4 Uranium Stocks Set for a Big Comeback
06/09/2011 10:29 am EST
The nuclear disaster in Japan and Germany's promised shutdown of its nuclear power plants didn't come as a surprise to Elliott Gue, of The Energy Strategist.
Share prices of most uranium producers plummeted in the immediate wake of the Fukushima catastrophe. Since then, this group for the most part has traded sideways—investors have remained on the sidelines, awaiting a clearer picture of the accident’s effect on global demand growth for nuclear energy.
Many countries announced a pause in the construction of new reactors and/or comprehensive safety audits in March, a process that takes time to complete.
But recent announcements from China, Japan, India, and the UK have affirmed that nuclear power’s future remains bright. Therefore, Germany and Switzerland’s decisions to phase out their nuclear-power programs shouldn’t damage the industry’s growth prospects.
It took a few months for shares of deepwater drillers to stabilize after last year’s Gulf oil spill. The same is true of the uranium mining stocks in the wake of the disaster at Fukushima Dai-ichi.
The other factor weighing on all stocks is the much larger, macroeconomic picture. At these levels, shares of uranium miners have likely bottomed.
Here’s a look at my top four uranium mining plays...
Cameco Corp (Toronto: CCO; NYSE: CCJ)
The 800-pound gorilla of the uranium mining industry is the largest pure-play miner of yellowcake, and is a must-own for investors interested in profiting from rising demand for uranium.
Management’s long-term, “double-U” strategy calls for the company to increase its uranium output to about 40 million pounds per year by 2018.
In addition, the company has a series of major projects underway. The largest is the long-delayed Cigar Lake mine in Canada. The mine’s output could ramp up to at least 5.6 million pounds a year by the latter half of the decade.
Cameco also owns US mines that are produced using in-situ leach (ISL) technology, whereby water and some chemicals are pumped into the ground to dissolve the uranium. The water and uranium mix is then pumped to the surface and the uranium extracted.
The firm’s ISL projects in the US are being expanded, and management’s latest guidance is for production to grow from 2.5 million pounds to 3.8 million pounds per annum by 2015.
With the potential to double its uranium production in less than a decade, Cameco rates a buy under $33. [The stock closed around $26.50 on Wednesday—Editor.]
Note that I’ve lowered the buy target to reflect Cameco’s post-Fukushima trading range— not because my assessment of the company’s underlying value has changed. As uranium prices rebound in late 2011 and into 2012, the stock could easily hit $50 per share.
Paladin Energy (Toronto: PDN)
This company, which owns productive mines in Namibia and Malawi, also has a number of additional projects in earlier stages of exploration and development.
Even if none of these projects enter production over the next five years, the company could grow its output to almost 14 million pounds per annum by the end of 2016. The company could also lock in attractive prices for its production by seeking long-term, fixed-rate deals.
A riskier play than Cameco, Paladin Energy rates a buy under C$3.80. [Paladin was trading at C$2.75 early Thursday morning—Editor.]
Uranium One (Toronto: UUU)
This firm has stakes in a number of Kazakh mines that produced slightly less than 8 million pounds of uranium last year.
Last year, Russia-based JSC Atomredmetzoloto (ARMZ) received a controlling interest in Uranium One in exchange for contributing its interests in two Kazakh uranium mines. ARMZ also paid Uranium One $610 million in cash. The deal improved Uranium One’s cash position and gives the firm the inside track on acquiring additional assets in Kazakhstan.
In the first quarter, Uranium One produced a record 2.4 million pounds of uranium, up by a third from the same quarter one year ago. That puts the company on track to achieve its full-year 2011 production target of 10.5 million pounds. The firm is targeting total uranium sales of 12 million pounds per annum in 2012.
Risk-tolerant investors should buy Uranium One under C$4. [Shares went for just above $3 in early trading Thursday—Editor.]
Extract Resources (ASX: EXT, Toronto: EXT, OTC: EXRLF)
I’m adding this final picks to the Energy Watch List. Like Paladin, Extract owns mines in Namibia, one of the world’s oldest producers of the yellow metal.
Unlike my other three picks, Extract is not a producer yet, making it a higher-risk play. But plenty of catalysts could push the stock higher this year. In addition, the company is applying for various mine and project approvals that could be announced in coming months.
A speculative play, Extract rates a buy under A$8.25. [Shares closed in Sydney at $7.66 on Thursday. The Toronto and OTC shares are also under the buy target, but have much lower volume—Editor.]