Uranium One lags peers in sector recovery

As the one month anniversary of the Tōhoku earthquake and tsunami approaches, most uranium stocks have largely recovered. Despite a record fiscal 2010, Vancouver's Uranium One is still not one of them
As the one month anniversary of the Tōhoku earthquake and tsunami approaches, most uranium stocks have largely recovered. Despite a record fiscal 2010, Vancouver's Uranium One is still not one of them

The Japanese disaster, now approaching its one month anniversary, continues to be the only topic of discussion for investors in uranium stocks.

The spot price of Uranium fell 10%, to $60 per pound immediately after the earthquake and tsunami created a nuclear incident at the Fukushima reactor, sending low levels of radiation drifting south to Tokyo. Uranium prices eventually fell as low as $49.25 (U.S.) per pound. Perhaps a lesser known fact amongst casual observers is that uranium prices have almost completely recovered. By March 24th, the price of uranium was back to $61.13.

What’s behind the speedy recovery? Many analysts point to a lack of real options for replacing nuclear energy, which supplies 13.5 per cent of the world’s electricity generation. Independent analyst Peter Strachen says the situation will “…basically blow over in the next 12 to 18 months, as people realize that there’s no real alternative in the short to medium term, for large, baseload power supply.” Strachen points to a number of new plants being built in India, China and Brazil.

Analysts with The Bedford Report agree. They say that China is currently in the process of quadrupling its uranium consumption to fifty to sixty million pounds a year, and says it plans to build ten nuclear power plants a year for the next decade. Even as the Japanese crisis hit its darkest hour, with the crisis at the Fukushima Daiichi nuclear power plant still not contained, the Obama administration said that “nuclear power will remain a key component of America’s energy mix, despite worldwide anxiety over the safety of reactors.” The US currently has 104 reactors in 31 states.

Raymond James mining analyst Bart Jaworski talked to the Globe and Mail recently about what he believes is the opportunity the disaster has created for investors to buy quality uranium stocks at a discount. He said “We expect this situation to be no different than what happened after the Three Mile Island (1979) and Chernobyl (1986) accidents, where reactor growth continued quite strongly due to the large amount of reactors already in construction phase.”

Two of Jaworski’s favorite picks are Cameco (TSX:CCO) and Paladin Energy (TSX:PDN). Cameco is down just over 19% since the Japanese disaster, from $36.32 on March 11th to $29.25 on April 6th. Paladin Energy is down about the same percentage, from $4.66 on March 11th to $3.82 on the close today. A look at other TSX listed uranium plays reveals similar, or better, numbers. Denison Mines (TSX:DML) has forfeited a shade over 20% of its pre-Japan price, First Uranium (TSX:FIU) is down just 8%.

And then there’s Uranium One (TSX:UUU). Despite a modest recent rally, the Vancouver based miner is still down nearly 33% since the Japanese quake, from $5.96 on March 11th to $4.04 on April 6th.

In early March, Uranium One reported record annual revenue of $327 million for 2010 after it sold 6.9 million pounds of uranium at an average price of $48 per pound. The company increased its cash on hand to $315 million from just over $148 million the year prior.

Sort through Uranium One’s recent financials and you’ll soon find a staggering loss of $148.2 million, or twenty four cents a share in the fourth quarter of 2010. The company was hit by a one time $113.5 million writedown at its Honeymoon Uranium project in Australia. Excluding the writedown, Uranium One actually earned a penny a share in the quarter.

And while the Japanese nuclear incident was bad news for all uranium miners, it may have ultimately affected Uranium One positively in at least one way. At the time the Japanese crisis hit, the company was in negotiations to buy Mantra, an Australian uranium miner with projects in Africa. ARMZ, a subsidiary of Russia’s atomic energy agency that owns a controlling stake in Uranium One, had offered to buy Mantra for (AUS) $8 per share, but after the crisis lowered the offer to (AUS) $7.02 a share, valuing the company at just over a billion dollars. In late March, Mantra’s board of directors advised shareholders to accept the revised agreement “after taking into consideration the current global equity market conditions and increased uncertainty for the uranium sector”.

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