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Monday
Feb112008

Denison Mines Corporation: Revisited

DML Logo 12 Feb 08


In response to our mailbag we are taking another look at Denison Mines Corporation, a favourite with many of our readers but one which we have not invested in the past.

What we said about Denison in January 2007:

“Overall we view this coming together of UIC and Denison as a very smart move. Good prospects added to good operational managers and a CEO, Peter Farmer who just oozes confidence all adds up to a ‘must have’ uranium stock.
The question is one of timing. We had UIC on our Watch List for some time and for various reasons we did not make an investment. May be we missed the boat, who knows?”


At the time we wrote this Denison was trading at around $12 and went on to trade as high as $16.00 plus. The stock price has now more than halved along with many in this sector. So has the buying opportunity that we have been waiting for now arrived? We will start with a quick look a he charts:

Chart 1: The last three years:

DML Chart three years 12 Feb 08

At $6 this stock is trading at April 2006 levels when uranium was trading at around $40.00. So at almost double the price of uranium, one would expect this uranium stock to be performing much better than it is. However the perception of which way the price of uranium is headed plays a big part in the criteria for investment.

Chart 2: Recent performance

DML Chart Recent Performance 12 Feb 08

DML looks to be forming a base. The technical indicators are just about on the floor and look to be turning higher. We could assume that they are now going to head higher or we can wait for some sign of confirmation that this is indeed the situation.

Uranium: Chart courtesy of U308.com

U3O8 Chart

Having rattled along to $138/lb on the spot market we have experienced a considerable pull back and now have uranium trading at $75/lb. However it should be remembered that the lions share of the trading takes place through privately arranged agreements between the producers and the utilities. Looking at the chart for uranium we can see the fall to $80/lb followed by a small bounce which petered out and the price now looks to be heading lower. This spot price is eagerly watched and reported on, and so has a huge influence on an investors decision making process. Many will see this as the determining factor for them, so all the uranium stocks could still go a little lower. For what it is worth we see it as the damage has already been done and that the downside from here is limited. The fundamentals have not changed although uranium appears to be out of fashion at the moment. As we said in the January article:

As Baron Rothschild once said something a long the lines that he was "only ever happy when he was sure that no one else wanted the stock that he was buying."

We think that we are at or very close to one of those opportunistic buying moments where fortune will favour brave. However for now we will keep a close eye on this stock with the view to cheekily placing a 'stink' bid below the current stock price in the hope of catching a real bargain. Should you want to pick it up now then that strategy should also work out well if you can wait for uranium to play out its downside and the rest of the investment community to recognise the value uranium stocks, such as this one. We remain positive, optimist and bullish on this sector but we have to say that it is a stance not shared by all of readers.

This company describes themselves as:

"A diversified, growth-oriented, intermediate uranium producer. With seven active uranium mines in North America (five in the U.S. and two in Canada), Denison estimates North American production at 5.0 million lbs of U3O8 by 2011." You can read more about them on their web site by clicking here.

Denison Mines Corporation trades as DML on the TSX and DNN on the AMEX, has a market capitalisation of $1.2 billion, a P/E of 37.73 and is trading at around $6.41.

Finally, If you are new to this web site and wish to receive our free newsletter regarding trading opportunities in this sector then please click this link to subscribe to The FREE Uranium Stocks Newsletter.




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Reader Comments (9)

I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

Allen Taylor

February 11, 2008 | Unregistered CommenterAllen Taylor

Guys,

I love the stink bid approach. Another idea for consideration...

Given that, unlike so many of the smaller companies, options trade on Denison:

You might sell some April or July 7.50 puts or even some July 5 puts. Selling the Julys at 1.60 with the stock at 6.60 gives you an entry at 5.90 if you're exercised. Not bad.

For the more conservative or those who aren't authorized to write naked puts, a credit put spread would work too. Sell the July 7.50s and buy the 5s. You only shave roughly 38 cents or about 5% off the entry price, but you also don't have to put up any cash. They pay you and you make money for doing nothing but obligating yourself to buy a stock you were gonna buy anyway.

You can always take the more prosaic route and simply buy the stock and sell a July $7.50 call for .90. Gives you an entry of $5.70.

All ways to participate without paying up. You probably have looked at this angle yourself and may not want to get into the options angle in your e:mail recommendations, but I send it along for what it's worth.

***

I'm really keying off you guys for this next entry. But hey, no pressure or anything!

Love your thinking and your approach and thanks for the heads up on DNN. I had kind of lost sight of it.

February 12, 2008 | Unregistered CommenterTW

TW,

We find it hard enough to get the direction of a market sector right and even harder to get the stock within the sector right. So the added time constraints that come with options trading makes the task even harder, however, there is money to be made in options and other forms of investment. Last year we doubled our stake on a spread bet on silver but those opportunities do not appear to often.

We are interested so please let us know how you get on.

February 13, 2008 | Unregistered CommenterUranium Stocks

I'm a buyer at these prices (Denison and others). I'm also enjoying the current combination of extreme bearishness, hopeless technicals, and massive opportunity that we're seeing in uranium stocks right now. Even though prices may (and probably will) drop further, there are some excellent deals out there, especially stocks that have dropped to major supports. I can only hope that prices remain depressed long enough for me to fill my shopping list.

February 14, 2008 | Unregistered CommenterDBR

Well, we had hoped to pick up Denison at around $6 but its up again so we will have to re-think this one.

DBR, well done, looks like you got it spot on.

February 14, 2008 | Unregistered CommenterUranium Stocks

I'll bet that most uranium stocks will test their recent lows before the summer, so we may get another chance to buy Denison at $6. Hopefully...

February 14, 2008 | Unregistered CommenterDBR

Hope so too - otherwise we will be bridesmaids again!

February 14, 2008 | Unregistered CommenterUranium Stocks

i'm not wasting time counting pennies here, i bought more DNN around $6.25. this company is mining uranium, has mills and contracts to sell.

February 17, 2008 | Unregistered Commenterrichard mruz

This stock should be putting in a major bottom here. I have been adding. Those who have been waiting should climb now, as there has already been 2 tests of 6 bucks. Rich Mruz is correct....these guys have mills and uranium, and are based in NORTH AMERICA, where a revival of uranium is all but guaranteed. IN the first takeoff all uranium's climbed. THIS TIME, only the real players are going to participate. Dennison will be one. This is a buy and put away conservative uranium stock.

February 21, 2008 | Unregistered CommenterNBkid

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