power America for centuries to come but we would then subject ourselves to acid rain, intollerable drinking water and thick clouds of smog (anyone seen what China's cities have become?). Nuclear power is the answer and the rest of the word sees it except the U.S.

While China, India, France and many others continue to make advances in nuclear energy and build new reactors to satisfy their power needs, we sit on our hands- ignoring the inevitable. I fear such idle waiting will lead to the next great war as nations around the world begin hoarding oil and natural gas while prohibiting their export. Consider if you will how much oil the United States of America consumes and how much of that oil must be imported. Imagine taking that away and what lengths we would go to in order to ensure the great machine doesn't come to a grinding holt. A scary prospect my friends!!

[Billion003]

Should we have ignored the environmental hysteria decades ago that prevented us from having nuclear power in place now?
Should we be listening to similar rhetoric now? Who could have imagined environmentalists would do a 180 on nuclear energy.

[LiquidSoapDispenser]

Of course, the other incentive for replacing the fossil fuels powered vehicle fleet"\ is to stop sending so many Western dollars to countries who's populace wants to do harm to Western countries. Cutting our appetite for oil is important for so many reasons, it's amazing to me that very little has been done to make it happen. I won't say it has anything to do with the leaders of the united states being so involved in oil.

[Craiger]

We've all heard France produces 70% of their energy via nuclear reactors. They went through a period of disposal crimes, and Greenpeace got them back on track. No meltdowns, no China syndrome, and the footprint of their current reactor models is 1/2 what it was with double the output. The problem for the US is they cost billions, and take years to build, even after approval. I work for a power company that burns coal, and inspected 3 units last week. There is nothing visible coming out of those stacks. Coal is clean gang, natural gas is cleaner. I'm a fan of clean coal, but am OK with nuclear too. I've invested in U and EQN, and buying natural gas as summer prices hit. Coal, I'm looking at PUDA over the counter, and would like something similar in Brazil.

[JET1C]

Does anyone remember WPPS, the Washington Public Power System?They went broke back in the 70's due to over regulation and the anti nuc lobby. Also look and the Nuclear Depository. Think about that very good advice "When you find yourself in a hole, the first thing is to stop digging".
With the problems of disposal and current mind set about nuclear power I don't see it ever being a viable power source in the US. The last two days I spent driving across North Dakota on I-94 and I think we must have seen at least 5 wind turbines, all privately owned by farmers. This as I was pulling a small travel trailer and getting 8 mpg with my deisel pickup while heading into a 35 mph headwind.

The answer is all around us, wind, solar, what else do we need?

[valleeo]

One (small) nuclear power plant generates 1000 megawatts. That would requires 500 windmills. Do you realise how much space that takes? One windmill is pretty; 500 is a different story. And you're an environmentalist?