Positioning for the Next Wave

The uranium price has only just started to uptick, but Richard Reinhard points to the intermediate uranium producers which have been running for weeks. These stocks are often leading indicators of future prices. So if we’re at the beginning of a new uptrend in uranium, which companies should investors be following? Reinhard gives us some of his ideas – focusing on the juniors with large, high quality pounds in the ground.

Charts of the leading uranium producers suggest to us that the price of uranium is about to move higher, as they are often leading indicators of future prices. And so we are now getting positioned for the next wave of uranium stock rallies – focusing on the juniors with large, high quality pounds in the ground.

For ready evidence of what is happening in the sector, we first want to look at two charts – one of Uranium One (UUU-TSX), the other of Paladin Energy Ltd. (PDN-TSX).

Both producers have doubled under steady accumulation, over a 6-month period, with relatively low volatility.

This has happened during a time when the spot price of uranium was actually falling. (Most uranium sales in the world, about 80%, are done at the long term price of $70, which has held steady, so why people even bother with spot pricing is a mystery, but such is reality).

The spot price of uranium is now US$40.50, down 23% for the year and is even below the low of $44 set during the height of the panic in October 2008.

Significantly, both Paladin and Uranium One are low grade producers. Paladin operates bulk tonnage, open pit mines in Namibia and Malawi in southern Africa, and Uranium One operates In-Situ Leach (ISL) mines in Kazakhstan.

The high grade, underground producers – Cameco and Denison – have not seen any significant movement off the bottom of their stock charts. They have however, been able to raise significant equity during this time.

A couple of uranium companies on the next rung down – the advanced explorers and near term producers, have also started moving. Mega Uranium (MGA-TSX) has a diversified portfolio of compliant resources, and tripled in price from 60 cents to $1.80. UR Energy (URE-TSX), which is putting the Lost Creek uranium deposit in the state of Wyoming into production, has moved from 60 to 80 cents, despite pushing back its expected timeline for permitting.

At this point in the uranium cycle, we see the big upside leverage in the high quality junior uranium companies with cash and large deposits. These stocks have not yet moved. Our number one pick for this sector is Uracan Resources (URC-TSXv).

Uracan has more than 40 million compliant, inferred pounds of uranium in Quebec, Canada – the top mining jurisdiction in the world according to a conservative think tank, The Fraser Institute.

Each week Canadian brokerage firm Canaccord Capital issues a report on the junior mining sector, which compares the value of about 20 uranium companies. Uracan has the lowest valuation of roughly 40 cents per pound of resources, compared to a peer group average of $2.41 per pound (April 15, 2009).

With immediate upgrade potential to the company’s resources, and significant exploration upside with many new zones discovered, the prospect for one of the largest resources in the world is significant.

Uracan’s grade is 0.012% U3O8 – the same grade as Forsys Metals’ Valencia deposit, which is now being bought out for roughly $9.50 per pound.

So there is a huge valuation gap for investors to profit from – 40 cents to $9.50. Valencia also has many challenges – it’s in Africa, and water for any mill is expensive to get.

In 2007, uranium industry giant AREVA, out of France, purchased the Trekkopje deposit from Uramin Resources for $2.5 billion. It also had the same grade as Uracan and its 229 million pounds went for just over $10 per pound.

Uracan is currently trading at 20 cents per share and has cash of $2.5 million, enough to get them through the end of 2009.

Uracan’s share price was in steady decline since its peak at $1.65 in June 2007, until its recent 12 cent low at the height of tax-loss selling last December. Price quickly bounced to 36.5 cents in January and convincingly broke its 19-month downtrend – the first time in years. The recent price pullback formed a higher low and saucer-bottom at 17.5 cents, and is slowly working higher under technical accumulation. Price is now testing minor overhead resistance at 20.5 cents, with the Stochastics, RSI, MACD and OBV supportive of higher prices to come.

Fundamentally, I like the fact that Uracan’s uranium deposits are all right at surface. The deposits are low grade enough not to cause any environmental or health issues, and are so close to infrastructure – power, highway and ocean port – that they can be easily developed.

It’s these bulk tonnage lower grade deposits that, outside of Hathor (HAT-TSX), have gotten all the investor attention. Over $3 billion in buyouts of lower grade deposits, and the price action of PDN and UUU, tell me that a URC-style deposit is the best bet for investors to profit from during the coming uranium price renaissance.

(c) 1995-2009 Growth Stocks Weekly. ALL RIGHTS RESERVED.

DISCLAIMER
Growth Stocks Weekly is an independent electronic publication committed to providing our subscribers with factual information on selected publicly traded companies, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis.
Growth Stocks Weekly and its editors do not accept compensation from public companies featured in this publication.

All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.

The publisher and the employees, staff and consultants of Growth Stocks Weekly are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, Growth Stocks Weekly may own securities mentioned in this newsletter and may buy or sell securities without notice.

The profiles, critiques, and other editorial content of the Growth Stocks Weekly may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Growth Stocks Weekly.

We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm.

Readers can review all public filings by companies at the SEC's EDGAR page in the U.S. and SEDAR’s electronic filing of securities information as required by the securities regulatory agencies in Canada at www.sedar.com. The NASD has published information on how to invest carefully at its web site.