Monday, February 11, 2008 at 10:09PM
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:
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 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
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.
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