Uranium Investors Returning from Hibernation?
Friday, December 21, 2007
In the past week uranium equities continued their march
downwards towards this year's lows. In fact, they even set a new yearly closing
low in Tuesday's trading as indicated by our Canadian uranium index. Trading
sessions on Wednesday and Thursday provided a bump upwards for uranium stocks
which is what we would have expected and is quite healthy. In our experience
this does not necessarily indicate that the bottom has occurred, however it does
indicate that at these prices there are traders out there willing to take on the
risk/reward situation the market is offering them. It does not solve all of our
problems at this point, but it is certainly a step in the right direction.
Also, Tradetech announced that uranium spot prices had
fallen $3 to $90 as a result of miners needing to sell their material for cash
flow purposes. Although uranium metal is still performing strongly, uranium
stocks, as before mentioned, are fairing poorly. Something will have to give
soon as China continues to announce further building plans for nuclear plants to
power its growing energy needs. Most likely the price of uranium metal will
continue higher as the supply demand situation continues to favor miners over
utilities with miners being the beneficiary. Uranium mining stocks will
undoubtedly move higher once it is realized that the bubble has not popped, and
that there is indeed a future for some of these companies. After all, even
though supply has grown in the past few years as projects have come online in
Africa, Asia and the United States (re-opened past producing mines), demand is
increasing as well with each new nuclear plant built.
At this point, buying uranium equities which own uranium
deposits or better yet producing mines would probably be best. As we have said
before it is our experience that the quality leaders nearly always lead the pack
out of rough patches and then the market performs the “trickle down effect” and
the riskier equities begin their rebound.
Now it might seem that we here at theinvestar.com are
simply uranium bulls and would not have it any other way, but when you look back
at all the events of the past 12 months, nothing has really changed...except of
course the value of many portfolios. The majority of investors in the world have
had their portfolios hit in the mortgage paper fiasco of 2007. The story
surrounding uranium though has not changed, there still is not enough mined
uranium to supply the world's uranium demand and many of today's mines face
production hurdles, be they rebel groups, flooding, lack of infrastructure and
NIMBY/regulatory issues. This is not a problem which will be solved overnight,
and in fact it appears that bringing more supply online gets harder on a daily
basis. Governments from Russia to Mongolia to many found in Africa seem to be
trying to take more control over deposits and are in fact delaying projects with
the uncertainty they are creating.
Laramide (LAM.to) is a perfect example of the leadership we
are talking about. In the graph displayed below, you can see how it snaps back
at the end of the chart. Now this is by no means a slam dunk to continue, but it
is along the lines of our thesis.
on heavy volume, and began its correction on regular volume, possibly an
indication of capitulation?
Pinetree Capital also seems to support our thesis and has
risen significantly since December 17. Although not a pure play uranium company,
we view this company as a barometer for all things uranium due to their vast
holdings in uranium exploration companies.
Laramide, Pinetree has seen its stock rise on ordinary volume after falling on
above average. Possibly a trend here.
This was an industry wide bounce we experienced over this
week and it is indicated best in the riskiest of the issues on the market today.
Western Prospector and Khan Resources have been facing governmental hostilities
in Mongolia and have seen their market-caps cut significantly in the past
quarter. These stocks were hit hardest on in the past few weeks, however in this
snap-back we have all experienced they have been among the strongest performers.
Both up nearly 20% on Thursday alone, this is an indication of the risk appetite
among investors willing to participate in the uranium marketplace. These will
not be the stocks to lead us out initially, however if this is the correction we
have been looking for (upwards correction that is) they will not perform poorly
in the next few months unless the situation in Mongolia continues to
month charts display the breakdown in investor risk tolerance for uranium
explorers in this correction. Both companies potentially face ownership issues
with the Mongolian government, but both have significant deposits on their
respective properties. Investors seem to have discovered a favorable risk/reward
ratio in the last two trading sessions.
Now the final reason we are still believers in this uranium
bull market is the very fact that other investors are still pro-actively
partaking in the marketplace. One of our favorite barometers to measure the
market by is the measurement of new capital entering the market, and quite
honestly we were worried about this for the past few weeks. For now all appears
fine in the uranium arena with a number of companies finding success in raising
funds through private placements. The most ambitious plan is one where Nu-Mex
Uranium Corp. and NWT Uranium Corp. plan to sell at least $10 million in stock
by way of private offering to be completed in tandem with their proposed merger.
The merger hinges on the completion of this offering by Nu-Mex, but at this
point it seems that the deal will be completed as NWT recently spurned another
offer from a third party, which we are told was Azimut Exploration, in order to
continue with the planned merger with Nu-Mex. On Monday (December 17) Santoy
Resources indicated that they had completed a private placement for over C$5.5
So long as the capital markets are open to the uranium
explorers, then the drills will keep turning and news flow will continue. Many
companies can still be bought at what we believe are option prices, that is many
of the stocks trade at prices resembling call option pricing but with a period
of perpetuity. Once again we find ourselves buyers of all things uranium.