Pressure on Uranium Prices, Real or Not? (CCJ, URRE, DNN, NLR)

Because there is no real established exchange for buying and selling uranium, the workings of the uranium mining business is pretty much as mysterious to most of us as the nuclear reaction itself. One uranium miner, Cameco Corporation (NYSE:CCJ), trades substantial volumes at share prices well above $1/share. Most trade around a buck a share, at thin volumes, and have market caps well below $1 billion. That doesn’t mean there isn’t any action in uranium, just that it’s hard to spot. For example, Uranium Resources, Inc. (NASDAQ:URRE) recently received a decision in federal circuit court related to oversight of a planned underground injection control program that the company needs for in situ mining on a site within the Navajo Nation. The US Environmental Protection Agency has been judged to be the permitting agency for the project. Both the Navajo Nation and the state of New Mexico sought control of the program, and either would have been more to the company’s liking.

• While we have stated no real exchange exists, there is that old NYMEX-Ux Consulting partnership to provide financially settled on- and off-exchange traded uranium futures contracts.  Unfortunately, no data is available on that.  There is also the tracking via Ux Consulting that shows week-old data.

Another miner, Denison Mines Corp. (AMEX:DNN) has just agreed to sell a 19.9% stake in the company to Korea Electric Power Company, for about $62 million. The company will raise another $16 million from sales to “entities nominated by or affiliated with Denison’s chairman.” The company will issue some 73 million new shares at about $1.06/share.

Since hitting a price high of about $120/pound in 2007, uranium prices have tumbled to around $40/pound and with them the fortunes of uranium miners. Even Cameco, which trades at around $17/share is well down from a 52-week high of $44/share. It’s highest closing price in 2007 was above $55/share, more than two-thirds higher than today’s price. Uranium Resources hit its high of more than $13/share in November 2007 and trades today at about $0.55/share.

Because nuclear power generation still provides the single best hope for generating enough electricity to have a meaningful impact on carbon emissions reductions, it seems reasonable to expect that uranium prices will rise. The problem, of course, is the long lead times and enormous expense of building new nuclear plants, especially in the US. Outside the US, Britain and Korea are actively discussing plans for more nuclear generation, and China and India are both known to have significant interest in nuclear power.

It’s still too early to predict a resurgence in uranium mining stocks. But if energy prices rise or if there is more of an olive branch from the administration, then it’s just a matter of time.

The Market Vectors Nuclear Energy ETF (NYSE: NLR) ETF is also still rather suppressed.  At $18.50, its 52-week trading range is $13.75 to $36.42.

Paul Ausick
April 21, 2009