Sunday, February 25, 2007

The Importance of Cameco and Cigar Lake on Uranium Sentiment

As the spot price of uranium continued a frenzied ascent to $85/lb this week, it has become apparent that at least, north of the border in Canada, uranium has become a hot button issue. Where uranium stock investing was just beginning to attract mainstream attention in 2006, scores of analysts and investors alike have jumped on its bandwagon this year.

An illustration of such is shown below, which is a graph of the total number of subscribers to my uranium stock blog. Also shown for comparison is a 1-year chart of $15.9 billion Cdn uranium giant Cameco Corporation (NYSE:CCJ TSE:CCO) and $1.1 billion Cdn upstart Energy Metals (NYSE:EMU TSE:EMC), one of several promising mid-tier uranium junior companies.

A number of observations worth noting include:

A broad market correction beginning May 2006 in both American and Canadian exchanges stalled momentum as speculative money went out of uranium; notice the flattish slope from May until the beginning of October in my subscription rate as people were less enthused after the market correction

Whereas Cameco was fairly resilient during this time, the uranium explorer Energy Metals experienced a much more severe pullback.

A dramatic turnaround occurred when Cameco announced the flooding of Cigar Lake on October 23rd. In a month my subscriber rate doubled from 300 to 600, with the steepness of the slope correlated to the price action of Energy Metals and inversely correlated with Cameco's stock.

After the announcement, there seems to be a period of "consolidation" where the market tried to digest the possibility that the mine that was to supply 10% of the world's uranium in the near future could be out commission for quite some time

As 2007 came into focus, investors continued to rally into uranium, seemingly anticipating that the upcoming announcement by Cameco in early March will confirm that Cigar Lake would not be producing for a number of years; thus, the favorable supply-demand imbalance would continue to be bullish.

It is important to note that Energy Metals is not the only junior uranium company to exhibit this type of stock pattern; one can take a look at Fronteer Development Group Inc. (FRG) and Uranerz Energy Corp. (URZ), as well as any number of companies listed on the Canadian exchanges (comprehensive list here) to confirm this point.

 

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