Melt-down Time For Uranium Stocks?James West
February 12, 2008
The market has been unkind to junior resource stocks for the last several months, but it has reserved special treatment for uranium juniors, whose management are sounding increasingly depressed and suicidal.
The reason is plain to see - the price of uranium is heading south in a hurry, and that has many investors asking, "What exactly is the condition of uranium fundamentals now?"
Cameco, perhaps the best corporate bell-weather of the uranium business, has seen its shares fall 18% so far in 2008, and 26% in the past year.
Ian Howat, senior National Bank Financial mining analyst, has dropped his forecast price for uranium in 2008 to $110 a pound from $120. It gets worse - by 2012, he says it will drop to $75 a pound.
So what happened to the "Nuclear Renaissance" that was supposed to lead the world out of Greenhouse Gas purgatory and into a low cost, low emissions energy future?
It just hasn't happened quite as fast as some would have had you believe.
The reasons for that reality are numerous, and here's just a few:
There is a also major disconnect between the "spot" price for uranium, and the price uranium miners are receiving for their output. In its most recent report, Cameco, Canada's largest miner of yellowcake, said it received an average of US$38.92 a pound, while in Australia, Energy Resources only got an average of US$25.06.
That's because while there is a spot price for uranium, there is no substantial spot market. You can't go to the local coin dealer and buy a 1, 10, or 400 ounce bar of U3O8.
This represents a huge discrepancy. In the gold market, miners receive much closer to the spot price for their product, because there is far more liquid market for gold.
Gold, after all, is the only true global currency, and every day people convert paper currencies into gold to protect their wealth.
So is it time to dump your uranium juniors and forget about them?
Not so fast. The run-up in uranium prices can be likened to tech stocks in 1999. Nobody knew how to evaluate the demand, and but the internet was so new, the hype induced the "fear of missing out" part of the herd mentality, and the stampede was under way.
After the crash, the stampede went in the other direction, and even companies with value in the form of earnings and dividends were sold down to fractions of their values. Now, internet technologies are better understood, and its much harder to hype the reality.
The current uranium phenomenon is in the second phase of the same sort of cycle, where everybody panics and indiscriminate dumping is the result.
There are a lot factors that yet point to a sustained growth in the importance uranium will play in our energy future.
February 12, 2008
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