Thursday, July 26, 2007
For quite some time we have been saying that our Canadian
uranium stocks had a good chance of going lower by 10% to around 245 for -theinvestar's
Canadian Uranium Average. We just closed at 245.9636 after the past two trading
days gave many stocks a good haircut. Now we are buyers, strong buyers and
believe that buyer's remorse is something that we need not worry about at this
time. Many of the stocks which have just led the index down are the 'Blue chips'
of the industry, thus indicating to us that for many investors they have, sadly,
moved on. Now we envision that over the next week stocks will bottom out and
move higher, and over the next month will move higher still. Our guess is that
the index will rise by 10% in the next month, based not only on the index and
its history but also the individual stocks within the index and their
It has been a
long road back, but Canadian uranium equities may be offering investors a last
chance before a rally here.
Now we have had our doubters recently, but we are sticking
to our guns. Our guess was that Australia would lead us ahead, just as they led
us downwards earlier this summer. If you look at the chart, it appears that -theinvestar's
Australian Uranium Average has bottomed and in fact is attempting to move
forward at this time. So quite honestly, we may be in our lag period and shortly
going to follow the Australians higher. Right now news seems to be horrible for
uranium, the commodity, but our guess is that it will only get better as fears
ease regarding Japan and plans are laid out regarding the Nuclear Renaissance
here in North America and abroad. This news is weighing heavily on uranium
stocks, much more than it should be, and the problem will be corrected in the
uranium equities appear to be leading the way higher. Could Canadian U3O8
equities soon follow?
One stock we will be adding to our portfolio will be Energy
Fuels (EFR.TO) which has been beaten down recently over mill concerns. They
announced that they will seek permitting to build their own mill as Denison
seems to be bullying them around (along with BRD.v which is also in our
portfolio), but this should work itself out. First Denison has a monopoly on the
geographic area, so they better behave or they could face the wrath of the
Justice Department. They are operating in a very vital sector to the US economy
(nuclear power accounts for roughly 20% of electricity capacity), so one could
imagine that the Government has an interest in keeping supply flowing from these
new mines and thus increasing supply to the US nuclear plants. In the long run,
Denison would be wise to let EFR and BRD piggy-back on their milling capacity so
as to avoid competition. EFR has already stated they want to build a mill now,
and we hear rumors that BRD may be looking into doing the same. Also, STM is
permitting a mill in New Mexico which will be built in part by a Global Fortune
500 company and SXR is bringing its mill in Wyoming online in the near future.
EFR has options, and at this price we think it is a buy, so at C$2.38 we will
take our initial position.
Our other trade will be the purchase of Universal Uranium
at C$1.40, a stock we had looked at before but one in which we own the company
it is merging with Silver Spruce Resources. Now we had added shares earlier to
our portfolio, but at this point we see the spread between the two stocks
widening, so this is our arbitrage play. Should the SSE gold company spin-off be
worth much more than the UUL US uranium company spin-off, then the trade will be
a wash. Our math indicates that the gold assets are worth more, but not this
much more, thus our buying at this time. If you do not like the trade based upon
that information, check out the Two Time Zone drill results and you will be a
fan if not already.
Mawson Resources will be added to give the portfolio some
more exposure to European uranium as well as take advantage of the current price
of the stock. At C$1.95 the stock is a bit off of its support, and a distance
away from its next support, however with its low float and great properties it
could rise higher in dramatic fashion as was seen recently.
Our final addition will be Santoy Resources (SAN.v) at
C$.80, which is already in our portfolio as well, however the stock is unloved
right now. They may have the southern extension of the Two Time Zone area (the
SSE/UUL property) and the market to this point has been unreceptive to those
drill results. The company has a JV with Mega on some highly prospective ground
in the CMB, including an area which is believed to host an extension of
Crosshair's 'C-Zone'. The company will begin drilling south of Two Time Zone at
the end of August, and the geologists believe that they have a handle on what
the geology of the area looks like.
We are going to flash our buy signal here, and add to our
portfolio here with these stocks. We like SXR, DML, PDN, and LAM at these prices
as well, however we go for the home runs and believe that our new additions will
provide us with the next group of large percentage gainers for our portfolio.
These purchases will leave us with 0% allocated to cash at this time as we
believe the bottom is at this point, give or take a few points of course!