Monday, July 16, 2007

Uranium Stocks: Short Selling

As short interest mounts in Cameco Corporation (NYSE:CCJ TSE:CCO) to 6.2% of shares outstanding, short sellers are betting that the confluence of certain factors presents a ripe time to bet against a uranium stock that has seen a healthy YTD increase.




The first decreases in the uranium spot price to the current $129US/lb, coupled with Cameco's July 11 announcement of further delays in Cigar Lake that will delay production until at least 2011 have spurred short sellers into their present bearish position on the uranium giant.

As Cameco struggles being the bellweather uranium stock most synonymous with general market sentiment, the pessimism surrounding the future trends of yellowcake has never been greater. This is further exemplified by the essentially flat performance of other uranium seniors not named Cameco.


Whether it be Paladin Resources (TSE:PDN) or sxr Uranium One (TSE:SXR), and to a lesser extent, Denison Mines (AMEX:DNN TSE:DML), they have collectively been both flat YTD in the context of an ever-rising North American market. Moreover, they have reacted very little to the announcement to delay Cigar Lake for another year; usually a bullish supply-demand argument, it carried much less weight in the context of falling uranium spot prices.

However, one must remember that we saw a diversion between the uranium spot price and uranium stocks much earlier in the year. While uranium spot has essentially doubled YTD, the aforementioned uranium seniors-not-named-Cameco have assuredly not. In this context, although much fear has been injected in recent weeks as experts predict a uranium meltdown scenario where the spot price plunges, the astute observer will question exactly how much froth is in these stocks.

Yes, there are concerns overhanging uranium stocks: millions of pounds held by funds who have no intention of using uranium, nuclear utilities who are banding together to collectively halt the rising spot price, and the general inability for uranium stocks in the last few months to head higher despite favorable market conditions. Even so, the fundamental story of nuclear power must dictate that investors take advantage of irrational overselling and stake positions when fear and apathy abounds.
 

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