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« Uranium Stocks: A Bounce Back! | Main | Portfolio Update 21 January 2008 »

Uranium Stocks: Monopoly Anyone?

Anyone who has investments in the uranium sector as we do, would have felt the effect of yesterdays drop, and the decline in recent months. In our opinion, uranium stocks are currently massively undervalued and have been sold off regardless of their great fundamental long term outlook.

Most uranium stocks are now below where they were in August 2007, when the summer credit crunch caused all stocks to be sold off dramatically. This is a cause for concern as the August lows had appeared to be a support level and if uranium stocks are going to fall through this level, technical analysis suggests we will have to hold on tight for further falls in uranium stock prices.

However the difference between this drop and the one seen in August is that this drop was fuelled by a lot less volume as shown in some examples below. After the massive drops in August we wrote that “this mass of volume suggests total capitulation”. At present we are trying to see a “bottom” in uranium stocks but we have not yet seen the masses of selling volume that we saw in the summer and this suggests that we have not yet seen the last crowd of sellers throw in the towel.

Uranium Stocks: Monopoly Anyone?

However even at current levels, there must be bargain hunters out there looking at these incredibly undervalued uranium companies and perhaps getting a little tempted. After all the fundamentals for uranium and nuclear power are the same as they were back in April where uranium was $138/lb. Also do not forget that uranium is still at $89.50/lb which is a great price for most uranium mining companies and stocks with potential projects in the pipeline. Perhaps when uranium producers start publishing impressive profits from mining uranium and selling it into these considerably high uranium prices, we may see some investor confidence returning to this sector.

There is a saying that “There are no problems, only opportunities.” Well how about this for an opportunity. A large scale hostile takeover of the entire uranium mining industry, buying out every explorer, near term producer, producer and any company with a decent project, some sort of uranium resource and the possibility to mine yellowcake. Why not?

The fact of the matter is that although takeovers and mergers were frequent when uranium stocks were going up, there has been little or no action since they started going down. However when a company's stock prices is low, that is in fact the time to be buying or making takeover bids, not when they are rocketing.

Take Uramin as an example. Uramin was bought by Areva for nearly $8/share and yet if Areva had waited until now they probably would have got Uramin for around $3. Therefore why aren't larger uranium companies such as Areva and Cameco, picking up junior explorers with quality projects? It is probably due to the fact that it would not be “popular” but the great investments are made when the product is not popular at all.

Bring that principle to a larger level, and one could launch a full scale takeover of the uranium mining industry for less than you may think. The total market value of every uranium stock listed on the Canadian exchange is under C$30 billion, this includes giants like Cameco and tiny exploration outfits that are only worth seven figures. Now the question is, who would want to buy a controlling interest, possibly a monopoly, in the uranium industry?

Firstly, if we could raise this kind of finance, we would certainly take the opportunity. However until we are offered the finance to carry this out, (email if you have some spare cash!) we must look to other possible buyers. The second buyer could be a large mining company such as Cameco, BHP or even an energy giant such as Exxon looking for exposure to uranium and nuclear energy. The third option would be a government interest looking to secure a supply of uranium for a future fleet of nuclear power plants that are going to provide energy for their rapidly growing economies and populations. Areva buying Uramin was effectively the French government buying more uranium to fuel their nuclear plants, so if China and India are going to move toward nuclear energy, why wouldn't they also look to secure a supply of uranium, especially with a stockpile of over a trillion dollars!

This is of course mere speculation on our part, but nonetheless it is still a possibility.

However going back to the uranium stocks at the moment, our gut feeling is to buy when things are bad, when there is “blood in the streets”. Therefore this suggests that we should be loading up on uranium stocks right now, but we are not buying as of yet as we are no sure that total capitulation as occurred, so there could still be a further downside to uranium stock prices. In the long term, nuclear energy is the power of the future and uranium is the fuel. Therefore despite the ups and downs, our uranium stocks should move much higher over the years to come.

When we think that we have hit the bottom we will be buyers again.

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Reader Comments (3)

i find the information posted by the editor on web site is refreshing and encouraging especially at a time like yesterday when the market dropped 600 points.
The uranium fundamentals are in the right path to go further up as the Earthlings are seriouly looking for non green house gas solution to power all the daily needs.
With or without an economic down turn , we still have to surf the net,enjoy TV and music,heat/cool our home,cook and live everyday.
Yesterday, two British scientists has tricked/forced in laboratory, uranium atoms to react with oxygen atoms. This will be a great start toward possible cleaner nuclear dump sites for future generations when we are also wondering the effects of cleaning after a nuclear power plant site de-commissioned.

January 22, 2008 | Unregistered Commenterwen leong

Good article... I was astonished by the downward spike on Monday as well considering the low volumes moving. Who the heck was doing the selling?

I think, though, if anyone had the foresight, wisdom, and financial backing to go on a uranium company buying spree they would have done it 3 or 4 years ago. The only people that seem to get it so far would be China and France, and maybe GE. So maybe the oil companies will jump in, but they'll probably only do so once we get close to the top and they finally start to think about it. I only hope I can hold on that long...

And to think, last year the US Govt sold all that uranium at the top. If they were really that smart they'd be buying it back right now.

January 22, 2008 | Unregistered Commenterjgr

Uranium is certainly a once-in-a-lifetime opportunity here, especially at these prices. They may have farther to fall, but I can't help myself at these levels!

As for who's selling, I have no idea. But I would like to thank whoever sold me 5K shares of Mega Uranium this morning at $1.65 CAD! If this morning wasn't a bottom, then I'd best get started raising some serious cash. It could be the washout (pun intended) of a lifetime.

January 23, 2008 | Unregistered CommenterDBR

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