This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain a...
Uranium: "Red Hot"
04/21/2006 12:00 am EST
Sean Broderickis new to the Money Show speaker roster. In a recent Marketwatch.com article, the advisor, who focuses on small cap Canadian resource stocks, notes, "The hottest metal isn't gold or silver - it's uranium." Here's his review.
"Uranium prices are up 80% in the past year and 13% just since the beginning of this year. Have you missed the big move? Not by a long shot. Uranium demand can't be turned off with the flick of a switch. Once a nuclear plant is fired up, it needs to be fed for a long time to come. And for my money, there's a US uranium explorer that you can pick up dirt cheap.
"Why is uranium so hot? Today there are 441 operational nuclear power reactors around the world. According to a report by the International Atomic Energy Agency, 130 new nuclear power plants are either being built or are in the planning stages. China currently has nine reactors in operation at three nuclear plants but plans to build two new 1,000 megawatt nuclear reactors each and every year until 2020.
"India plans to have 10,000 megawatts of nuclear capacity by 2010 and 20,000 megawatts by 2020, which means that India is also going to be a huge net importer of uranium. Meanwhile, Russia's three uranium mines produced 3,657.5 tons last year, which is just one-fifth of what it consumes per year. That means Russia, along with China and India, needs to find a lot more uranium. Add it all up, and we're looking at uranium shortages for at least the next decade.
"The two best countries for uranium stocks are Australia and Canada. Canada even has a neat exchange-traded fund, Uranium Participation Corp. (CA:U Toronto) that tracks the price of uranium. The ETF has taken off like a rocket lately, which is why we own the ETF my newsletter. It should have a ways to go. Uranium currently trades at $40.60 per pound, and my price target is $55 in the next year - a 35% rally.
"But you can also play the uranium rally in the US stock market. Fronteer Development Group (FRG NYSE) is a gold and uranium prospector that is making all the right moves. For one thing, it focuses on exploring in Canada, Turkey and Mexico - all stable countries that are exploration friendly. FRG is also working on two large gold/silver deposits in western Turkey. I like that these resources give Fronteer a diversity of metals, all of which are red-hot.
"Its big uranium story, though, is the 50.2% equity interest it holds in its spin-off, Aurora Energy Resources (CA:AXU Toronto). Fronteer spun off Aurora to develop its uranium project in Labrador, which has 22 million pounds of uranium with additional inferred resources of 13.4 million pounds. In addition to Michelin, Aurora owns four other deposits that are ripe for exploiting.
"I would emphasize that Fronteer is currently losing money every quarter; that's par for the course for an explorer. The important thing is Fronteer is debt-free, has plenty of cash, and has great projects. Meanwhile, Fronteer's chart is it trending higher, and breaking out to the upside. Buzz should continue to build around this stock. Although the stock has been strong since I first recommended it at $4.50 a share, my upside target price on the stock is $9 per share."
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