Uranium Performance Review

With all the success stories surrounding uranium and uranium related equities recently, we thought it might be instructive to review some of your correspondent’s wins in a relative context and with a view to making go-forward determinations as far as where the returns will be had in the next leg.

A cursory analysis of the top 10 uranium related names that we have profiled over the course of roughly the last 21 months brings several interesting points to light in terms of fundamentals, promotion, sub-sectors and the performance of the metal itself – essentially, all of the ingredients driving the market.

Our top 10 performers (out of 14 total companies up to as recently as one month ago) since we jumped on the yellowcake bandwagon in the summer of 2005, including stories written all the way up to as recently as six months ago, have returned an average of 439% at their highs and 338% based on Friday’s closes.

This list includes a good mix of explorers, developers and a producer which makes the study that much more interesting.

It should be noted that in June of 2005, the spot price for yellowcake was $29/lb. At today’s price of $91/lb the metal itself has more than tripled, making it easy to understand the root cause of the mania. In reality, with the actual lack of fundamental progress in most uranium plays the metal itself would have been the safest bet over the last few years, but looking ahead there will clearly be more leverage in the equities (if they are purchased at the appropriate valuations), even if uranium can find its way into the high triple digits.

To summarize the numbers, successes were well distributed between plays at different stages of development with the edge probably going to some of our carefully selected explorers. Our more recent selections over the last six months, and not included in the list have been skewed towards value propositions higher up the food chain, as it becomes increasingly difficult to uncover value in the explorers. All four have done very well (doubles, triples), but do not make the top 10.

Despite the relatively even percentage gains shared amongst each segment and sub-sector over the last 21 months, however, we believe that this was mainly the result of the unprecedented run in the underlying metal and is beginning to change permanently.

Looking ahead, especially with the number of sub-par grass roots plays continuing to mushroom, we expect new money coming into the area, as well as existing dollar to rotate towards stories with economic pounds in the ground and access to appropriate infrastructure, those moving into production and companies operating in quality jurisdictions with real potential for permitting and realistic CAPEX’s.

That being said, exciting results through the drill bit will continue to yield major returns in this high and rising price environment, and should represent a more speculative portion of one’s investment allocation to the uranium arena, but only at cheap rather than bandwagon jumping prices.

Your correspondent has delivered numerous multi-baggers in this space to investors over the last 21 months, many of which have come in names that were not covered by anyone else at the time. But despite the fact that some of the best returns in the world have been had in uranium equities over the last few years, we think that resource sector investors would be remiss to get off the ride just yet.

Sticking with uranium is great idea, but investment dollars should probably be directed based on the above criteria in order to best position oneself from a risk/reward perspective.

source news : resourceinvestor.com