Sunday, November 22, 2009

Uranium A Year Later

Welcome back! It's been a year since my last posting:

During the last year, survivors did indeed emerge from the purge that not only engulfed the microcosm of the uranium world, but also the macro stock markets in general. Those who had the fortitude to buy established producers like Camecoo (TSE:CCO), Paladin (TSE:PDN), Uranium One (TSE:UUU) among others have been richly rewarded. Then again, this would ring true with buying almost any stock after panic lows set in last fall.
More importantly, let's examine what is to come. An examination of Uranium Participation (TSE:U), my uranium proxy, shows a meandering path that shows essentially no change in the last year. The trading range, however, does seem to be narrowing in an almost symmetrical triangle formation that is tightening between $6.35 and $7.30 range. A break below or above that may give a clue to whether a reversal or continuation of the downward trend will be at play.

Fundamentally, there have been a few developments in the uranium world of 2009, the most notable being BHP Billiton's Olympic Dam incident that will require repairs until Q3 2010 and constricting uranium supply somewhat. Despite this, the spot price of uranium is still at a rather anemic $44US/lb.

Cameco's CEO Jerry Grandey, a fairly level-headed gentleman in my estimation, said that he sees the long-term equilibrium price for uranium at between $50 and $70 per pound, although he expects the spot market price to remain volatile in the short-term.

So what to do? Well, the speculative excesses seem to have drained away by time. I would argue that there has been no change to the positive bias of the uranium story. What's left is market timing, and the more conservative types would probably want see uranium have a breakout before jumping in.