Tuesday, June 19, 2007

How Are Uranium Seniors Holding Up?

The Uranium Focused Energy Fund (TSE:UF.UN), a brainchild of the Middlefield Group, is currently a $228 million vehicle with a singular focus on the uranium sector. With its top 10 holdings being such recognizable names as Cameco, sxr Uranium One, Denison Mines, Paladin Resources, BHP Billiton, Rio Tinto, Energy Metals, First Uranium, Uranium Participation and UEX, this fund aims to capture masses of new investors who may not be comfortable buying individual uranium stocks and partake in their inherent risk. Of course, the caveat here is that, being a specialty fund in the first place, is subject to considerable inherent risk itself.

Dennis DaSilva, portfolio manager, Middlefield Financial Limited, stated on BNN several weeks ago that:

The [uranium oxide spot] price, which is significantly disconnected from the equities quite strong, stable at US $120/lb, that is up from $113/lb about three weeks ago. People are obviously trying to figure out where is the high, how far it is going to go. We are not making predictions, obviously for a fund such as ours, we have a long term view, the fund goes approximately for six years, and that coincides with our view on uranium in general, and that is the fundamentals of balance between supply and demand will not reached for at least six or seven years, if that at all. We are certainly not trying to predict $200 or $300 uranium prices, we just think we are in a very strong environment for prices, sticking to the better producers and near-producers and companies with the best odds of finding reserves and bringing them to production as the focus of the fund.

Since that time, the uranium spot price has increased to $138 while the long-term price indicator is at $95/lb. The Uranium Focused Energy Fund, on the other hand, has treaded water, hovering right around its initial subscription price. These uranium seniors, taken as a whole, are weathering the effects of the summer doldrums in commodities. Many uranium juniors have not been as fortunate, as the main TSX index has diverged from the junior Venture Exchange.

With an extended 1 month+ correction, some interest has seemingly left the uranium sphere, although the underlying fundamentals remain the same. The spot price rises, utilities complain, and the beat marches forward. Just yesterday, Global Uranium Fund (TSE:GUR.UN), closed its $100 million IPO. It will provide yet another avenue into which the casual uranium investor can sink their money.