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Patience could finally start to pay off for investors waiting for a revival of the uranium market that imploded in the aftermath of Japan’s nuclear disaster in 2011.
After the spot price hit a nine-year low of $28 (U.S.) this spring on oversupply concerns, dragging uranium equities down with it, many investors believe the commodity used to fuel nuclear power plants has finally hit bottom, as the demand picture brightens.
The price has risen about 30 per cent in recent weeks, to $36.50, driven by additional U.S. and European sanctions against Russia, a major uranium supplier, in its conflict with Ukraine. That threatens to put pressure on the global uranium supply, alongside a recent two-week strike at Cameco Corp.’s McArthur River and Key Lake operations in Saskatchewan.
Meantime, Japan is readying the restart of its nuclear program, while China continues its aggressive nuclear plant build-out as part of its strategy to cut pollution by developing cleaner energy sources.
“I think the worst is behind us in the uranium space,” said BMO Nesbitt Burns analyst Edward Sterck. While he doesn’t expect a big rally in uranium and is neutral on the overall sector right now, Mr. Sterck sees investors slowly returning to the space.
Some stocks to consider include Saskatoon-based Cameco, the largest publicly listed producer, and Uranium Participation Corp., which invests in the uranium concentrate known as U3O8.
Among 16 analysts that cover Cameco, six have a “buy” on it and 10 recommend it as a “hold,” according to S&P Capital IQ.
Dundee Capital Markets analyst David Talbot has a “hold” on Cameco, calling it “fairly valued.” He cites risks such as delays at its Cigar Lake project and a tax battle it’s having with Canada Revenue Agency related to its Switzerland-based subsidiary.
Mr. Talbot has “buy” on a handful of other uranium stocks such as Uranium Participation, for its pure exposure to the commodity, and developer Denison Mines Corp., a potential takeover target.
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