Sunday, October 26, 2008

Unloved, Unwatched Uranium

Well before the rapid plunge of markets around the world and general deleveraging of risk occurred, the price of uranium and uranium stocks had already been correcting. Of course, now with liquidity being the order of the day and indiscrimate selling in all sectors--forced or not--uranium is to many a symbol of the speculative excesses of an era that few could have imagined would end so terribly wrong.

Signs of a top in uranium were there: interest from the general public to a point where uranium was being discussed in mainstream media, the proliferation of hundreds--many of dubious nature--small explorers with uranium in their name competing for investors' money, the parabolic rise in the price of spot uranium. Still, it is easy to view matters with a retrospectoscope, to condemn with post-hoc analyses.

What matters is looking at the present and future. Uranum is still trying to carve a bottom and with its natural link to oil as an alternative fuel, may continue to struggle as demand destruction of oil continues in a period of recessionary and deflationary pressures. As the chart below shows, the price of uranium on the spot market is approaching where they were two years ago:

In the same period of time, Cameco's (NYSE:CCJ) stock price held up remarkably well until generalized selling forced its share price to sharply capitulate since July, essentially lopping off two-thirds of its value and forcing it to trade well below its NAV. And this the chart of the biggest "pure" uranium company in the world; one can just magine what the comparative charts of smaller junior explorations look like.

And yet, in this new era of pronounced fear, pessimism, or downright apathy to anything financial related, the small subset of bold investors look at the amount of blood on the streets, fight down their own misgivings, and logically reconsider the fundamentals of the uranium story. Nuclear reactors are still being built around the world and they will need fuel. Massive oil finds are a thing of the past and people need alternative energy sources, with the benefit that even environentalists are starting to acknowledge that nuclear may be viable part of a greener future. Add in the possibility that dozens--if not more--of the smaller uranium companies may fail in the coming months due to the credit crunch may provoke one to start thinking of the million dollar question: who will be left? Because yes, uranium is for real and yes, the few survivors left will eventually rise up again to new heights.