Despite Japanese Trauma, Uranium Is Not Dead

by: Alex B. Gray

In the face of disaster, what do government officials around the world do? Jump into action to protect us and make us feel safe of course.

  • France has ordered tests on all of its nuclear reactors and will make those tests available to the public.
  • Germany has announced the temporary closure of 7 out of their 17 nuclear plants.
  • United States representatives called for a moratorium on building new nuclear power plants. I assume this is because the moratorium on drilling in the Gulf has seemed to work so well.
  • China has imposed a suspension of new approvals and will add more inspections to existing plants.

The quick reaction by government officials around the world is almost always a complete over reaction and more political posturing than substance. This is not to make light of the continuing tragic situation in Japan, but to make the point that uranium is not dead.

I do not believe this terrible incident will have a major impact on the use and growth of nuclear power throughout the world. France is not going to suddenly start shutting down reactors that supply most of the countries energy and start importing vast amounts of coal. China currently has 25 reactors in various stages of construction and over 100 in the proposal or planning stage. While I believe Japan will take a serious look at their nuclear program, as any smart country would, they will continue to use nuclear power as a major source of energy. The United States is a bit of a wild card as we are just now getting over the incident at Three Mile Island. In additional many other parts of the world, such as India, must find solutions to their increasing energy demands.

Below are some uranium stocks that have been punished in the wake of the disaster in Japan. These stocks will be volatile while the situation in Japan plays out so be prepared to have a strong stomach if you make the plunge. It may be wise to let this situation come to a satisfactory conclusion before committing capital as trying to catch the bottom in some these higher risk stocks may cause you high levels of anxiety.

Cameco Corporation (NYSE:CCJ) is a Canadian based company that explores for and produces uranium around the world. In addition, the company provides various uranium processing services and owns 31.6% of North America's largest nuclear generating station located in Ontario, Canada. The company's operations are primarily located in the U.S., Canada and Central Asia and it provides 16% of the world's mine production.

Areva CIP (OTCPK:ARVCF) is a major player in many aspects of nuclear energy and is the largest producer in the world. However, the production group only provides 10% of revenue. The company also provides conversion and enrichment services which accounts for 31% of revenue and reactor design and construction services accounting for 38% of revenue. The company is also involved in end-of-cycle management for used fuel and in the development of other renewable energy solutions accounting for 21% of revenue.

Paladin Energy Ltd. (OTCPK:PALAF) is a pure play uranium production company based in Australia. The company has projects in Australia, Africa and Canada. The company also has investments in two other uranium companies including Summit Resources, Ltd. (OTCPK:SRCSF) and Deep Yellow Ltd (OTCPK:DYLLF). The company is not currently profitable adding risk to the stock.

Dnison Mines Corp. (NYSEMKT:DNN)
is a small capitalization play on an intermediate uranium producer. The company currently has three active mines in the United States as well as interests in two of only four uranium mills in North America. The company has additional exploration projects in the United States, Canada, Mongolia and Zambia. The company is not profitable, but results are much improved over 2009. The balance sheet is in good shape and the company recently closed on additional financing.

Uranium Energy Corp. (NYSEMKT:UEC) is a much higher risk play on a uranium exploration and production company. The company's projects are all located in the southwestern region of the United States. The company only recently began producing uranium and has yet to sell any of its production or turn a profit. The company's balance sheet is in good shape, but ongoing financing will likely be required.

Two other exploration-stage companies that may interest you if you can take on the risk are Uranerz Energy Corp. (NYSEMKT:URZ) and UR-Energy, Inc. (NYSEMKT:URG). Both companies are U.S. based small cap plays with uranium exploration projects in the United States.

If you are looking to diversify your uranium exposure with other materials Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP) may be good lower risk investments. Both are large capitalization companies with very diversified mining portfolios. While the stocks have not been damaged like the pure plays on uranium, they have been knocked down in recent days. Rio Tinto produces 16% of the world uranium while BHP Billiton produces 6%.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CCJ, OTCPK:ARVCF over the next 72 hours.