The
spot price of uranium
has likely seen its low at a recent $57 and uranium stocks are cheap and unloved.
This
sets up a great contrarian investment play, says Russell McDougal in
Investor’s Daily Edge.
Russell
says uranium stocks are oversold. But there are extraordinarily strong global
fundamentals behind the uranium market.
If you
are looking to take positions in tomorrow’s bull market… uranium
stocks more than qualify.
The
price of uranium took flight in late 2006 and most of 2007. It peaked right
at one year ago, near $140. The term “uranimania” was coined by
Bob Bishop, if I’m not mistaken. Uranium stocks of all nature went up
in meteoric fashion. Fortunes were made by those that came to the party early
and were smart enough not to overstay their welcome.
Since
then the stocks have now hit the other extreme. The spot price of uranium has
likely seen its low at a recent $57. The stocks have been decimated. They are
presently unloved and overlooked. Here’s an example:
Mesa
Uranium (MZU-X) is
a Canadian company that explores in Utah and my home state of Arizona. I have
never owned Mesa and I am not recommending it. This chart is for purposes of
illustration only.
From
the 2007 high near $.81 to the present $.12, Mesa is down around 85%. That is
commonly called carnage.
A lot of pure unmitigated froth had to be removed from this high-flying
sector. You’ll also notice that Mesa traded zero shares July 12. It’s been
thrown to the scrap pile.
Not
all uranium stocks are performing this poorly, but the overall sector is
pretty pitiful. I believe recent market activities are completely overdone.
You
saw last week that uranium trades by contract much closer to $90 per pound
than the present spot price of $60. I promise you that you are among the very
select few that understand this variable. There are extraordinary strong global fundamentals
behind the uranium market, whether or not the US decides to climb aboard.
Most
Americans have yet to discover that the globe no longer revolves around us
and our clownbuck. Decades of fraud, mismanagement and abuse are taking their
toll. One of the primary reasons that oil is presently so high is that the US
has practically destroyed the dollar. Entities across the globe are unloading
their masses of dollars in order to buy tangible assets like oil.
The
uranium market does not solely depend on the US figuring out that nuclear
energy is clean, cheap and safe. China, India and multiple others are already
in progress.
It is
absurd that so many freak out about possible deaths or injuries related to
uranium based energy. The track record is actually excellent. Even many of
the “green” leaders are coming to this conclusion. Do you think
maybe there are untold deaths and injuries across the globe because we remain
oil dependent?
Do you doubt that multiple wars are fought to secure oil resources? I
strongly suspect that the vast majority of IDE readers are not that
naïve.
If you
want to look at the true “safety” factor for oil you need to
consider the multiple conflicts fought over it. Have you ever heard of wars
being fought over the element uranium? High oil prices have brought all other
forms of energy back into focus.
I’ve
strayed a bit here. We’re supposed to be on the topic of uranium
stocks. The point is that nuclear weapons and nuclear energy are quite
different entities. “Terrorists” cannot break into nuclear
facilities and gain access to bomb quality materials.
The
uranium exploration and production stocks have been unmercifully pummeled.
They are generally at price levels not seen since uranium was $35 per pound.
Many are down 40 to 75 percent from 13-month highs. Ouch! The pendulum, as
usual, has swung too far.
Uranium
mining faces an uphill battle. Miners are not poised to bring forth
sufficient supply to meet current
demand until 2018, at the earliest. In situ miners (those who use
an environmentally friendly extraction process) are running into problems
finding enough attractively priced sulfur to bring forth the uranium. Exploration,
permitting and mining is an exceedingly long process. There remains
tremendous resistance to uranium mining in many jurisdictions. Supply will
lag demand for an extended period.
Only
the most talented and well capitalized companies stand to succeed.
Explorers
and developers with advanced projects in mining friendly districts will be
the “go to” companies as this bull market resumes its march.
You
could actually make a successful resource stock strategy by simply buying
quality companies when they are near their 52 week lows. It wouldn’t
always work out but resource cyclicality would certainly be your close friend
and ally. Many uranium explorers are at or near this nadir.
Summary-
This
all adds up to one huge disconnect.
- The spot
price of uranium is unrealistically low.
- Uranium
supply and demand fundamentals remain robust.
- If you want
to invest in uranium, you must
buy shares.
- The junior
uranium stocks are in exceedingly oversold ranges.
- We are
approaching the best time of year (the traditionally weak summer) to
make mining share purchases.
If you
are looking to take positions in tomorrow’s bull market… uranium
stocks more than qualify. The present uraniphobia won’t last.
Russel McDougal
Investor’s Daily Edge
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articles by Russel McDougal
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