Uranium sector showing signs of a rebound
Darcy Keith
RTGAM






Don't look now, but the uranium sector is actually showing some signs of life after going into a near free fall early this year with news of the Japanese nuclear crisis.

Uranium prices appear to have stabilized and equities that are linked to the commodity have risen about 10 per cent, on average, over the past three weeks.

Could it be that the dreadful sentiment that permeated the sector is finally starting to lift and a sustained recovery is at hand?

The analysts at Dundee Capital Markets tend to think so.

"We are starting to hear a buzz in the sector - many investors are starting to realize that many of these stocks are trading well below their net asset values," analyst David Talbot said in a research note today.

Despite the Fukushima reactor meltdown, he contends that longer-term fundamentals haven't changed for uranium, expecting that there'll be more demand than supply in just two to three years.

Germany's planned exit from the nuclear industry certainly spooked the market. But the announcement isn't nearly as important as many believe, he contends. "With 180 million pounds of worldwide uranium requirements, Germany represents only 5 per cent of demand today and would have been only 3 per cent by 2020."

In the meantime, 61 reactors in 16 countries remain under construction - and they will require a lot of uranium to keep them humming.

"Long term, (demand) might be down 5 to 10 per cent from where we expected to be by 2020 - but we still expect more demand than supply by then, particularly as low uranium prices potentially defer even more mining projects," he said.

He notes that sentiment has received a big boost in recent weeks from a number of events supportive of the industry, including Bannerman Resources Ltd. , a developer of uranium deposits, receiving a takeover offer from a Chinese mining company; the U.K. revealing plans for eight new reactors; and Russia, China and India reaffirming their support for nuclear power.

Upside: Mr. Talbot believes it will be developers, rather than producers, that are likely to rebound first.

His favourite picks: Hathor Exploration Ltd. , with a $5.60 target; Rockgate Capital Corp. , with a $4 target; UEX Corp. , with a $3 target; and Ur Energy Inc. , with a $3.25 target.