Positive News for Uranium Stocks
Wednesday, October 31, 2007
The Federal Reserve meets today, and the market is betting
that a rate cut is indeed in the cards. Most agree that it will be a 25
basis-point cut. It is our belief that the Fed should probably hold steady here
with rates, but speak in overly dovish terms to assure the markets that they are
still keeping a close eye on the current situation in the credit markets.
This really is not uranium talk, so some may think this is
unimportant, however it is very relevant to our investment thesis. If rates go
lower, many investors will become more tempted to speculate with cheaper margin
rates and the higher returns offered by equities.
The uranium equities have emerged from the ashes of the
summer’s fallout, and have formed a powerful uptrend, as is illustrated by our
proprietary uranium index. We believe that this is the beginning of another bull
run and that there are larger gains ahead. Selling into strength is not our game
plan as we are so close to a large breakout. We believe this is the case after
looking at the data from the index and how it reacts when around technical
areas, but remember always that no one ever lost money taking profits.
and lower lows. What's not to like about that? Money is beginning to flow back
into the sector, and just as important news flow is picking up due to the
current drill season.
The fundamentals have changed so much in the past few
months that our sources tell us that the big money is moving into the junior
uranium explorers now. In fact it started nearly a month ago, but we sat tight
as we would rather see the dog wag the tail rather than vice-versa. Bluerock
Resources (BRD.v) is one such example that experienced unusually high volume as
a certain fund manager was moving into the company’s stock. From what has been
conveyed to us, as well as what we could physically see on the ticker, this
manager bought between 500,000 and 1,000,000 shares which effectively
established a put for the stock back in the mid C$0.30 range.
buyers stepped up to the plate on BRD in late September. Notice the high volume
and significant jump in stock price.
Past history with the uranium equities, as well as our
general investing knowledge, indicate that the place to invest currently would
include the current producers as well as those who will very shortly be opening
mines. To clarify this point we would categorize these companies as those
opening mines before 2010, this may sound like a long time, however in the
mining world it is anything but. These stocks are the safest (in a group of very
speculative equities) in this young new cycle, and shall remain so most likely
for years to come as this industry is rebuilding itself literally from the
ground up. So each time the fund managers decide that they would like to invest
in the uranium arena, they will most likely start at or near the top and work
their way down to the pure exploration plays.
Stocks to watch for the first surge when the managers do
begin to move into the uranium sector include Mega Uranium (MGA.to), Forsys
Metals (FSY.to), Paladin Resources (PDN.to), Laramide Resources (LAM.to),
Ur-Energy (URE.to), Denison Mines (DML.to) and Uranium One (UUU.to). These are
the leaders of the pure-play uranium mining industry after Cameco and Areva and
have traditionally risen before the whole sector takes off.
The Australian and Canadian Dollars have displayed strength
over the past few weeks, and this trend should continue as long as the US
Federal Reserve proceeds to lower rates, or allows the market to believe that
they are in a dovish state regarding interest rates. The Australian Dollar broke
through the US$.90 level recently and now is trading at the US$.92 area.
Wall Street “insiders” are claiming that all commodities
are currently moving higher because the US Dollar is moving lower relative to
other major currencies of the world, and should the Fed move rates lower we will
see a rise in commodities across the board. As witnessed yesterday, oil took a
healthy hit and it might very well be a situation where people bought on the
rumor and are selling on the news (the news being that over 80% are betting that
the Fed will lower by 25 basis-points). While oil and other commodities have
risen, uranium seems to have bottomed out and is beginning another rise upwards.
We have stated before and will reiterate that uranium prices will have to go
higher still in order to make many of today’s deposits economical to
advance, otherwise the nuclear plants under construction and those on the
drawing board will not have a supply of nuclear fuel to generate the power
demanded by their clients.