uranium stocks look hot again at lower prices

Uranium stocks look hot again at lower prices

The Australian Financial Review
PUBLISHED: 12 May 2011. Online

Uranium stocks have been pummelled this year after fears of a nuclear meltdown in Japan raised serious question marks over the future of nuclear power. But the sector is generating attention again, as beaten-down share prices raise the prospects for deal activity - and bargains.

The uranium price might have stablilised after plunging in March, but that hasn't helped shares in the sector, which are stuck near their lows for the year. Energy Resources of Australia shares have fallen 56 per cent this year, Paladin Energy's have fallen 32 per cent, while Extract Resources is down 17 per cent, with a Chinese bid for its major shareholder putting a floor under the share price.

Things changed this week when China Guangdong Nuclear Power walked away from its $1.1 billion bid for the UK's Kalahari Minerals, which owns about 43 per cent of Extract. The Chinese company had tried to reduce its indicative bid price by 7 per cent due to the changed outlook for uranium, but the move was rejected by UK authorities.

Now, investors are wondering whether Rio Tinto could make a move for Extract, given that its Rossing mine, which is in decline, is adjacent to Extract's Husab project.

But China and the big miners are not the only potential catalyst for deals.

"The one thing to note in the uranium space is that the Russians are particularly aggressive," said Patersons Securities analyst Simon Tonkin. "They enrich about 70 per cent globally, and they only mine about 4 per cent, and they want to bring that into kilter."

Investors looking to take advantage of cheap valuations for uranium stocks should consider Namibian uranium explorer Deep Yellow. The company announced its maiden resource estimate on Thursday, totalling 6.9 million tonnes at 410 parts per million, for 6.2 million pounds of uranium oxide at 275 parts per million cut-off.

"It looks like it is fairly high grade," Tonkin says. "Now they are looking at advancing development. The stock certainly looks interesting."

Another stock to watch, Tonkin says, is Greenland Minerals, which released its field program for drilling in Southern Greenland this week.

The company offers exposure not only to uranium, but also to the increasingly hot commodity of rare earths.

"They have a massive resource in Greenland made up of uranium and rare earths. "It looks cheap compared to other resources of similar size, and the rare earth deposit could be significant. The only issue is that the resource is in a fairly pristine environment," Tonkin says.

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