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Uranium: The Pendulum Swings!

Uranium Chart 22 August 2007

The spot price for the world’s future energy material, uranium, has fallen to around $90/lb according to the Ux Consulting price indicator. Over the road we have $105/lb from TradeTech and a taking a quick look at the NYMEX Futures market we have December 2007 at $74/lb and December 2008 at $85/lb.

The pendulum first went one way with a swing from around $7/lb to a high of about $138/lb and now with the momentum all spent it is falling back. Will it come to rest at its median price; no, momentum will take it past that price as it swings into the too cheap zone.

As we have said before all eyes are on the auction results, which have just been held. This is microanalysis at its worst in our humble opinion, when one auction determines your investment strategy. The number to watch is the Long-term price indicator; think of it as moving average as applied to a stock. This figure we understand has not changed from $95/lb. Remember that summer is traditionally slow and this is a very thin market where the oscillations can and will be wild.

The spot price may well swing lower in the short term scaring investors out of this sector. And when it swings back again those same investors will be busting a gut to tell you how they once owned Toddler Uranium Corporation but unluckily they sold out for half the price it is now. Don’t be one of those storytellers.

Focus on the long term supply and demand fundamentals of the situation. The future is clear, it is Nuclear. Almost every day there are reports in the media about the latest country to embrace nuclear power. The demand for electricity is on the up and up, a pendulum that won’t swing back unless you are prepared to make enormous personal sacrifices.
Aug212007 Portfolio Update 21 August 2007

The global market sell off took its toll on our portfolio of uranium stocks. It is a thin market so any sort of selling pressure hit home very hard. TradeTech’s spot price remains at $105/lb for U3O8 with deals being non-existent as all eyes are focused upon the recent auction results, which have yet to be made public.

We have took a battering but the loses are paper loses and only become real if we hit the sell button which we have not done. We do suffer from optimism so please bear that in mind.

Uranium Chart:

Uranium Chart 21 August 07

Below we list the uranium stocks that we have an interest in or are watching with the view to making a future investment. We are also looking for the occasional trading opportunity as we are small enough and should be nimble enough to move in and out of a particular stock quickly. This is difficult for the big players who own big positions in their favourite uranium stocks as the thin liquidity of some stocks does not allow them to sell a large position at the push of a button. But that is no excuse for us, so going forward we will suggest from time to time one or two short term trading moves.

Cameco Corporation – Watch
Cameco was trading at $55.09 on TSE, but didn’t escape the sell off and is now trading at $39.25, problems continue so its not for us at the moment.

RPT Uranium Corp – Watch.
We bought RPT on the 19th February 2007 for $0.42 and sold it for $0.62 on the 13th June 2007 for a profit of 47.6% in 4 months. We still like this stock and so bought it back at around 50 cents, although RPT has dropped since then, we have been able to get it at a considerable discount and selling at 62 cents was a good move in hindsight. This is a small company with a market capitalisation of $24 million, currently trading at $0.34.

Uranium Participation Limited – Hold
U is currently trading at $9.98 Canadian and is down 16% since we bought at $11.97 on 21 November 2006. We will continue to hold, as it offers direct exposure to uranium without the risks inherent in mining. This stock is at a discount at the moment compared with its NAV.

Strateco Resources Inc – Watch
RSC is currently trading at $1.65 having suffered a severe sell off. This presented a cheaper entry level that we had hoped for and so we bought a small position at $2.30. The stock appears to be forming a bottom, keep an eye.

Fronteer Developments Group – Buy
Fronteer is currently trading at US$8.40. Our original purchase was made on the 15 July 2006 at around the $4.70 level so that is showing a gain of 78%. We are still quietly confident that it can double in value in 12 months or less. We may transfer FRG to our gold portfolio as it is more of a gold play now than a uranium play.

Crosshair Exploration and Mining Corporation– Neutral.
Having taken a small profit we continue to watch CXX. The stock is trading at $1.39 Canadian and we are still neutral at the moment, as it is still heading south. Listing on the AMEX should give this stock more exposure but since hitting a high of $4.0 in December it has been down hill all the way since then. Not for us at the moment. See recent article on CXX.

Laramide Resources Limited – Buy
Having recently been a star performer this stock has now dropped to $5.76. We bought at $5.78 on the 28 July 2006 so we are about even with it at the moment. When we were sitting on a paper profit of around 80% we sold half in order to buy other uranium stocks, as we needed a bigger spread of stocks. That said we still expect LAM to bounce back from these levels.

Energy Metals Corporation – Watch
EMC is now trading at $13.00 down from $17.71 having suffered in the recent sell off. We first wrote about it in September when it was trading around $5.70 but failed to land it then – that’s life.

Eagle Plains Resources – Buy
This stock is mainly featured on our silver website, but it does have some uranium interests. EPL was trading at $0.89 in the last update and is currently trading at $0.79, for a nice gain since we bought it at $0.53. We still hold the belief that EPL will be issuing good news on the results front this year so we will hold on tight to this industries ’Project generator’

Mega Uranium Limited – Buy
We bought MEGA at around $4.0 on 27 July 2006. MGA is now trading at $3.49 for a loss of 12%. MGA has taken a battering during the recent sell off, but the recovery has commenced. They have a very good cash position so we would expect them to be in acquisitive mood and pick up a few bargains before prices rise. Please see our recent post on Mega Uranium.

Rodinia Minerals Inc. – Watch
RM was $0.80 when we first wrote about it on 15 August 2006 and is currently trading at $0.60 so a fairly volatile stock. The volume is still tiny as you might expect from a company with a market capitalisation of $13.6 million.

Santoy Resources Limited – Sold, but now on Watch List
Santoy was doing very well up from $0.81 that we paid on 27 December 2006 to trade at $1.53 at the time of the last update. However having decided to sell three of its projects to Mega for 400,000 common shares in Mega we decided to sell. We sold on 23 April 2007 at $1.39 for a profit of 70% in 4 months. Santoy now trades at $0.54 having suffered a severe decline. We will need to review this one as this would appear to be a cheap re-entry point.

Khan Resources Ltd - Buy
We bought Khan on the 5th March at $3.63 and it is now trading at $1.33 for a loss of 63%. Khan got off to a great start but has also suffered in the sell off. Just to make matters worse the Mongolian government rejected one of their mining lisceness. So, in anticipation of Khans management team finding a resolution to this problem we decided to buy again. (See Khan Resources: A speculative buy) This is a risky strategy but if they can resolve this problem then the stock could recover very quickly indeed.

Aurora Energy Resources
- Buy
We bought Aurora on the 5th March 2007 at $14.17 and it is now trading at $11.18 for a loss of 21% as we write, another victim of the market shake out. Having rubbed noses with $20 it now looks to be severely oversold.

Strathmore Mineral Corporation - Buy
We bought STM on the 14th April 2007 at $4.96 and it is currently trading at $2.28 for a loss of 54% as we write. We think the stock will do better when they spin off the non-core assets into Fission Energy.

Ur-Energy - Buy
We bought Ur-Energy on the 23rd April 2007 at $4.75 and it is presently trading at $2.78 for a loss of 41% as we write. Pretty much the same story here as for the the other uranium stocks.

UraMin Incorporated – Subject to a take over bid by AREVA
We bought UraMin on the 15th May 2007 at $6.72 and sold it for $8.36 on the 22nd June 2007 for a gain of 24.4% in 6 weeks.

We are sticking with our target prediction of $200.00 per pound for uranium despite the recent drop in price. Don’t be put off if we haven’t mentioned your favourite stock we do get it wrong now and again as evidenced reading our updates we are having to take it on the chin at the moment.

Please do get involved and add your comments to any of our articles whether you agree with us or not as this will add balance to what we say and be of benefit to everyone. No, you can’t use naughty words.

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Many thanks to all of you who have signed up for our Uranium Stocks Newsletter; we hope that you are enjoying it. We now have 3218 subscribers up from 2669 subscribers last month, which include a number of stockbrokers, banks and financial institutions, uranium company CEO’s, etc.

We have been inundated with requests for individual advice, which we are not allowed to give by law so please accept our apologies for not piling in to help you. There have also received a number of requests to cover individual uranium stocks or unique geographical areas, which we will try and get to in the weeks ahead.

Have a better week.

Mega Uranium Limited: Cash Position

Today Mega Uranium issued a statement regarding its current position, which reads as follows:

Mega Uranium Ltd. ("Mega") (TSX: "MGA") confirmed today that its cash resources of over $120 million are invested in corporate bonds, banker’s acceptance notes and guaranteed investment certificates (GIC's) and are not exposed to repayment risks associated with the asset-backed commercial paper market.

Considering the current concern over credit and how it affects various companies this is a good move by the Mega’s management team. They have spotted a possible problem and issued this statement before investors become really bothered by it.

As we write Mega is trading 13% up so far today.

Uranium Stocks: A Gut-wrenching Week!

This week was the worst week we have seen for uranium stocks with many stocks losing up to 50% of their value in a blink of an eye. The selling on Wednesday and Thursday looked like sheer panic to us. Previously we had written about capitulation thinking that we were there or thereabouts but the carnage continued to make for a gut-wrenching week.

The credit crunch in the housing sector put investors on red alert as the lenders struggled for breathing space. The Federal Reserve duly responded with massive injections of capital followed by a rate reduction. For the moment we can only imagine that the Fed will continue along the lines of injecting capital where and when necessary to keep the financial system afloat.

Friday brought much relief to the markets with the DJIA closing up 233 points and uranium stocks bouncing back to give us some respite from the carnage. Some stocks gained as much 20% on the day while others failed to get off the ground. Is this a dead cat bounce you ask? We don’t know. However we do believe that the worst is now behind us and the downside is now limited. That does not mean to say that higher prices will return as of right now.

The volatility will no doubt continue but we do expect to see some recovery mixed with side ways consolidation and we will look to take advantage of these prices while stocks last!

Tough it out is the order of the day.

Khan Resources: A Speculative BUY

Khan Resources has plunged today on a news release about their Mongolia property.

However we are treating this as an opportunity to purchase more shares and perhaps make a short term trading profit on Khan.

We have just bought at $1.70 per share, please stay tuned for updates. Khan is down 30-40% today on this news so this is not for the faint hearted. Nonetheless we are flashing an additional BUY on Khan as of now to take advantage of this pullback.

The press release is below:

Khan Receives Notice Regarding Special Exploration License

Khan Resources Inc. (TSX:KRI) announces that it has received a notice from the Mineral Resources Authority of Mongolia (the "Minerals Authority") advising that the Minerals Authority has determined that the decision to issue Khan's special exploration license 9282X in respect of the property referred to as the Additional Dornod Property is considered invalid. The company understands that a number of other uranium exploration licenses have been similarly declared invalid. Khan is working closely with its counsel to assess the implications of the notice from the Minerals Authority and the company's legal rights. The company intends to vigorously oppose this determination.

This determination does not affect the existing mining license in respect of the property referred to as the Main Dornod Property. Khan indirectly holds a 58% interest in the Main Dornod Property.

Uranium Stocks Show Signs Of Life

Uranium Stocks Show Signs Of Life

At the market opening, uranium stocks appear to finally be showing some signs of life.

We have sustained heavy losses in this correction, watching our uranium shares tumble further down everyday. Today looks different as uranium stocks are up anything up from 6% to 20% so far today!

Take a look at this list of various uranium stocks:

FRG 8.94 +0.69 (8.36%)
U 9.82 +0.47 (5.03%)
LAM 5.15 +0.60 (13.19%)
MGA 3.03 +0.35 (13.06%)
URE 2.72 +0.16 (6.25%)
BAY 0.72 +0.12 (20.00%)
SAN 0.48 +0.04 (9.09%)
RPT 0.30 +0.02 (7.14%)
CCO 38.70 +0.70 (1.84%)
CXX 1.37 +0.14 (11.38%)
RM 0.66 +0.04 (6.45%)
STM 2.25 +0.30 (15.38%)
DIT 0.50 +0.05 (11.11%)
EPL 0.75 +0.05 (7.14%)
AXU 12.52 +1.47 (13.30%)
PNP 4.45 +0.50 (12.66%)
RSC 1.80 +0.16 (9.76%)
URZ 3.00 +0.31 (11.52%)
UEX 4.62 +0.45 (10.79%)
FIU 7.19 +0.14 (1.99%)

As you can see, today the market appears to all all green in the uranium sector. The general market is also doing well, with DOW up 1.5% at the moment and this comes after the Fed lowered interest rates just hours ago.

We are fully aware that “one swallow does not make a summer” but it is still good to see uranium stocks finally posting some decent gains. This does not mean the correction is over, we may still have further to go, but this bounce back indicates that perhaps further downside is limited and we may be nearing a bottom soon.

Today's gains may just be a flash in the pan, but the inevertable switch to nuclear power is not, therefore the uranium bull market is not either. We continue to hold our uranium stocks and we stand by our view that this correction was a great opportunity to purchase more uranium stocks. Keep updated on this uranium bull market by subscribing to The Uranium Stocks Newsletter.

Uranium: To Catch a Falling Knife!

The much watched spot price for uranium is now $105/lb, having dropped from $138/lb for a loss of 31% in a matter of weeks. The un-correctable is now experiencing a correction.

Uranium Chart 16 August 2007

The news flow is virtually non-existent in terms of uranium traded so all eyes are focused on the one and only auction planned for the 17th August. This event is actually not that important when considering the bigger picture, however, with the markets in general going through an upheaval, the search for some reassurance intensifies. The result may come as a relief to some investors or if the price is significantly lower, an added pressure. As you know we own the metal through a fund so it does have a direct effect on our portfolio. Our strategy remains unchanged and will continue to hold and sit this one out. The supply/demand fundamentals if anything are improving on a daily basis with the like of South Africa turning towards the nuclear industry in order to supplement its future energy needs.

The ramifications for uranium stocks are tied to the above whether we like or not, so we must expect erratic swings either way based on auction results, rumours, extrapolations by whoever is available for comment and the theme from last nights business programme. These are now choppy waters so expect the un-expected, hold on tight and get through it.

Our strategy is to hold on to the uranium stocks that we have accumulated despite the inclement weather so as a small group of investors our efforts must be concentrated on how we can make the best of this buying opportunity. Most of our cash is already in the market, however, as a group we remain confident that this course of action is the right one to take to the point that our group is generating more cash to be invested in the precious metals sector, which we consider to be uranium, gold and silver.

A few days ago we mentioned capitulation as the uranium stocks were taking a hammering and some investors headed for the exit. Since that article the uranium sector has been battered further with a number of large drops occurring yesterday. To us it does appear to be a case of the baby being thrown out with the bath water, but out they go as investors scramble to stop the pain and also to raise the cash to finance other calls on their portfolio. We are fortunate enough not to have other calls on our capital so hopefully we will not be distracted from the task of bottom fishing.

Members of our team ask why we are not jumping on these opportunities today; well it’s a little like trying to catch a falling knife. Let it fall, hit the deck and then pick it up. True we may miss some of the rebound but we would feel more comfortable with a recognisable reverse in this down trend before moving.

But move we will.

South Africa to Join Nuclear Revolution

SA Flag 15 August 07
The government of South Africa yesterday launched its draft policy on nuclear energy, upon which it hopes to create a new nuclear power generation industry.

The Department of Mineral and Energy has plans to promote the recycling of spent nuclear fuel along with plans to rebuild South Africa’s uranium enrichment capacity, which was dismantled some time ago. This represents a turn around in political thinking for South Africa but it makes sense as South Africa is rich in uranium and the same fundamental reasons for developing nuclear power apply to them as much as they do to other countries that are coming to the same conclusion.

This is a draft document but has the approval of the cabinet and is a logical development based on President Thabo Mbeki’s commitment in his ‘State of the Nation’ address to accelerate work that would clear the path for South Africa to increase its reliance on nuclear and renewable energy.

President Thabo Mbeki
President Thabo Mbeki

To quote the Department’s Chief Director, Tseliso Maqubela, who said, “There is no way we can have a primary energy source such as uranium which we don’t use fully,”

The intention is to increase South Africa’s power supply from nuclear fuel to 15% by 2025 to 2030, which would be more than double the current supply of around 6%. At the moment coal fuels 88% of power supply and the aim is to reduce their dependence on coal to around 70%.

For those interested in mining Tseliso Maqubela has said that the government are prepared to look at providing incentives, which would encourage mining, and be of a benefit locally.

Sounds to us like another convert to the nuclear cause.

Ur-Energy Incorporated: On the floor?

Today we are examining the possibility that Ur-Energy Incorporated could have reached the bottom of its trading range with the view to establishing a possible ‘buy’ call on this uranium explorer.

We are trying to do this against a backcloth of falling uranium prices, battered uranium stocks, a general market sell off and enough negativity to sink a ship. We have mentioned in a previous article the up-coming auction of 200 tons of uranium hexafluoride by The US Department of Energy next week. All eyes will be focused on the outcome of this sale which will be used an indicator for both the current spot price and the future trend for uranium.

A number of our readers have returned to the sidelines as the pain was becoming unbearable, a position that we understand but have not followed. Our strategy was to remain in this market throughout the summer as we were of the belief that uranium would maintain its strength. This happened for the first part of the year but the spot price has recently dropped and could continue heading south.

However, we are optimistic that the price will stabilize around its longer-term average of $95/lb. We also consider this price to be reasonably attractive to uranium miners.

So to Ur-Energy Incorporated, we will first take a look at the chart, which is not a pretty picture.

URE Chart 14 August 2007

Two months ago this stock traded at just over $5.0 and yesterday it closed at $3.0 registering a fall of 40%. Another negative sign for the stock was the crossover of the 50dma down through the 200dma which true to form pushed the stock even further down. The technical indicators have also been languishing in the oversold territory for some time. Have we lost the will to live? Well not just yet.

On the positive side we can see that the technical indicators would appear to have turned positive and are now heading north. The RSI and the stockastics have turned positive and hopefully the MACD will also follow this directional change. One swallow does not make a summer but the stock price did find some support yesterday and moved up to $3.0. The news flow is good and frequent which we appreciate especially in these times. Volume is strong and steady with the occasional trading day of over 1.0 million shares. The stock has had a 52 week High of $5.4 and a low of $2.1 so its not for the faint hearted. The Market Capitalisation is $275 million with 92 million shares outstanding.

In conclusion we appear to be close to the bottom with limited downside however we are in the middle of August with not a lot happening so it may be prudent to hold for the moment. Next weeks auction could play havoc with the price of uranium and uranium stocks. So we are going to be patient and let events unfold before adding to our portfolio.

Ur-Energy Incorporated trades on the Toronto Exchange as URE.

Uranium To Be Auctioned Next Week

The US department of Energy is planning to auction 200 tons of uranium hexafluoride, a type of processed yellowcake next week. So what can we expect?

Well we are surprised that they would rather have the cash than the product given the supply shortages and the ever-growing demand, but that is by the by.

We start with TradeTech LLC who according to Bloomberg reported this week that the metal fell for immediate delivery falling to $105/lb. This was apparently based on one transaction only for 50,000 pounds, but as it is all we have to go on, there it is.

The second indicator we can look at is the NYMEX Futures Market where we can ascertain that prices are indeed lower than they were last week:

December 2007 $109/lb
January 2008 $99/lb
June 2008 $103/lb
July 2008 $111/lb

At a guess this auction, in the middle of the quiet season, could return a price of around a $100/lb. If it is sub $100/lb then we will have to endure the bears leading the headlines with "The Return of Vegetable Oil" etc.

However please bear in mind that we are talking about the spot price which for a long time has been running way above the average longer-term price of $95/lb. The spot price will be more volatile than the longer-term price as with any commodity or asset class.

Secondly we need to be aware of the mining costs of uranium which as we understand it are on average around $30 - $40/lb. So if we assume the higher figure of $40/lb for our costs and the lower figure of $95/lb for the value then we are looking at a profit of $55/lb.

We agree that this is not an in-depth financial analysis of the uranium market sector but it gives us some comfort that all is not lost.

Finally, we will see what transpires over the coming days, weeks and months regarding uranium stocks. Our humble opinion is that there will be some consolidation going forward but the downside is now limited. Its impossible to pin point the exact day of a top or a bottom but last Friday, 10th August 2007 could well be looked upon as the final day of capitulation for uranium stock holders.

For what it is worth we have not sold any of our uranium stocks and we will continue to look for bargain basement opportunities to accumulate before they disappear with the negativity that weighs heavy on many investors minds at the moment.

Have a good one.
Uranium Chart 13 August 2007