Don't make any rash decisions just yet.Current Weakness An...

Don't make any rash decisions just yet.

Current Weakness An Opportunity In Uranium
FN Arena News - January 25 2008

By Chris Shaw

The US currently accounts for around 30% of global uranium consumption but in the view of Canadian broker GMP Securities a recession in the US is unlikely to have any significant impact on world demand.

As a result it suggests the recent pullback in share prices in the sector represents an opportunity, with an analysis of past economic cycles supporting this view. The group's research shows since the 1960s there has been solid growth in demand for uranium regardless of the state of the economic cycle, so it sees no reason for the current environment to be any exception.

Partly this is because nuclear power generation in the US forms part of baseload capacity, meaning it cannot simply be switched on or off depending on demand. With few substitutes available utilities have little choice but to use nuclear fuel and this also helps maintain solid demand according to GMP.

What could also push the uranium price higher in the group's view is the potential for supply disruptions, with Cameco a prime contender to announce further delays to its key Cigar Lake project given the difficulties in getting the mine back into shape after its flooding issues.

Given the market's fundamentals remain in good shape the group's view is uranium stocks are now at the lowest level since it began coverage of the sector. Traditionally the sector trades at a premium of around 38% to Net Asset Value (NAV), but on the group's numbers this is now a discount of around 20%.

Those stocks best positioned to lead any recovery according to the group are the high quality producers, of which it considers Paladin (PDN) a member. Supporting its positive view on the stock is the fact that apart from some processing problems at Langer Heinrich it has continued to deliver its projects on time and on budget, with the Kayelekera project expected to be another example of this.

Another stock it suggests investors keep an eye on is Bannerman Resources ((BMN)) as it suggests the stock is good value at current levels. On the group's numbers the stock is currently at a 19% discount to its estimated NAV of $3.40 but work on its projects may see this NAV increase by another 36%.

While Bannerman appears expensive in terms of enterprise value per pound of resource this may also soon change as the group points out the company has two resource updates due in the current quarter and this may boost its resource to more than 100 million pounds, up from just over 22 million pounds currently. Add in low cash costs and it sees the stock as offering value at current levels.

The FNArena database shows a more divided view on the outlook for Paladin as the stock is rated as Buy and Hold three times each, with an average price target of $7.75. As a second-tier stock in the sector Bannerman receives no coverage by the brokers in the database.

Shares in both companies are higher today in line with a stronger overall market, with Paladin up 14c at $5.05 and Bannerman up 16c at $2.92 as at 1.35pm.

FNArena also notes Ux Consulting lowered its weekly spot price indicator to US$86 per pound this week, compared with a price setting by TradeTech at US$84 earlier.


Cheers from grant64 :)
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P.S. Paladins Quarterly Report Due out Between 28th - 31st Jan :):)