I have no idea if you're right or wrong as I personally believe that know one knows how bad this will turn out to be as events are still unfolding however...
Some facts to consider in the longer term:
1) The world still needs energy and nuclear currently supplies 14% of the worlds energy and with fossil fuels dwindling, it is unlikely that the world will be able to do without it.
2) China and Russia have already announced that they plan to continue with their nuclear (gen 3) builds which are much safer and will (hopefully) take lessons learnt from Japan into consideration.
3) After the 3 mile island disaster in 1979, while the US stopped building any new nuclear plants and shut down some reactors, they continued to operate 104 reactors which still continue to supply 20% of US power today. France learnt from the event and continued to build nuclear power plants along with a few other European countries;
4) The Chernobyl disaster (worst in history) in 1986 did not result in many reactors closing down after the event. In fact, Ukraine continued to operate the remaining reactors at Chernobyl for many years. The last reactor at the site was closed down in 2000, 14 years after the accident.
IMO, the disaster in Japan will temporarily put a halt to the Nuclear Renaissance that was just about to start as countries check their existing plants and new plants planned to ensure they are able to handle similar situations. Signs of this are already happening in the US, UK, Germany, Switzerland, Phillipines, India, Japan and i'm sure there will be more.
There is a likelihood that a review of existing plants may result in a decision to shut them down either temporarily or permanently to upgrade them or to replace them. At least 11 reactors are already definitely going to be shut down for inspections (at least 3 permanently due to seawater damage) in Japan.
All this down time may result in a fall in demand for uranium in the short/ medium term which could lead to a fall in the price of uranium. This will obviously have an adverse impact on all uranium companies.
It is important to note that the demand/ supply imbalance was always only going to happen in 2013/2014 anyway, partly due to the termination of the megatons to megawatts program and also to new reactor builds coming online around that time. So now with the likelihood of some reactors being shut down either temporarily or permanently, the shortage of uranium will most likely now only happen later.
What this could mean for PEN (my post is now officially stock related so please don't moderate it as I have put a lot of thought and effort into it) is that when they start production in 2012, the price of uranium may not be that attractive anymore as there may be a glut of uranium available on the market.
This IMO is why PEN's share price and all other uranium companies are tumbling. There is now a new risk that PEN's Lance/ Ross project or any other companies uranium project may no longer be as attractive as it was before. For some companies, their projects may even no longer be economically feasible.
If you look at PEN's prefeasibility study, the NPV of PEN at a uranium price of $62.50/lb (uranium price dropped to $60/lb this morning) was $120million. This was with a JORC resource of around 20million pounds. As PEN now has 30 million pounds, this could make the new NPV up to $180million pounds (overly simplistic calculation I know but I don't have access to their spreadsheet and detailed variables to do a proper calculation and typing this is already taking long enough).
Per Hartley Feb 2011 research report, PEN had 3.145 billion shares fully diluted. At the current share price of 6.2 cents, this would result in a market cap of $192million which is already higher than the NPV of $180million. With so much uncertainty about how much the uranium price may fall, with some analysts predicting a drop back to support at $40/lb, would any reasonable investor pay $195million for PEN now? With the following facts, do you still think the share price is undervalued? What if the uranium price does drop further to $40/lb?
What about Karoo?, I hear you ask. Karoo is a conventional mine and is most likely going to have a much higher operating cost than Lance. Will it even be economical to mine at $40/lb. Nobody knows but are you willing to risk it in the current environment?
The examples above apply to all uranium companies which is why I made a decision to sell all my uranium stocks the minute the market opened on Monday this week. I am not trying to downramp PEN or any other uranium company and am just sharing with you my decision making and thought process.
In the longer term as I mentioned earlier, I think the world has no choice but to revert back to Nuclear (unless they invent a new form of base load energy). I personally believe that China and Russia know this and that is why they are continuing with their nuclear development in the believe that when the world finally realises they need nuclear again, they will have no choice but to buy Gen 3 reactors from China and Russia.
The biggest and one of the most important questions is how long is long term and how long are you willing to wait for a recovery or a resumption of the Nuclear Renaissance.
PEN Price at posting:
6.1¢ Sentiment: None Disclosure: Not Held
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