Uranium: When Is Too Much Really Too Much?

Stock Tickers: USU, CCJ, EMU, URZ, USEG, TXU, URRE, URME

The recent performance of Uranium stocks has just been too powerful to overlook, even if the mere mention of it is probably a jinx.  Spot prices of Uranium have gone through the roof and it sort of has the earmarks of a bubble, or at least like California real estate prices going up and up because of voodoo financing.  Last week spot Uranium prices reached $113.00 per pound to what looks like is the highest level on record, it looks like prices may be lower now but this isn’t exactly a fluid market.  Not bad considering these prices were under $10.00 in 2002. 

I ran an article at the end of 2006 titled “Uranium Investors Get One More Safety Net for 2007” after Merrill Lynch ran a report that put Uranium prices up 78% for 2008.  The week before this report in December, Uranium prices were $68.00 per pound; and that was up from $63.00 in November, and up from $45.00 last summer.  This report has turned out to be one of the most underestimated calls imaginable: it was only looking for $75.00 on average for 2007 and $80.00 average in 2008.  There was even the mention of RBC Dominion saying Uranium could reach $100.00 per pound in 2007 before falling back to $75.00 in 2009.

What has changed?  Well, for starters the slide we saw in oil prices ended and now there is a prevailing thought that even if Iraq turned into a peaceful area and even if Iran and our buddy Chavez decided to love America that $50.00 may be too low for a floor.  That may be a comment appropriate for Nirvana, but this is a prevailing thought out there. TXU (TXU-NYSE) has scrapped its dirty coal plants in favor of nukes, and all of these use enriched uranium.  I won’t bother noting that both India and China are building more and more nuclear plants.  And now the spot market for Uranium is through the roof.  Hedge funds and speculators are also said to be responsible, and it is hard to not to notice that Nuclear Energy is the pure-play hedge against global warming.

Maybe the mere mention of this marks a top.  Maybe not.  When I wrote the article in December it made sense, now it is just guesswork.  This looks and feels like something that has just gone parabolic and may have gone out of control, but I won’t even pretend to be able to claim that my Uranium crystal ball is working.  So here is where some of these stocks are, and it is hard not to notice the performance:

USEC (USU-NYSE) today $18.90, DEC 11 $13.14
Cameco Corp (CCJ-NYSE) today $45.75, DEC 11 $38.80
Uranium Resources (URRE-NASDAQ) today $9.68, DEC 11 $5.96
Uranerz Energy Corporation (URZ-AMEX) today $6.38, DEC 11 $3.83 (and $4.30 on Jan 3, 2007 the day they made a speculative land acquisition we discussed at the time).
Uranium Energy Corp (URME-NASDAQ/OTC) today $6.88
U.S. Energy Corp. (USEG-NASDAQ) today $5.77; DEC 11 $5.58

Back on FEB 22, 2007 Jim Cramer did a feature on a Uranium pick.  He picked Energy Metals Corp. (EMU-NYSE): today it sits at $13.05 and it had closed at $11.88 that day.  Sure, it fell off its rocker and traded back to under $10 briefly, but all of these have seen some major pullbacks since December before they made some major runs. 

This really has all the earmarks of a “Uranium Girls Gone Wild” and many of these are already off of recent highs in the last two days.  But the moves have been in many cases so sharp that it is too impossible to ignore.  The good news is that there are at least put and call options in the more active names so that hedges can be made or gains can be locked in: USEC (USU) and Cameco (CCJ) have put and call options that trade.  CIBC World Markets just downgraded "CCJ" on Monday because of recent performance, but by and large the coverage on most of these stocks is thin at best and it looks like more of the Canadian brokerage firms are involved compared to the US brokerage firms.

This is only a partial list and it does not include most of the Canadian names tied to Uranium.  There are literally dozens of far more speculative micro-caps in the US and Canada, but keep in mind that they are the equivalent of wildcatters in the sector.  I know this is one area that will generate some controversy because I have already looked to see the bickering and hatred evident between the bulls and bears in chat rooms on many of these names.  StockHouse has a feature article that shows many of the speculative names in Canada if you wish to check it out.  You’ll have to decide on these and other Uranium-related names all on your own.

Jon C. Ogg
April 12, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.