Owning uranium miners like Uranium Energy Corp. (AMEX:UEC) and Denison Mines Corp. (AMEX:DNN) hasn't been an easy thing to stomach in 2011. After the March 11 disaster at the Fukushima nuclear power plant in Japan, these stocks fell completely out of favor, as fears about the end of the nuclear-power era swelled. Uranium Energy shares have lost about 33% of their value since the accident, while Denison Mines shares are lower by nearly 60%. Most of the other names in this group have taken similar hits for this timeframe as well.
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The plunging values of uranium stocks weren't based on mere perception either - uranium prices have been cut by a third since the accident. Uranium was priced at $67 per pound at the time of the Japanese earthquake and tsunami, but has since fallen to the current price of $52.50 per pound (and at one point in September was under $50). Assuming prices are truly reflective of supply and demand, that plunge in uranium prices paints a very scary picture of diminishing demand. (For related reading, see Top 10 Green Industries.)
Moreover, key players have re-painted that same grim picture. The uranium industry's iconic Cameco Corporation (NYSE:CCJ) stated in an early-November report that "the reduction in uranium demand will extend to the longer term as some of the reactors taken offline will be permanently shut down. In addition, other new reactors, under construction or planned, will likely be delayed, leading to a further reduction in demand."
It doesn't leave a lot to look forward to for investors in any of these companies. A funny thing happened on the verge of disaster though.
Uranium Hits Rock-Bottom in Hearts and Minds of Investors
Not that Warren Buffett is out shopping for uranium mining stocks (he might be, but we won't know until after the fact), but if he were a fan, they'd fit one of his key criteria - they'd be worth buying now because nobody else seems to want them. That often seems to be about the time things start getting better, if only because there are no more sellers left.
Of course, it doesn't hurt that those investors may not see what's really happening within the uranium market.
After Fukushima, what was supposed to happen was the gradual weaning off of nuclear power. While high-profile nuclear-users like Germany have stuck to their guns, most of the world has backed off on their plans to ax nuclear energy.
At the same time, the HEU agreement that was converting Russia's aging nuclear weapon material into nuclear power fuel is slated to end in 2013. That will reduce the annual supply of nuclear fuel by 18%.
Do the math here ... increasing demand (despite the anti-nuclear chatter), falling supply and an industry that's been left for dead despite the underlying fundamentals? Nuclear power's worst days may already be behind it.
The Bottom Line - Do As I Do, Not As I Say
Though the miners are getting very little love from investors, more than a few analysts are ramping up their uranium price forecasts. Rodman & Renshaw are looking for the material to reach $75 per pound again in 2012 and for a price of $80/pound by 2014. Dundee Capital Markets is expecting to see $65 to$75 per pound within the next couple of years. Merrill Lynch is also looking for measurable price increases for the foreseeable future. The higher the price goes, the more profitable mining it becomes. (For related reading, see Going Green With Exchange-Traded Funds.)
Simultaneously, not that one acquisition makes or breaks a trend, but it is interesting that Rio Tinto plc (NYSE:RIO) paid what was reported as an 80% premium to purchase Canadian uranium miner Hathor Exploration Ltd, a player that Cameco was gunning for as well. It doesn't exactly scream, "We're fearful of uranium's future."
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