After peaking in 2007, uranium prices have disappointed and, it seems, many of the stocks are looking to de-emphasize their connection to the metal
Author: Barry Sergeant Posted: Wednesday , 20 Oct 2010
JOHANNESBURG - Whatever happened to uranium stocks? At the beginning of 2009, Australia-listed Extract Resources was trading just above AUD 1.00 a share, while it was proving up what it would later claim as one of the world's top ten uranium discoveries, at R�ssing South, in Namibia.
The stock price duly ran above AUD 10.00 a share, and then investors started taking profits off the table. The stock has been down to around six dollars this year, and currently trades around AUD 7.00 a share. In the background, spot uranium prices have disappointed for years, after a monster bubble peak during 2007, around USD 140.00/lb.
That bubble followed the end of Russian dumping, near-universal forecasts of significant more demand in uranium use from an energy-hungry world, and lots of liquidity via hedge funds and participation certificates. Another factor, still very much around, was the difficulty of valuing uranium stocks.
This year uranium spot prices fell below USD 41.00/lb in June, and have since risen to around USD 49.00/lb, dragging up a number of stock prices. But is there anything sexy at all left in a global subsector that set the mining world alight during 2007? It was convincing enough back then to inspire the August 2007 purchase by French transnational Areva for USD 2.5bn of Uramin, for Namibia's Trekkopje.
A number of fortunate stocks have taken opportunities to de-emphasise uranium; some really lucky ones have bailed all together. Australia's Arafura Resources is now very much a rare earths play, overshadowing its other two key exposures, phosphates and uranium. Summit Resources, another Australian developer play, now carries a heavy market value of USD 600m; exposed to uranium it may be, but it has the fortune of also holding resources in iron ore, vanadium and phosphates.
Fission Energy, yet another Australian developer, has demoted its energy interest, so to speak, preferring to emphasise its exposure to nickel, cobalt and manganese. It seems that anything other than uranium will do. Staying on the continent, Encounter Resources, a very hot stock this year, now refers to the "development of base metals, manganese and uranium resources in Australia".
Canada-listed North Atlantic Resources has all but completely distanced itself (so it would seem) from uranium, preferring to promote its gold interests in West Africa. In South Africa, Toronto-listed First Uranium, a reprocessor, may yet switch from a uranium focus to gold (it produces both minerals), and could even re-merge with Johannesburg-listed gold digger Simmer & Jack, which it was spun out of early in 2007.
During that infamous (for the company) year, First Uranium's promoters, led by CEO Gordon Miller, watched in amazement as the First Uranium stock price rocketed to more than CAD 13.00 a share. For most of this year it has traded below CAD 2.00 a share, and is currently trading around three-quarters of a dollar. First Uranium's early promoters are all gone, vanquished after a shareholder revolution (or equivalent).
The world's biggest established uranium miner (as opposed to explorer or developer), Canada-based Cameco, plods on. The stock is trading around CAD 30.00 a share, half the peak level seen in 2007.
A number of professional investment analysts remain cautiously upbeat on uranium. RBC Capital Markets forecasts uranium supply growing by an average of 3.5% a year until 2015, but then falling as reserves are exhausted. RBCCM analysts say that the uranium bull market of 2006 and 2007 stimulated the development of new supply, "but we do not think it is enough. In our opinion, the prevailing uranium price is too low to stimulate sufficient supply to cover future reactor requirements".
It seems like patience will be needed, certainly for equity investors. RBCCM sees uranium demand growing by an average of 4.2% a year during the next 20 years, but weighted to the 2018-2025 timeframe. The increase in demand, say the analysts, is driven mostly by China "because we expect that it will lead the world in new reactor builds in the next two decades".
For now, it seems that uranium equities will have to be more than patient; for investors and speculators the great steroid-charged fortunes seen over the past few years are unlikely to return for some time. In 2007, Canada-listed Xemplar's stock price touched CAD 8.00 a share. Over the past year, investors could have picked it up for as little as eight cents a share. Then again, if they had, they would have just about doubled their money by now. The spot uranium price has, after all, been rising for the past few months.
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)