Gold Editor: Positioning for the Next Wave

Wednesday, April 29, 2009 12:49 AM

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).

UUU-TSX daily chart

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).

PDN-TSX daily chart

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.

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