Friday, May 2, 2008 at 11:14PM
Chart courtesy of www.u3o8.biz
This is probably the most asked question that we get in our mail bag these days, uranium stocks looked like bottoming once or twice, which turned out to be a false dawn.
A while ago we wrote about Denison Mines when the stock was trading in the $6.00 range and we thought that this was as cheap as it could get. It did manage to rally up to the $9.50 mark only to fade out and slide back to close yesterday at $6.65. Short-term traders might have made a buck or two, but it wasn’t the bottom that we had hoped for. Since then we appear to have entered a period where everyone and his dog have suddenly discovered reasons not to allow uranium mining. NIMBYISM (Not In My Back Yard) has become fashionable once again. If this wasn’t bad enough we also have a bunch of politicians to contend with who will say and do whatever it takes to make themselves popular during their watch. In New Zealand the authorities are already warning of power shortages this winter and the need for the consumer to use less. This is the land of wave; wind, geothermal and hydropower servicing less than four million people. So just where were the politicians when hard decisions had to be made? A small percentage of the population said no to another dam in the south island and the politicians buckled. As New Zealand actively promotes immigration the population is rising with a corresponding increase in the demand for energy. We are using New Zealand as an example, but its not just here that weak politicians put their pensions first and the hard decisions on the back burner, you can see examples of it near you.
The bulk of uranium trades are executed based on the long-term price of $95/lb, which has remained steady for some months now. However the spot price of around $65/lb steals the headlines and is eagerly devoured by those who live by the next instant fix, even though the trade is wafer thin. Over at NYMEX the futures market, which is still in its embryonic phase, more or less reflects the spot market and again is thinly traded. We cannot dismiss either of these two vehicles, as their influence looms large despite the long-term price holding steady.
Taking a look at the stocks they have been battered almost into submission and once again they appear to us to be as cheap as they can possibly get. But we never thought that Crosshair for example would fall much below the $1.00 level and yesterday it closed at $0.65. At the other end of the scale we have the mighty Cameco Corporation trading at $35.67 and in-between we have Uranium Resources Incorporated trading at $5.81, a 50% discount from its previous highs of $12.00.
On the anecdotal side we have had readers tell us that they sold their uranium’s and have gone into gold stocks. Unfortunately some made the move when gold was peaking at $1000/oz so they have had to take it on the chin twice. We would not deter anybody from going into gold, as we own gold stocks too, but the old adage is to buy a stock when no one else wants it. Then you know that you have entered the market at close to the bottom.
In conclusion we are not selling our uranium stocks and we will continue to look for a signs that they have truly bottomed. When this point arrives we will use some of our ‘opportunity cash’ to pick up some of these unfashionable stocks and then wait for the rest of the world to see the light, if the lights are still on that is!
Try and stay calm for now we are nearly there!
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Have a good one.