By James West
May 30, 2011
As shares in uranium exploration companies continued to shed value, Japan’s nuclear nightmare is still getting worse. News this weekend that the hope of ‘stabilizing’ the leakage of radiation by steam into the atmospohere and by water into the ocean is unlikely underscores just how bad the situation is. Within a 20 kilometre radius around the stricken plant, a Chernobyl-style dead zone is developing, with levels of 1.48 million becquerels a square meter measured within that area. (The average human naturally experiences 4400 becquerels from decaying potassium-40 within the body.) Dangerous levels of radiation have now been confirmed as far as 600 kilometres away from Fukushima.
Germany announced that it would discontinue all nuclear power generation by 2022. Switzerland, Italy, Thailand and Malaysia have all also announced the freezing of nuclear development until further notice. In the United Kingdom, anti-nuclear activists have seized on the decision of Germany to ratchet up pressure against the government there to abandon nuclear development plans.
The ongoing disaster is unlikely to provide the contrarian trade of the year, as many TSX market commentators have suggested. Shares in Cameco Corp. (TSX:CCO, NYSE:CCJ), which have lost 24% of their value since the earthquake struck Japan on March 11, continues to sink under immense selling pressure that has redoubled since Germany’s announcment.
Uranium One, (TSX:UUU) has also seen its value deteriorate by 37% since the March 11, and Canaccord Genuity, a Canadian investment bank, cut its price outlook for the company by $0.20 to 4.65. It closed Friday at $3.76.
So the question is, where and when is the entry level to capitalize on the share prices of these stocks that are beaten up thanks to Japan’s problems?
The answer to that question might be similar to that for the same questions applied to the U.S. residential real estate market: not anytime soon.
But that doesn’t necessarily mean the days of uranium shares are over completely. Advances in uranium fueled nuclear power generation will continue – especially in nations who are still committed to nuclear power, like China, that are prone to seismic calamity.
The disaster in Japan and the abandonment of nuclear power that has inspired in wealthy nations such as Germany means that there will a renewed vigor in the financing of new energy technologies. While wind and solar have limitations in their current configuarations, it is not inconceivable that there will be significant improvements in those energy technologies, as well as the advent of as-yet-undiscovered technologies.
Many Canadian junior listed mining companies previously focused on Uranium are now in negotiations to acquire precious metals projects, as bankers and entrepreneurs in the industry question the likelihood of a return to boom times for uranium explorers.
Unity Energy Corp. (TSX.V: CVE), formerly focused exclusively on the acquisition of uranium properties within the Athabasca Sands uranium district of Saskatchewan announced the proposed acquisition of the Dickens Lake Gold Property, located in the LaRonge Gold Belt of northern Saskatchewan. Thats a trend you’re likely to see grow – especially if the spread of contamination forces the evacuation of larger tracts of land in Japan.
There will continue to be a persistent chorus of uranium investors who also have an audience in the media proclaiming uranium to be the ‘contrarian trade of the decade’. But smart investors, before getting caught up in such rhetoric need to ask themselves, “How much does the person who is the source of the information have invested in uranium shares?” And no, the author is not short uranium stocks.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
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