Analysts See a Bargain in Uranium Stocks After Sell-Off
The global uranium industry, crippled by the March 11 earthquake and Tsunami in Japan, is now, seven weeks later, beginning to come out of the shock.
The previously highly valued sector, which saw stock prices tumble due to the nuclear crisis, is now seeing investors who were earlier sitting on the sidelines, re-entering the market to look for bargains.
While the spot uranium price has fallen to $55.50/pound from $66.50/pound at the start of the year, the picture for equities has been far more grim.
In Australia, share prices for some of the largest uranium players have fallen up to 38 percent since the onset of the nuclear crisis. A number of analysts have told CNBC that the stocks are now cheap, and represent a good buy.
UBS Australia Equities’ Head of Resources Research Dr Glyn Lawcock says after such a sharp sell-down, most pure-play uranium miners’ undeveloped resources assume little or no value. He also thinks that prices are failing to reflect the high level of corporate activity in the market.
“If uranium’s fundamental outlook remains largely unaltered, then these equities offer at least 20-30 percent upside over the short-term,” Lawcock says.
Nuclear energy currently provides around 15 percent of the world’s power generation. With the global clean energy push, Lawcock says governments need nuclear power to meet already stretched climate and energy growth objectives and will start to reinvest in nuclear power.
“Much of the prevailing negative sentiment towards uranium will pass within months, as national governments act to alter the public perception of this industry by investing heavily to further secure such utilities.”
Bargain-hunting investors have been looking at Perth-based miner Paladin Energy, whose shares have fallen around 25 percent since the onset of the crisis. David Lennox, Resources Analyst at Fat Prophets, told CNBC that it’s a good time to be buying.
“The market overreacted to the disaster, and this has allowed a cheaper entry into a good uranium story,” Lennox says.
Paladin is one of the more established players with two mines in operation in Namibia and Malawi, as well as exploration projects in Australia, Canada and Niger.
MineLife’s Founding Director and Senior Resources Analyst Gavin Wendt agrees that Paladin is an attractive target. He says it is through this and other more advanced companies such as Extract Resources and Stonehenge Minerals, that investors should get their exposure to uranium.
Extract Resources shares have fallen sharply in the past week due to reports the Namibian Government will assign the majority of its exploration permits to a state-owned company. But Wendt points out that this shouldn’t affect Extract, which is planning a $1.48 billion dollar development of its Husab project in the country.
“The proposed changes…will apply only to future projects awaiting approval. However, the danger is that the rules might be changed in the future," Wendt says.
Never the less, Extract could also be a beneficiary of some takeover activity in the sector. It is 43 percent owned by Kalahari Minerals, which is currently a target of China’s Guandong Nuclear Power Group. Analysts think that Extract itself could be a target in the near future.
One note of caution though, if it is a quick dollar investors are looking for, Wendt thinks you could be waiting a while. He says while there are some uranium bargains available, stocks will remain at current prices for some time and are unlikely to recover within the next 12 months.