What the "big picture" says about uranium stocks
6/20/2011 12:12:01 AM | Matt Badiali, Growth Stock Wire
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The next 12 months will likely reduce the field of companies dramatically
It's been four months since Japan's nuclear disaster hammered uranium stocks... and set up a potential "bad to less bad" trade.
To recap, uranium is the fuel that powers nuclear reactors. And uranium stocks of all kinds were decimated in March in response to the disaster many simply call "Fukushima." Big blue-chip uranium producer Cameco fell 25% in just a few days. Smaller, more speculative uranium stocks fell 50% in the same time.
After seeing such a big haircut, any contrarian investor has to be interested in the possibility of buying uranium for a potential "bad to less bad" rally. So let's take a look at where we stand today...
First, we should note the Fukushima disaster has sent European countries running from nuclear power. Germany announced it would shut down all its nuclear power plants by 2022. That's 10 gigawatts of power... an enormous amount that now must come from other sources. It's like shutting off the power to half of New Jersey.
Germany's reaction is irrational. It's like selling your car because a friend drove his car into a volcano. This irrationality is difficult to "price in" when trying figuring the value of uranium assets.
Also, earlier this week, I spoke to one CEO of a junior uranium explorer. He believes that this uncertainty will make it tough for uranium juniors to raise money this summer to fund exploration. That's bad news.
Junior companies can't borrow money from a bank... They have no assets. The only way junior miners can raise money is through selling new shares. As share prices fall, it takes more new shares to raise the same amount of cash.
Without the cash, these companies can't drill... which drives down the share price. It's a vicious circle, one that is hammering even the most qualified juniors.
Take a look at this one-year chart of uranium junior Bannerman Resources(TSX: T.BAN, Stock Forum). It's still heading lower:
And it's not just speculative juniors. Uranium giant Cameco (TSX: T.CCO,Stock Forum) also just reached a new multi-month low. There's no bottoming process even close to taking place here:
Given the risky outlook and the awful charts, it's smart to simply keep the uranium sector on a "potential buy" list right now.
The next 12 months will likely reduce the field of companies dramatically. I have a short list of the best companies in the sector. I'll look to acquire shares once the trend in uranium finds a bottom.
But as you can see from Bannerman and Cameco, a bottom just isn't here yet.
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New report shows early chaos at Japan nuke plant
Photo credit: AP | In this undated photo taken by a worker at the Fukushima Dai-ichi nuclear power plant and released by Kyodo News Saturday, June 18, 2011, workers rest in a temporary rest area at the nuclear power plant in Okuma in Fukushima Prefecture, northeastern Japan. A new report says the tsunami-ravaged nuclear plant was so unprepared for the disaster that workers had to bring protective gear and an emergency manual from distant buildings and borrow equipment from a contractor.
A new report says Japan's tsunami-ravaged nuclear plant was so unprepared for the disaster that workers had to bring protective gear and an emergency manual from distant buildings and borrow equipment from a contractor.
A new report says Japan's tsunami-ravaged nuclear plant was so unprepared for the disaster that workers had to bring protective gear and an emergency manual from distant buildings and borrow equipment from a contractor.The report, released Saturday by plant operator Tokyo Electric Power Co., is based on interviews of workers and plant data. It portrays chaos amid the desperate and ultimately...
20 June 2011 Last updated at 04:25 GMThttp://www.bbc.co.uk/news/world-asia-pacific-13835554IAEA considers nuclear safety rules after Fukushima
The IAEA has highlighted some of the weaknesses that contributed to the crisisThe UN's nuclear watchdog is about to start a meeting aimed at improving nuclear safety as a result of the disaster at Japan's Fukushima plant.
The International Atomic Energy Agency (IAEA) will hold five days of talks involving officials from 150 countries on how to make nuclear power safer.
But there are differences as to how much international action is needed to prevent future accidents.
The meeting will also discuss a report into the Fukushima nuclear emergency.
But the BBC's Bethany Bell in Vienna, where the IAEA is based, says some states argue the details of safety regulation should be left to the governments concerned.
Others want the IAEA's guidelines to be made mandatory under international law.
Fukushima effectThe Fukushima disaster has prompted widespread public concern about nuclear safety.
Germany has decided to shut down all its reactors by 2022 and Italy has voted against plans to revive nuclear power.
Resolving that dispute is likely to be a long process, our correspondent says.
The IAEA report on the Fukushima accident is to be published on Monday at the conference.
Leaks from the report indicate it has found that Japan did not follow all the proper guidelines for how to respond to the crisis.
It failed to follow what the IAEA calls tiered safety measures, and did not learn from past threats to nuclear plants in areas prone to tsunami risk, according to leaks.
But it will also praise the dangerous and hard work carried out by Japan's nuclear workers.
"The operators were faced with a catastrophic, unprecedented emergency scenario with no power, reactor control or instrumentation," the 160-page report will say.
Some 110,000 tonnes of water have built up during efforts to cool reactors which were hit by the 11 March earthquake and tsunami.
The contaminated water, enough to fill 40 Olympic-sized swimming pools, has been at risk of spilling into the sea.
Fukushima's is the world's worst nuclear accident since Chernobyl in Ukraine in 1986.
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