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Uranium oxide. (Shamil Zhumatov/Reuters/Shamil Zhumatov/Reuters)
Uranium oxide. (Shamil Zhumatov/Reuters/Shamil Zhumatov/Reuters)

Eye on Equities

Uranium sector jolts back to life Add to ...

The uranium sector is showing some signs of powering back to life after largely being stuck in the doldrums for months in the aftermath of the nuclear crisis last year in Japan.

The Global X Uranium ETF , which holds more than 20 global uranium stocks including several Canadian names such as Cameco , Uranium One and Denison Mines , is up nearly 10 per cent today. Its competitor, the Market Vector Uranium and Nuclear Energy ETF , is up more than 5 per cent.

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Some of the gains can be attributed to a 15 per cent rally in Uranium One shares Monday as the company reported 2011 production that beat guidance and announced the purchase of a 13.9 per cent stake in Mantra Resources. That bolstered sentiment across the sector Monday, but with the U.S. market having been closed, U.S.-listed ETFs are seeing the lift today.

Some analysts also note comments from Chinese Prime Minister Wen Jiabao this week at the World Future Energy Summit in Abu Dhabi that further highlighted the country’s intention to go strong on renewables and nuclear power as it tries to limit the use of coal.

“Uranium names are hot right now and appear back in favour after UUU news and comments by the Chinese Prime Minister backing uranium,” said Rob Chang, analyst with Versant partners.

That outlook is further buoyed by the fact that some uranium projects were postponed or cancelled because of difficulties in getting financing after the tsunami-related nuclear crisis at Fukushima, Japan, limiting future supplies.

Still, many analysts note it could be a lengthy wait for uranium stocks to get fully re-energized after the Fukushima incident last March ignited worries about the possible demise of nuclear power.

“The uranium market has near-term uncertainty given the potential for excess inventories to be put onto the market from Germany and Japan as well as the extent to which existing orders may be cancelled or deferred,” cautioned UBS analyst Brian MacArthur in a research note. “Over the long-term, future growth is still expected to come from China, India, South Korea, Russia and Saudi, as all have recently reconfirmed their commitment to nuclear.”

Canaccord Genuity in a note today echoed that sentiment: “We advise caution as a similar rally off the index lows occurred in October 2011 only for November to see the majority of those gains given back. However, we remain confident of the sector’s future given the existing build out plans in China, the lack of alternatives in many states and growing signs of tension in the Middle Eastern oil markets.”

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Kivalliq Energy Corp. has announced a 92 per cent increase in the resource size of its Lac Cinquante deposit in Nunavut, which was already believed to be the highest grade uranium deposit outside of the Athabasca Basin, noted Versant Partners analyst Rob Chang. The new inferred estimate of 27.13 million pounds of uranium oxide at a grade of 0.69 per cent beat his expectations.

Upside: Mr. Chang raised his price target by 10 cents to $1.10 and maintained a “buy (speculative)” recommendation.

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Canaccord Genuity analyst Steven Butler downgraded Barrick Gold Corp. to a “hold” from “buy,” believing its shares are no longer particularly attractive against peers. Barrick trades at 0.90 times price-to-net asset value compared with 0.84 times for senior gold producing peers, despite a relatively flat production profile over the next few years, he notes. Mr. Butler also warns that inflationary pressures on capital and operating costs could diminish investment returns on certain projects.

Downside: Mr. Butler cut his price target to $57.50 (U.S.) from $61.50.

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CIBC World Markets Inc. analyst Andrew Potter has downgraded Connacher Oil & Gas Ltd. citing its 127 per cent rally since it received an unnamed, unsolicited takeover offer in early December. Commenting that the “remaining upside is not for the faint of heart,” Mr. Potter noted that Connacher is a high-risk investment given the uncertainty over the outcome and timing of any potential sale.

Downside: Mr. Potter lowered his rating to “sector performer-speculative” from “sector outperformer-speculative” but raised his price target by 10 cents to $1.20.

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Primero Mining Corp. reported weaker-than-expected production for 2011, largely because of lower grades, and less-than-anticipated guidance for 2012. Given the significant variation between the predicted and actual mined gold and silver grades, Primero is reviewing its resource and reserve estimation techniques with the help of a consultant. “Although P remains confident in the mineral potential of San Dimas, there remains a chance the new estimation technique(s) could result in lower reserves/resources (grade and/or tonnes),” notes UBS analyst Dan Rollins.

Downside: Mr. Rollins cut his price target to $4.50 from $5.25 (U.S.) but maintained a “buy” rating.

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Versant Partners analyst Neil Linsdell upgraded Le Chateau Inc. to “neutral” from “sell” after a 52 per cent plunge in shares over the past month. “Although the shares currently trade below our target price, we would hesitate to move to a buy recommendation before seeing if the company can stem the revenue decline or significant buildup in inventory that we have seen over the last couple of years,” he said.

Upside: Mr. Linsdell’s price target is $2.



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