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« Uranium One Incorporated: A Damaging Strike | Main | Khan Resources Incorporated Update as of 06 October 2008 »
Tuesday
Oct072008

Uranium stocks: The beating continues!

Uranium Chart 08oct08

Another murderous day for the markets with the DOW losing 508 points and the uranium sector taking another pounding. Anything with a ‘U’ in the title was dumped faster than hot cakes. The equities market in general needs to find a bottom before we can expect to see the uranium sector form a base. So long as the flight to cash continues then there isn’t a ‘safe’ stock out there, in our humble opinion.

To see Cameco close at $18.44, Denison at $1.87, Uranium One at $1.21, Laramide at $0.90 is something that we thought we would never witness. When this bull market starts again, those who have any cash left will make a fortune. We can only hope that it is not too long in coming as we decided to sit through this upheaval and remain in position.

As above chart shows the spot price stands at $53/lb and according to Ux Consulting the long-term price fell US$5 to US$75 a pound U3O8. We had hoped that the long-term price would remain stable but it has now softened.

Once this bout of selling recedes it will be interesting see just how the investment community reacts to a move to the upside in the spot price of uranium.

Got any comments? Fire them in!

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Reader Comments (10)

Sir,

I think it's time to go back to fundamentals -no one doubts that there are good sound companies out there in this sector but it is increasingly looking like the recent asset prices where a bubble within a bubble.

Camecos Cigar Lake disaster set the stage for spot prices to escalate from 2006 against a backdrop of a general frenzy in commodities which are all now seriously off.

The long term fundamentals are sound and -if the Peak Oil theory proves correct- there will be a dramatic buildout in capacity in the decades ahead but we are currently in a credit/debt contraction and people are 'running for the hills'.

IMO we should forget the recent high prices (treating them as something of an anomoly) -perhaps some made a killing but I suspect a lot of people are just clinging on for life now. We should go back to fundamentals and ask the basic question that all investors of any stock should ask "What is a reasonable price to pay for this share NOW?" If we make an assumption that Uranium will return at some point in the future to $100/lb what are this companies assets worth given its level of reserves, expenditure, debt levels, risk, etc. etc. etc...

I do not expect the markets to recover for months -perhaps even years but I look forward to continueing to read your site and hopefully pick up a few bargains with the knowledge gained here. In general: thanks for the good work...

Regards, Nick.

October 8, 2008 | Unregistered CommenterNick

Both candidates seem pro active for nuclear power. Even in the Oct 7th presidential debate a good part of the time was energy independance and nuclear power. Dosen't that bode well for uranium stocks in the not so long run?

October 8, 2008 | Unregistered CommenterCarl

I agree with your comments, Nick. Most uranium companies will be hard to value, since many aren't making squat, which could be a good reason to stay away from them.

When things bounce, I plan on favoring companies that have little to zero debt and have lots of cash in the bank. It's not hard to buy a company with good projects, no debt, and $0.70 cash in the bank for each $0.30 share. (And I'm not even talking about net asset value, just cash in the bank!) A few (but not many) of these companies could last years without getting another round of financing, and I think the companies that could hunker down and endure comfortably for a few years without having to issue new shares or get bank loans (good luck!) will be the lowest risk.

There will always be risk, but to make the big money sometimes you need to take the plunge even when the news is bleak, as it will be when things bottom out. I think we can all learn a few things from some of the better uranium companies out there - sell (and raise cash) when times are good because it'll be a real life saver when times get tough. This is a lesson that most of the juniors won't get a second chance to learn, because I think that few of them will be around a couple of years from now. That's why it's best to stick with the very best.

October 8, 2008 | Unregistered Commenterdbr

One should look at the fundamentals ....there is a shortage
of uranium and the ongoing Cigar Lake debacle indicates there will be a shortfall for the foresseable future.Due to the unprecedented deleveraging the majority of stocks are being pummelled.Uranium is not like the base metals which are in over supply and which deserve to be sold off.Once the markets stabilise and investors/institutions come to their senses they will realise some of these companies are at staggeringingly low prices which in 12mths time will make these current prices laughable.

October 8, 2008 | Unregistered Commenterrich

If Uranium is in such short supply how come fwd spot prices are indicating it will only rise to $70 by 2010?

Industry is slowing down -demand for a wide range of commodities is showing down, refining/producing commodities takes lots of power, so power demand is down SHORT TERM. Now the one saving grace is that the Nuclear Industries 'cycle' is a lot longer and there are still many projects in the pipeline that will require Uranium but its not 'off the charts' yet is it?

Somebody give me some fundamentals for these companies that indicate they are currently at 'staggeringly low prices' and not just descending from 'staggeringly over-inflated' prices.

Ignore history in your analysis: For example Cameco is now trading at $14 on a PE of just under 12 -is a PE of 12 too low or was a previous PE of >25 simply too high??

Nick.

October 8, 2008 | Unregistered CommenterNick

Nick

I hear what you say but $70 is a very attractive price and wont be that low
forever.
when goldman sachs spoke of a super spike in oil to 105 dollars in 2006
everyone thought they
were insane,at the same time DB in 2003 thought oil would stay at 10 dollars
.Forward prices in
Gold have always been on the low side as well..look at them now!!

The demand for nuclear energy will grow every year and if we get a v cold
winter this year the demand
will naturally increase,the dollar will begin to weaken again and dollar
related commodities will rebound.
The world population grows by 200 000 a day and the world isnt just going to
stop dead in its tracks.
12mths from now comoanies like Cameco,Paladin,Denison will be alot higher
imho.

October 8, 2008 | Unregistered Commenterrich

I am Bullish mid-long term on nuclear (Have read "The Great Uranium Bull Market") and now I hear Obama is warming up to the idea so if he wins there probably won't be another round of sell-offs after all (I'm British so sorry if not following every minute detail of the election campaign -I was in Chicago for 3 days in January and I was sick to the teeth of it then so God knows how you Yanks are coping ;o)

Anyway, I can hardly believe my luck here. I can pick Cameco up for a shade over $15 -what a bargain for a great company! Even if I don't get the exact bottom -and I won't because I fear this debacle has further to go and even when it hasn't I will still fear it has further to go, etc.- I WILL be buying this. Perhaps not at $15, or $14, $12.50, $15 or back upto $18 but yes, under $25 and 'going in the right direction when the indicators are showing now is the right time to get back in...', then on to $30, back up to $50 and sailing through $100 one day in the next decade for a 400% gain...

With the belief that Uranium will eventually 'come back' and being 'all-in' and unless you are a day trader its probably best to just hang on through any sell-off at this point.

I would like to see an analysis of the most beaten up Uranium stocks with the most upside potential taking into account some assessment of risk (say by considering current debt levels to get them through the next couple of years) -Anyone got some links / stock ideas in the Uranium?

Ones I currently 'watch' in this sector (don't have either -but will 'one day' :o):

1. Cameco.
2. Paladin Energy.
3. Bannerman Resources?

Nick.

October 9, 2008 | Unregistered CommenterNick

Btw.

I think everyone should have a read of Nouriel Roubinis blog if they want to get a feel for the 'bigger picture'. This guy has been predicting these financial woes for two years.

You can quickly get a months free pass -invaluable- at:

www.rgemonitor.com

-He is a Economics Prof with a view to the macro-economic picture. He paints a worrying picture, the pain is not over yet, not by a long way...

Nick.

October 9, 2008 | Unregistered CommenterNick

Given the current state of the markets and the unwinding of hedge funds that Roubini speculates will (or more likely is) happening every single person who reads this blog and is invested in Uranium needs to read this NOW and come to their own conclusions:

http://www.uraniumseek.com/news/UraniumSeek/1223580618.php

[Disclaimer: I DO NOT SHORT ANY STOCKS, neither am I invested in any uranium stocks at the moment. I believe in Peak Oil theory and that we need more Nukes, that is what has led me to the possibility of investing in this field and the potential gains it may offer in the decades to come.]

Carrying on the research into this fascinating commodity and best of luck,

Nick.

October 9, 2008 | Unregistered CommenterNick

hat.v -- this a seriously undervalued junior they have found the goods and are sitting on 25m pounds of the stuff and have 30m dollars in the bank .. have a look as this is an extremely good buy

October 26, 2008 | Unregistered CommenterTrevor

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